AT&T 4G Acquisition Could Offset a Future Verizon iPhone

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 company’s 3G network instead of upgrading at great expense and little payback to iPhone users (though criticism of AT&T’s 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 it’s belated. At least, these are the two points AT&T’s shareholders are banking on. According to a report by The New York Times , AT&T’s 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&T’s 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&T’s 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 spectrum’s strength in urban areas as a boon to AT&T’s predominantly city-based iPhone subscriber base. “[Spectrum] provides a very strong signal inside buldings,” said Moffett. “And it’s extremely good at penetrating walls and windows.” That’s all well and good for AT&T’s smartphone subscribers using the network sometime next year, but it won’t be alleviating the complaints made by the company’s 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&T’s exclusive support of the iPhone coming to an end this year and a Verizon iPhone heavily rumored for 2011, AT&T’s $2 billion purchase of LTE technology seems like pour salt in the wounds of an already dissatisfied consumer base essential to the company’s future. AT&T’s shareholders shouldn’t jump to negative conclusions based on the purchase of Qualcomm’s spectrum. The acquisition should actually bolster shareholder confidence in AT&T’s 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 Verizon’s network that was compatible with that company’s existing CDMA standard 3G network, but both Apple and Verizon have consistently denied that phone’s existence. Verizon CEO Ivan Seidenberg indicated at a Goldman Sachcs conference last September though that his company’s 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 market’s push towards 4G adoption, it’s 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&T’s purchase of Qualcomm’s 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 they’ve 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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