Behind the scenes of the battle between telecom companies like Sprint (S), AT&T (T), and Verizon (VZ) lies an oft overlooked jockeying for position. This is the battle for the all important wireless spectrum, those frequencies at which telecom companies can broadcast their signals.
As the growing sophistication of smart phones has resulted in greater quantities of data being transferred at faster rates to more customers, the battle for wireless spectrum has taken center stage in the telecom sector.
Everything from AM radio to the newest iPhone has to use a piece of the wireless spectrum, and telecom companies are now scrambling to secure ever hertz they can.
Major Deals Driven by Wireless Spectrum Concerns
Last year's efforts by AT&T to buy competitor T-Mobile from German company Deustche Telekom (DTEGY) went through a series of motions over the course of 2011. The deal, in which AT&T would have paid $39 billion to acquire T-Mobile, would have resulted in the merger between the second and fourth largest wireless providers in the country and, predictably, caught the ire of the Justice Department. AT&T went through a variety of legal acrobatics, but it ultimately couldn't end the anti-trust concerns. The failure to complete the sale was disappointing to all involved, with T-Mobile unsure how it would continue to remain competitive. At the core of the deal, though, was the issue of wireless spectrum.
“I have taken the position that the AT&T merger with T-Mobile was kind of like gravity,” said Verizon CEO Lowell MacAdam. “It had to occur, because you had a company with a T-Mobile that had the spectrum but didn’t have the capital to build it out. AT&T needed the spectrum, they didn’t have it in order to take care of their customers, and so that match had to occur.”
T-Mobile, though, fired back recently when it asked the FCC to reject Verizon's $3.9 billion bid to purchase wireless spectrum from several cable companies, including Comcast (CMCSA) and Time Warner (TWC). T-Mobile stated that the deal would result in “excessive concentration of mobile service spectrum holdings that is contrary to the public interest. ... This opportunistic accumulation of the last available spectrum is simply an attempt by Verizon Wireless to stockpile this essential resource to keep it out of its competitors’ hands and to cement an overwhelming competitive advantage.”
Apple (AAPL) Dictating Need for Telecom Companies
At the core of the valuation of wireless spectrum is the need to keep up with cell phone technology. The popularity of mobile devices like the iPhone have put far greater demand on the existing wireless spectrum available to wireless companies. AT&T, in particular, has found itself feeling the squeeze, without the wireless spectrum to keep up. The iPhone has proven to be a key factor in the wireless business, with Sprint going billions into debt in order to be able to purchase a chance to carry the product and T-Mobile recently complaining that it lost customers by failing to offer the device during the iPhone 4S launch.
New Auction of Wireless Spectrum Comes Just in Time
The payroll tax bill passed by Congress on February 17 included the decision to auction of billions of dollars in new wireless spectrum, easing the pressure on the entire sector some. With a whole new range of spectrum being made available, wireless companies like AT&T may finally have a way to address the lack of space that has been damaging the company's ability to compete with the other major players.
“Today’s action to make repurposed broadcast spectrum available for wireless broadband service is vital to ensuring America’s wireless industry remains the world’s leader in the deployment of 4G services,” said Steve Largent, the president of CTIA, a wireless industry trade organization about the deal on February 17.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer