The FCC approved AT&T's (NYSE:T) $1.93 billion purchase of Qualcomm's (NASDAQ:QCOM) Lower D and E Block 700 MHz MediaFLO spectrum licenses, handing AT&T a consolation prize after the collapse of the company's proposed $39 billion acquisition of T-Mobile USA.
AT&T had been pushing for regulatory approval of the Qualcomm spectrum purchase since the deal was first announced in December 2010. The FCC, in its order approving the deal, attached several conditions related to data roaming and interference, but did not require AT&T to make its LTE devices interoperable with other Lower 700 MHz spectrum bands. Several smaller carriers that hold licenses in the Lower A Block of the 700 MHz band wanted the FCC to require that within two years of the close of the deal, all of AT&T's 700 MHz LTE devices would have to work across all Lower 700 MHz spectrum, and not just the Band Class that AT&T currently is assigned.
The FCC approved the deal by a 3-1 vote and concluded that the public interest benefits outweighed any potential harms, and that the conditions it imposed would mitigate any harms. Both AT&T and Qualcomm praised the FCC for assenting to the deal.
Qualcomm's 700 MHz spectrum includes 12 MHz of Lower D and E Block spectrum (which covers more than 70 million POPs in New York, Boston, Philadelphia, Los Angeles and San Francisco) and 6 MHz of Lower D Block spectrum (which covers 230 million POPs across much of the rest of the country). AT&T estimates that it will cost $1 billion to $2 billion to integrate the Qualcomm spectrum into its network, according to a recent filing AT&T made with the FCC.
AT&T has said it plans to use carrier aggregation technology to meld together Qualcomm's unpaired 700 MHz spectrum with AT&T's existing AWS, 1900 MHz or 850 MHz spectrum holdings. AT&T has said doing so will allow it to double the downlink speeds of its LTE network. However, AT&T said in an FCC filing that it will need to deploy new chipsets and handsets and upgrade its base stations to take advantage of Qualcomm's spectrum, a process that means AT&T won't be able to offer the resulting faster speeds to customers until late 2014.
The FCC imposed a few minor conditions on the deal, and said that AT&T may not configure its network so that the supplemental downlink technology creates a barrier to roaming under the FCC's existing roaming rules. "Thus, AT&T may not incorporate the Qualcomm spectrum into its network in such a way as to preclude roaming by a provider that otherwise supports the same primary spectrum, e.g., AWS, Cellular, or PCS, but does not support the supplemental downlink technology," the FCC said. Additionally, AT&T may not use supplemental downlink technology in the Lower 700 MHz D and/or E blocks to block other carriers from the benefits of roaming onto AT&T's other spectrum holdings in the Lower 700 MHz band.
The FCC also said that AT&T needs to operate on its newly acquired Qualcomm spectrum under the same power limits and antenna height restrictions that apply to Lower 700 MHz A and B Block licensees, and the FCC also required AT&T to mitigate any potential interference concerns to other Lower A, B, and C Block licensees.
Despite these conditions, the FCC did not mandate Lower 700 MHz interoperability, a move likely to disappoint Vulcan Wireless, King Street Wireless (U.S. Cellular's bidding partner), C Spire Wireless and MetroPCS (NYSE:PCS), which lobbied hard for such a provision. "Even if we assume that the lack of Lower 700 MHz interoperability causes significant competitive harm, such harm already existed independent of the license transfer applications before us," the FCC said in its order. "We believe the better course would be to consider the numerous technical issues raised by the lack of interoperability through a rulemaking proceeding, and we plan to begin such a proceeding in the first quarter of next year."
Special Report: Carrier aggregation: How AT&T will use Qualcomm's MediaFLO spectrum to double LTE speeds
AT&T: Building out Qualcomm's 700 MHz will cost at least $1-2B
Will AT&T/Qualcomm lead to 700 MHz interoperability?
AWS spectrum: The capacity savior for LTE?
AT&T, Qualcomm demo carrier aggregation technology for the FCC
AT&T buys Qualcomm's FLO TV spectrum for $1.93B