While Verizon (NYSE: VZ ), Sprint Nextel (NYSE: S ), and T-Mobile USA have all
gotten their 4G networks off the ground, AT&T has been showing an impressive
level of restraint. Rather than launch a limited version of their planned 4G
network using the Long-Term Evolution (LTE) mobile standard, AT&T has stuck to
their plan of debuting the network in mid-2011. So why would delaying 4G be an
advantage? The approach gives the telecom stock two key things: Continued iPhone
Dominance : First, a mid-2011 launch allows AT&T to continue selling the Apple
(NASDAQ: AAPL ) iPhone 4—which is incompatible with the 4G lite LTE standard.
This allows AT&T to get as much use as possible out of the companys 3G network
instead of upgrading at great expense and little payback to iPhone users (though
criticism of AT&Ts 3G abounds). Better Than Verizon : Verizon launched a 4G LTE
network at the beginning of December, but only in 38 cities in the United
States. But the focus on limited LTE will delay a true network upgrade and allow
AT&T to presumably launch its more comprehensive network and make a splash, even
if its belated. At least, these are the two points AT&Ts shareholders are
banking on. According to a report by The New York Times , AT&Ts 4G LTE network
just got a significant boost. AT&T agreed to buy computer chip manufacturer
Qualcomm (NASDAQ: QCOM ) wireless spectrum for $1.93 billion on Monday.
Spectrum—the wireless frequency broadcast on the 700 megahertz band used by
Qualcomm to broadcast its MediaFLO television and audio content to portable TVs
and mobile phones—provides coverage to some 300 million people, with a large
concentration in city markets, according to AT&T and Qualcomm. The purchase will
bolster AT&Ts 4G network, and should ease any data flow burdens put on the
company by early 4G tests in markets like Baltimore and Dallas. The strength of
the network should help guard AT&Ts LTE network from coming under the same
criticism as its 3G network, which is notorious for dropping calls on iPhones.
Sanford C. Bernstein & Co. analyst Craig Moffett stressed spectrums strength in
urban areas as a boon to AT&Ts predominantly city-based iPhone subscriber base.
[Spectrum] provides a very strong signal inside buldings, said Moffett. And its
extremely good at penetrating walls and windows. Thats all well and good for
AT&Ts smartphone subscribers using the network sometime next year, but it wont
be alleviating the complaints made by the companys existing smartphone users,
exactly the group AT&T should be working hard to satisfy. The telecom was
savaged in Consumer Reports annual customer satisfaction survey; The 50,000
readers surveyed named AT&T in dead last in customer support, service, and
value, making it the worst rated mobile provider in the United States. With
AT&Ts exclusive support of the iPhone coming to an end this year and a Verizon
iPhone heavily rumored for 2011, AT&Ts $2 billion purchase of LTE technology
seems like pour salt in the wounds of an already dissatisfied consumer base
essential to the companys future. AT&Ts shareholders shouldnt jump to negative
conclusions based on the purchase of Qualcomms spectrum. The acquisition should
actually bolster shareholder confidence in AT&Ts ability to stay competitive
against Verizon once that company begins selling the iPhone. Rumors have run
rampant across 2010 that Apple was preparing an iPhone for Verizons network that
was compatible with that companys existing CDMA standard 3G network, but both
Apple and Verizon have consistently denied that phones existence. Verizon CEO
Ivan Seidenberg indicated at a Goldman Sachcs conference last September though
that his companys 4G network would be the catalyst for their support of the
iPhone. We would love to carry [the iPhone]… I think 4G will accelerate the
process, and any other decisions Apple makes would be fine with us, Seidenberg
told investors. Given the telecom markets push towards 4G adoption, its all too
likely that the fifth generation iPhone Apple is developing will be built for
compatibility with the LTE standard. With that in mind, AT&Ts purchase of
Qualcomms spectrum is hardly a slap in the face of its shareholders. It may in
fact be an acquisition that helps AT&T maintain their control of the American
iPhone market after theyve lost exclusivity. As of this writing, Anthony John
Agnello did not own a position in any of the stocks named here.
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