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. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  7. Stock Analysis

    Analyzing Porter's Five Forces on Under Armour (UA)

    Learn about Under Armour and how it differentiates itself in the competitive athletic apparel industry in light of the Porter's Five Forces Model.
  8. Stock Analysis

    The Biggest Risks of Investing in Qualcomm Stock (QCOM, BRCM)

    Understand the long-term fundamental risks related to investing in Qualcomm stock, and how financial ratios also play into the investment consideration.
  9. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center