FCC puts hold on QCOM spectrum sale

Four months ago, carriers opposed to AT&T’s acquisition of T-Mobile and its spectrum asked the FCC to delay Qualcomm’s planned $1.9 billion sale of its 700 MHz (former UHF Channel 55) FLO spectrum to AT&T.

At the end of its 180-day review of the spectrum sale on Monday, the FCC sent a letter to Qualcomm saying that the sale of the spectrum will be considered simultaneously with the (much larger and slower) review of the very controversial (and larger) AT&T/T-Mobile acquisition.

As noted by eWeek, Qualcomm shot back that it thinks that the sale should be consummated without delay:

FCC should approve the pending AT&T-Qualcomm spectrum sale now because of the clear benefits to the public from the sale that stand on their own and are totally unrelated to the proposed AT&T-T-Mobile merger.

If the merger gets approved, the current betting is that it would be heavily constrained by conditions. I’m not optimistic about the spectrum sale surviving those conditions.

With the FCC’s ruling, the best case for Qualcomm is that the T-Mobile acquisition be denied. AT&T will badly need to additional Qualcomm spectrum and the antitrust issues largely go away.

The 2nd best case is that Verizon Wireless buys the spectrum if AT&T doesn’t. However, given the sickly nature of the rest of the US cellphone industry, Verizon will know it’s the only serious bidder left and (I suspect) would pay less than AT&T’s winning bid last December.

This case raises yet another objection to the proposed merger. Most of the objections have focused on the duoopoly of carriers that reduce choice for cellular subscribers. Here we have one (of many) example for the oligopsony side: what impact would having only two large scale buyers for phones, infrastructure, spectrum, on-deck applications and other key mobile technologies.

Will Qualcomm lose billions on T-Mobile acquisition?

The proposed AT&T acquisition of T-Mobile raises serious antitrust issues, which have yet to be investigated by the FCC. (Of course, if the deal is blocked, T-Mobile’s long-term viability will be called into question.)

One casualty of the merger controversy could be Qualcomm’s expected windfall unloading the spectrum from its unsuccessful MediaFlo venture.

The FT reported Wednesday:

[T]he Washington-based Rural Cellular Association, which represents nearly 100 rural and regional telecommunications network operators in the US, told the Federal Communications Commission that it should delay AT&T’s proposed acquisition of the Qualcomm spectrum.

“AT&T is on a spectrum buying binge, including both this Qualcomm acquisition and the recent announcement that it will acquire T-Mobile,” said Steven Berry, the association’s chief executive.

“These actions are further proof that AT&T is doing everything possible to strengthen its already dominant position in the wireless industry at the expense of competition.”

I don’t know how seriously the criticism will be taken, but their logic is understandable: helping AT&T get more spectrum was less anti-competitive when taken separately rather in combination with buying their largest GSM rival.

The other implication, unfortunately, is that if AT&T can’t buy the spectrum, who will? If Verizon knows it’s the only serious bidder, it will try to buy it for 40¢ or 50¢ on the dollar.

I’m guessing independent network operator LightSquared could use the network to build a nationwide LTE footprint, and Qualcomm spinoff Leap Wireless (aka Cricket) would certainly be happy to have more spectrum for its LTE supplier.

However, I’m guessing LightSquared can’t go to its VCs and say “you got an extra $2 billion lying around anywhere?”

So if not sold to AT&T or Verzion, I suspect Qualcomm will need to sit on its spectrum or find some other use: the sub-10% market share carriers have less cash than it does to buy its valuable spectrum. Its balance sheet at the end of FY 2010 (Sept 26 2010) showed $18 billion in cash and cash equivalents.

MediaFlo hurt by DTV delay

The House voted yesterday to delay the Digital TV transition by nearly 4 months. A majority of both houses have decided that America is not ready for a transition and thus a delay to June 12 is warranted.

However, delaying the end of analog transmissions (and thus the surrender of those broadcast bands) is also delaying the deployment of new services by the communications companies who paid for rights to those bands, especially in the various 700 MHz bands.

Although AT&T and Verizon own such spectrum, the company most ready to use its spectrum is Qualcomm with its Media Flo service licensed by AT&T and Verizon.

Qualcomm issued a statement Wednesday (although it’s not on its website), with the most complete summary in Telephony magazine:

We are disappointed with the passage of legislation extending the DTV transition date to June 12th. … Due to the investments we made, we were ready for a February 17th transition to provide our innovative FLO TV service nationwide immediately. We are encouraged that several Congressmen and Senators who supported the delay stated that this would be a one-time delay only. In light of the fact that the legislation, as amended and finally passed by Congress, allows TV stations to transition voluntarily between now and June 12th, we cannot determine the specific impact of the final bill's passage on our MediaFLO business.

Due to interference its service causes around (analog) UHF channel 55, Qualcomm will have to delay rollouts in Boston, Houston, Miami and San Francisco; its efforts to have these markets exempted fell on deaf ears.

It’s hard to predict the commercial impact of the delay. Qualcomm has been aggressively planning this rollout for five years, and its speed to market was intended to preempt rivals (at least in the US) from gaining a foothold in the (presumed) lucrative mobile multicast TV market.