Nextwave Wireless LLC (WAVE): A Small Victory In The Battle For Wireless Spectrum

Long-Term Prospects and Likely Outcome

With this NextWave purchase and an unrelated acquisition of additional “WCS” spectrum space, AT&T is making a concerted effort to expand its spectrum holdings and position itself for further growth. In recent years, it has become clear that the amount of available spectrum space is declining at a rapid rate. Although the FCC has taken steps to increase the number of available wavelengths, the physical limitations of the wireless industry are becoming apparent. As such, companies like AT&T and Verizon Communications Inc. (NYSE:VZ) find themselves scrambling to acquire unused parts of the spectrum.

Verizon has a stockpile of over $3 billion waiting to be used for an acquisition.  Verizon announced in January that it plans to buy Atlantic tele-Network Inc’s Alltel wireless business for $780 million.  Then days later, AT&T agreed to buy wireless airwaves from Verizon for $1.9 billion.
This is an ongoing process for which large concerns like AT&T and Verizon are well-equipped. In fact, these two behemoths’ smaller competitors have been squeezed out of the market by the sheer cost of competing with deep-pocketed national providers. In the coming years, it seems all but assured that the wireless industry will continue to consolidate around a few key players.

In fact, more mergers are almost certainly in the works. MetroPCS Communications Inc (NYSE:PCS) and Sprint Nextel Corporation (NYSE:S) continue to shop for smaller acquisition targets. MetroPCS has $2.5 billion in cash and Sprint has $8.2 billion.  In turn, these companies might become takeover fodder for their larger competitors. In 2012, 50 wireless spectrum deals went through and in 2013, MetroPCS and Sprint are likely to be fighting for the small acquisitions that are left.

Investors who wish to capitalize on the opportunities that this merger-friendly environment presents would do well to look for undervalued medium-cap companies within the space. With respect to the present deal, AT&T’s acquisition looks smart despite its small premium. Investors who wish to benefit from continued growth in the wireless and broadband industries will find both AT&T and NextWave attractive at these levels.

The article A Small Victory In The Battle For Wireless Spectrum originally appeared on Fool.com and is written by Mike Thiessen.

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