AT&T (NYSE:T) must be closely following Verizon’s spectrum purchase from the cable companies after it failed to acquire T-Mobile last year. For the FCC to green-light Verizon’s (NYSE:VZ) spectrum purchase, it seems increasingly likely that the carrier will have have to divest some of the AWS licenses it acquires to other wireless players in the market (like the recent T-Mobile spectrum swap deal).

Given the spectrum crunch that it is currently facing, AT&T will look to snap up some of these licenses in addition to the 700MHz spectrum that Verizon has put on sale in an attempt to appease the FCCs spectrum hoarding concerns.^[1] AT&T needs additional spectrum to augment its 3G network as well as to build out a nationwide LTE network to compete with Verizon (NYSE:VZ) which is presently well ahead in the LTE race.

See our complete analysis for AT&T

AT&T’s spectrum woes

Verizon, which started deploying LTE much before AT&T, has an LTE network that covers more than 200 million Americans in over 300 markets across the U.S. It plans to add another 100 markets to cover about 260 million U.S. customers by the year end. In comparison, AT&T’s LTE network covers about 75 million Americans presently and the carrier plans to double the coverage by the year end.

But, in order to bridge the gap and build a network robust enough to compete with Verizon, AT&T will need all the spectrum it can get its hands on. At the same time, the burgeoning data needs of 3G smartphone users is putting a lot of strain on its 3G network that needs additional spectrum for strengthening. As a result, AT&T has been throttling data usage of the top 5% of its unlimited data users in a bid to ease the load on its network and avoid widespread discontent with its data services.

The recent Congressional approval for wireless spectrum auctions has come as a welcome relief for the carrier. But it is subject to the FCC’s judgement on how much TV spectrum AT&T will be allowed to bid in order to avoid anti-competitive concerns. (see Wireless Industry Cheers as Spectrum Auctions Seem Likely) Moreover, the biggest showstopper would be the TV broadcasters’ reluctance to part with their spectrum, so AT&T cannot rely solely on the auctions either. Even if these two obstacles are somehow overcome, the auctions may not happen for another year or two.

Spectrum options for AT&T

Therefore, to meet its near-term spectrum needs, AT&T must be looking to get its hands on whatever spectrum is available in the market. It has already acquired some 700 MHz spectrum from Qualcomm and will be looking to add to that Verizon’s on-sale spectrum. AT&T may however not get all the spectrum it wants from Verizon since a consolidation of spectrum between the top two wireless players may not be looked at favorably by the FCC.

So it’s a good thing that AT&T is not putting all its eggs in one basket. The carrier is planning to transition the few remaining 2G users to 3G quickly and re-farm the 2G spectrum for 4G purposes. (see AT&T Looks to Address Spectrum Crunch by Re-Farming 2G Network) Further, it plans to use its long dormant 2.3 GHz WCS spectrum band for LTE and has requested the FCC’s permission to do so. The carrier can also look to partner with Dish and put its satellite spectrum to use for a terrestrial LTE service now that it seems likely that Dish will get the FCC approval for the same. (see AT&T Should Look To Partner Dish Rather Than Buy Spectrum)

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes: