FCC Will Consolidate Review of AT&T Spectrum Buy and Acquisition Deal

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The Federal Communications Commission has formally decided to review AT&T Inc.’s bid to buy spectrum from Qualcomm in the 700 megahertz band for $1.93 billion in a “consolidated manner” with the agency's ongoing review of another AT&T deal—the company's proposed $39 billion takeover of T-Mobile USA.

The reviews will not be officially consolidated, however.

The announcement came in the form of a letter late Aug. 8 from Wireless Telecommunications Bureau Chief Rick Kaplan, and serves as a minor setback to both companies, especially AT&T, which had been lobbying the agency to keep the reviews separate.

“As you are aware, the commission has been evaluating for some time the relationship between this proposed [Qualcomm] transaction and AT&T's proposed acquisition of T-Mobile USA,” Kaplan wrote in the letter to AT&T and Qualcomm. “The commission's ongoing review has confirmed that the proposed transactions raise a number of related issues, including, but not limited to, questions regarding AT&T's aggregation of spectrum throughout the nation, particularly in overlapping areas. As a result, we have concluded that the best way to determine whether either or both of the proposed transactions serve the public interest is to consider them in a coordinated manner at this time, without prejudice to independent treatment at a later date.”

As a matter of formal procedure, the FCC will now stop its informal 180-day “shot clock” for reviewing the AT&T-Qualcomm deal.

Consumer Advocates, AT&T Rivals Laud Decision.

Consumer advocates Public Knowledge and Free Press praised the commission for the move, as did Sprint Nextel Corp., which has the most to lose from the creation of a new No. 1 wireless carrier in AT&T.

“When AT&T announced its proposed $39 billion takeover of T-Mobile in March, the FCC was already reviewing AT&T's $1.9 billion offer for Qualcomm's 700 MHz spectrum, which AT&T had announced just three months earlier,” noted Vonya McCann, Sprint's senior vice president of government affairs. “Given the complexity of the regulatory review of both proposed transactions, it's a reasonable step for the FCC to coordinate the two reviews. The proposed transactions would produce game-changing effects on consumers and on competition in the wireless market.”

AT&T's critics, including Sprint, have argued that AT&T's proposed acquisition of Qualcomm spectrum should be examined in the context of the FCC's review of the AT&T-T-Mobile merger because just two companies—AT&T and Verizon Wireless—already control all of the cellular and 700 MHz band licenses—commonly referred to as “beachfront spectrum”—in most of the largest markets in the country as well as many rural markets.

The Qualcomm deal would include 12 MHz of lower “D”- and “E”-block spectrum covering 70 million people in five of the top 15 U.S. markets, and 6 MHz of lower D-block spectrum covering 230 million people in the remaining areas of the country.

In addition to acquiring spectrum from Qualcomm, AT&T has pending agreements to buy spectrum licenses from Whidbey Telephone Co., Knology of Kansas Inc., Redwood Wireless Corp., Windstream Lakesdale Inc., Windstream Iowa Communications, Maxima International LCC, D&E Investments Inc., and 700 MHz LLC—all in the 700 MHz band.

Of all the spectrum bands allocated for mobile broadband uses, the 700 MHz band is the most valuable to the wireless industry because of the electromagnetic properties of its frequencies. Frequencies in the band travel farther and penetrate walls and windows far more effectively than existing cellular networks do, allowing wireless carriers to provide mobile broadband services using far fewer cell sites.

Although T-Mobile has no 700 MHz band licenses, AT&T's critics fear the company would be acquiring a vast amount of spectrum as part of the merger. That, coupled with AT&T's acquisition of Qualcomm spectrum, would give the company a considerable edge in the wireless market, they contend.

Final Decision on Deals Could Come Concurrently.

Technically speaking, the FCC is not formally consolidating the two reviews, but rather reviewing each deal on parallel tracks.

Analysts at Stifel Nicolaus said the agency is not likely to decide on the AT&T/Qualcomm deal until it decides on the AT&T/T-Mobile merger, “or close to it.” The latter decision could come in the fourth quarter of this year, or extend into next year, Stifel said in a research note Aug. 9.

In April, six wireless carriers and trade groups and five public interest groups filed motions with the FCC to combine the reviews. In an e-mailed statement, AT&T expressed optimism for final approval, noting that the FCC, despite stopping its shot clock, rejected calls to officially consolidate the two deals.

“The Qualcomm transaction stands on its own merits,” AT&T said. “We are pleased that the commission … has expressly preserved the ability for the Qualcomm application to be resolved in advance of the T-Mobile application. We remain confident that the FCC will approve the license transfers as consistent with the public interest.”

Speaking to reporters at AT&T's Washington office in June, AT&T Senior Executive Vice President and General Counsel Wayne Watts rejected calls for the FCC to tie its review of the T-Mobile merger with its review of AT&T's planned acquisition of spectrum from Qualcomm.

“That's just a purchase of spectrum … [with] no competition issues,” he said.

By Paul Barbagallo

For the letter, visit http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-308959A1.pdf .