AT&T (NYSE:T) has agreed to purchase spectrum licenses from Qualcomm (Nasdaq:QCOM) for $1.925 billion. This will add capacity for AT&T's planned high-speed 4G mobile broadband network. (For background reading, see Dial Up Choice Telecom Stocks.)

IN PICTURES: 6 Simple Steps To $1 Million

What AT&T Bought
AT&T will get spectrum licenses now owned by Qualcomm in the lower 700 Mhz frequency band. This band has been used by Qualcomm for its subsidiary FLO TV, Inc., which allowed subscribers access to multiple-channel TV on cell phones. Qualcomm is expected to close the FLO TV business next year, as consumer interest was weak. Costs for FLO TV were $132 million last quarter.

Why AT&T Bought It
AT&T, which plans to build out its 4G mobile broadband next year, already has bandwidth spectrum close to the band it's buying from Qualcomm. The spectrum AT&T bought will cover 300 million people nationwide in the U.S., including five of the top 15 metropolitan areas. AT&T plans to deploy the spectrum as a supplemental downlink once the technology is in place. As part of the planned 4G network, the higher speeds should allow for faster video and website downloading on mobile phones.

AT&T's Problem
As the current exclusive carrier of the iPhone, AT&T has felt the sting of consumer unhappiness. Its mobile phone service was christened the worst compared to its competitors by Consumer Reports. AT&T's current 3G network is strained, and the company needs to boost its service as its strong rival, Verizon Communications (NYSE:VZ), is expected to offer the iPhone next year. With 4G networks from Verizon and other competitors like Sprint (NYSE:S) and Clearwire (Nasdaq:CLWR) either up or in the works, AT&T is already behind in the high-speed game. Recently, Sprint and Clearwire worked together to begin offering 4G service in Denver.

4G Slugfest
The 4G battle is part of the ongoing long-term showdown between AT&T and Verizon. The iPhone may simply be the early salvo in the next round. Verizon's 4G, which it calls Long Term Evolution, is already gaining hold, so AT&T can't afford any further lag or problems in its rollout. Assuming Verizon does offer the iPhone next year, potential activations should initially still be greater for AT&T, but AT&T's early lead may be fragile and not hold up, given customer unrest.

Verizon may be able to exploit another advantage, as many consumers who wanted to purchase iPhones would have preferred Verizon as their carrier in the first place, yet they had no choice. AT&T will have to fight hard to overcome its poor image as a mobile carrier.

The Move AT&T Had to Make
With two dominant domestic telecoms such as AT&T versus Verizon, there was no strategic alternative but for them to travel in lockstep with each other. AT&T is responding as best it can by expanding its potential strength in high-speed 4G with the Qualcomm deal. Now, successful implementation rests on how well these companies execute and convince consumers to hop on board. (For related reading about telecoms, see Dial Up Choice Telecom Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!