UPDATE: AT&T to acquire NextWave--and its WCS spectrum--for $600M

AT&T (NYSE:T) said it will acquire spectrum holding company NextWave Wireless, a major holder of WCS 2.3 GHz spectrum, in a deal valued at up to $600 million.

The deal would combine the nation's two largest WCS spectrum holders (AT&T is the largest and NextWave is the second largest). AT&T is hoping to use WCS spectrum in combination with its 700 MHz and AWS holdings for LTE service in the coming years.

The deal comes as wireless carriers and the CTIA continue to clamor for more spectrum for mobile broadband. 

Under the terms of the deal, AT&T will acquire all the equity of NextWave for approximately $25 million plus a contingent payment of up to approximately $25 million. AT&T will also, through a separate agreement with NextWave's debtholders, acquire or retire all of the company's $550 million in outstanding debt for a total of $600 million in cash. Despite its spectrum holdings, NextWave was struggling last year with its debt obligations and was working with creditors to restructure its debt. AT&T noted that the deal is subject to review by the FCC and the Department of Justice, and that it expects the deal to close by the end of the year.

AT&T has been working to deploy LTE in the WCS spectrum band in order to add extra capacity to its LTE network, which currently runs on its 700 MHz and AWS radio waves. Indeed, in May 2010, the FCC voted unanimously to approve an order that changes rules governing the 2.3 GHz WCS band. The FCC said the spectrum can be made available for mobile broadband use, and mandated that rules be put in place to avoid interference issues. However, AT&T and many others took issues with the new rules.

And in a separate action in June of this year, AT&T and Sirius XM made a joint proposal to the FCC that would open up a portion of the WCS band to LTE. The proposal would change the rules governing WCS spectrum while protecting Sirius XM from interference. The proposed changes would give AT&T the ability to deploy LTE covering roughly 40 percent of the country.

According to an analysis by Credit Suisse analyst Jonathan Chaplin, currently there is 30 MHz of WCS spectrum broken into two 5x5 MHz paired channels (the A and B Block) and two 5 MHz unpaired channels (the C and D Block). The C and D Blocks are next to the spectrum used by Sirius XM. Under the proposal from AT&T and Sirius XM, AT&T would not use the C and D Block spectrum for mobile service in exchange for more liberal rules on the A and B Block spectrum, thus allowing AT&T to deploy FDD-LTE service in that band. AT&T would essentially give Sirius XM a so-called guard band to block against interference.

AT&T currently owns 12 MHz on average of WCS across the country (other WCS spectrum holders include Comcast and Horizon Wi-Com). If the NextWave purchase is approved and the joint proposal with Sirius XM is also approved, analysts think AT&T will have around 20 MHz of WCS spectrum in many areas of the country, especially in the Midwest and West, but still an average of 12 MHz nationwide.

BTIG analyst Walter Piecyk said that by the time AT&T intends to use the spectrum for LTE, hopefully Qualcomm (NASDAQ:QCOM) and others will have enhanced supplemental downlink and carrier aggregation technology so that AT&T will be able to easily integrate WCS spectrum with its existing LTE spectrum holdings.

Shortly after the initial AT&T-Sirius XM filing was made, AT&T made another filing to the FCC in which it said it would take around four and a half years to repurpose WCS spectrum for LTE use. In that filing, AT&T wrote that adding the 2.3 GHz band to the LTE standard through the 3GPP could take 12 months to complete; equipment design could take six months; equipment testing could take another nine months; cell site design could take three months; and cell site construction could take 24 months to finish.

Now, AT&T says that if the NextWave deal is approved it can begin initial deployment of WCS spectrum for added LTE capacity in approximately three years.

Piecyk said that the timeline might be sped up because with more spectrum, AT&T can build and support a WCS ecosystem faster. TMF Associates analyst Tim Farrar suggested that perhaps AT&T was conservative in its initial timeline so that it can now present a faster timeline to the FCC--and give the commission more of an incentive to approve the NextWave deal and joint Sirius XM proposal. The timeline could also be a signal to Dish Network, which plans to use 2 GHz S-band spectrum for an LTE Advanced network, that AT&T has no intention of buying Dish's airwaves.

Meanwhile, AT&T continued to add to its 700 MHz spectrum holdings with announcements that it would purchase bunches of licenses from McBride Spectrum Partners, Farmers Telephone Company, Tellular and David L. Miller in separate transactions.

For more:
- see this release
- see these four separate FCC filings

Related Articles:
AT&T: It would take 4-5 years to get WCS spectrum online for LTE
AT&T proposes deploying LTE in WCS 2.3 GHz band
Analysts: Including acquisitions, AT&T thinks it has spectrum for next 5 years
FCC frees up 25 MHz of spectrum for mobile broadband
NextWave staggers toward bankruptcy despite spectrum holdings

Correction, Aug. 2, 2012: This article incorrectly stated the amount of AT&T's proposed acquisition of NextWave. It is $600 million, not $650 million.