AT&T Inc. (T) will acquire Nextwave Wireless Inc. (WAVE), which holds unused Wireless Communications Service (WCS) spectrums to be used for broadband deployment. The company will pay $600 million in cash; the greater part of which will go towards paying off Nextwave’s debt.
The purchase of spectrum will boost AT&T’s capacity and provide services at a much higher speed, thereby driving data revenues and boosting its competitive position against its major rival Verizon Communications Inc. (VZ). The growing popularity of Apple Inc.’s (AAPL) iPhone and Google Inc.’s (GOOG) Android-based smartphones, as well as online mobile video streaming, cloud computing and video conferencing services, is driving mobile data traffic by leaps and bounds.
Despite the significant investments made by AT&T in network upgrade and efficiency, data demand will likely outstrip supply in the short term, causing dropped connections, rising prices and lousy services.
The deal, pending approvals from various U.S. regulatory bodies, is expected to close by the end of the year. With the proposed spectrum purchase, AT&T also made a petition to transfer WCS spectrum from Comcast Corp. (CMCSA) and Horizon Wi-Com. Should the deal gain approval, the deployment of WCS spectrum will take at least three years.
AT&T faced a bitter experience in acquiring spectrums last year after it failed to acquire T-Mobile USA, a unit of Deutsche Telekom AG (DTEGY). The company’s hope of becoming the largest U.S. wireless carrier was shattered when the deal was unsuccessful.
We are currently maintaining our long-term Neutral recommendation on AT&T. The stock retains a Zacks #3 (Hold) Rank for the short term (1–3 months).
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