Will the FCC Approve Qualcomm’s Spectrum Sale to AT&T?

Updated: FLO TV, Qualcomm’s (s QCOM) mobile video network, is on its way into becoming a footnote in the mobile history. Today it said it will sell the 700 MHz spectrum used to deliver the service to AT&T, after previously announcing it would shut down the service in March 2011.The San Diego-based chip maker is selling the spectrum to AT&T for $1.925 billion. AT&T (s T) said that is going to use the spectrum to bolster its next generation wireless broadband efforts. This isn’t the first time AT&T has bought the 700 MHz spectrum, the key to its LTE (Long Term Evolution) strategy; in 2007 they spent $2.5 billion on spectrum owned by Aloha Partners.

As part of the deal with Qualcomm, AT&T gets about 12 MHz spectrum of Lower 700 MHz D and E block spectrum in New York, San Francisco, Boston, Los Angeles and Philadelphia, and 6 MHz of Lower 700 MHz D block spectrum in rest of the country. The total FLO TV footprint covered about 300 million people. The deal will need approval from the FCC and other regulators. (Read new comments below.) Qualcomm tried to find buyers for FLO, but it seems to have decided that selling spectrum was the best option.

“As part of its longer-term 4G network plans, AT&T intends to deploy this spectrum as supplemental downlink, using carrier aggregation technology,” AT&T said in a news release. It’s not clear when AT&T would start building networks based on this spectrum. The deal is likely to close in the second half of 2011, so this looks almost like a 2012 buildout — roughly the time AT&T will start rolling out its LTE network at scale.

The bottom line is that this is a good strategic move by AT&T.  Just as it needed to bolster the bandwidth to the base-stations, companies like AT&T need more spectrum to deliver the bandwidth over the air to mobile consumers. The Dallas-based phone company was recently rated as the worst mobile phone company by Consumer Reports.

Will the FCC Approve?

If  recent history is any indicator, FCC approval for the deal may not come easy. The FCC has become especially queasy about AT&T and Verizon’s (s vz) spectrum assets, noting in its Wireless Competition report that spectrum assets were becoming more concentrated. AT&T can slow down the deployment of that spectrum at a time when the market needs it the most. In a report, the Government Accountability Office (GAO) noted:

In particular, many stakeholders outside of the top national carriers who we spoke with noted that policies for making spectrum available for commercial use, as well as policies governing some essential elements of wireless networks, favor large national carriers, potentially jeopardizing the competitiveness of the wireless industry.

In addition, FCC was pretty clear about not allowing Harbinger, a hedge fund behind LightSquared network to sell some of its spectrum assets. In March 2010, Stacey Higginbotham reported:

The Harbinger network could help ensure competition among the major wireless carriers thanks to the conditions the FCC has placed on the spectrum that the private equity firm plans to use as part an agreement to let Harbinger take control of SkyTerra  — namely that SkyTerra has to be a wholesaler, and that traffic from the largest and second-largest wireless carriers in the U.S. cannot comprise more than 25 percent of the traffic over the SkyTerra/Harbinger network. This means AT&T and Verizon could not buy up huge chunks of the network or spectrum to keep others off of it.

That is a clear indication on the part of the FCC to take a hard look at spectrum sales to large carriers, especially those that include repurposing of spectrum.

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