Weekly Telecom Notes: AT&T and Sprint

The past week was good for almost all stocks in the telecom industry with improving global cues buoying broader markets and with it the telecom stocks. Sprint (NYSE:S) rose the most, gaining almost 10% over the past week followed by Verizon (NYSE:VZ) and AT&T (NYSE:T) posting gains of almost 7% and 5% respectively. Here are some of the major developments from the past week for the sector.

AT&T

In a last-ditch attempt to save its floundering $39 billion T-Mobile deal, AT&T is considering a bigger sale of T-Mobile’s assets than had been initially anticipated in a bid to assuage the Department of Justice’s (DoJ)  before the court hearing in February. Quoting people familiar with the matter, Bloomberg reported that AT&T may be willing to divest as much as 40% of T-Mobile’s business, up from an earlier 25%.

Later in the week, reports surfaced that most of this asset sale could be made to Leap Wireless to address DoJ’s concerns of preserving the fourth largest competitor in the U.S. wireless market. Since AT&T’s primary goal from the deal was to gain enough spectrum to bolster its services offering to customers and lay out its next generation LTE network, it will be looking to divest a bigger proportion of T-Mobile’s customer base than spectrum. AT&T is reportedly also considering a joint venture with T-Mobile as another option. ^[1]

AT&T has also signed a deal with China Telecom (NYSE:CHA) to expand their existing relationship by connecting their network infrastructure in the U.S. and China. By expanding their services, the companies are hoping to better serve multinational companies that use their services in both regions. (see AT&T looking to expand its relationship with China Telecom)

See AT&T’s Pulling Out All the Stops to Get DoJ Approval and AT&T’s Leap Deal May Not Be Enough to Salvage T-Mobile merger

See our complete analysis for AT&T stock here

Sprint

Sprint signed a $16 billion deal, extending its existing network sharing agreement with Clearwire and putting to an end all speculation about Sprint distancing itself from Clearwire. ((Sprint offers Clearwire $1.6 billion “lifeline”, December 1st, 2011)) The deal helped resolve Clearwire’s dilemma about meeting its $237 million debt obligation due yesterday. The company confirmed that it paid up the amount yesterday. The deal eased investor concerns about an imminent Clearwire bankruptcy, sending its shares up almost 14% on the news. According to the agreement, Sprint will pay Clearwire $926 million for unlimited use of its existing WiMax network in 2012 and in 2013, after which payments will depend on data usage. It will also be making prepayments to the tune of $350 million for using its LTE network if Clearwire meets certain network targets by June 2013. Further, Sprint was willing to pay $347 million for additional stake in the company that would preserve its voting rights.

The deal will help Sprint decrease its costs of running the older WiMax network and focus mainly on rolling out its LTE network in time to compete with AT&T and Verizon. Further, it will allow the company to bolster its network strength in areas of heavy data usage by using Clearwire’s LTE network, whenever it is ready.

In other news, Sprint gave the go-ahead to Dish Network (NASDAQ:DISH) to build its own 4G LTE network using the spectrum which Dish had acquired from DBSD North America and Terrestar Networks. ^[2] Previously, Sprint had objected to Dish acquiring the spectrum as it was concerned that Dish’s network would interfere with its own operations. However, now Dish seems to have addressed Sprint’s concerns of interference.

See our complete analysis for Sprint stock here

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1. AT&T, T-Mobile Mull Plan B, WSJ, December 1st, 2011 [↩]
2. Sprint signs off on Dish’s proposed wireless venture, FierceWireless citing FCC filings as the source, November 30th, 2011 [↩]