(T) AT&T-Qualcomm Deal Hits Hurdle

AT&T Inc.’s (T) $1.93 billion pending acquisition of spectrum licenses from Qualcomm Inc. (QCOM) is facing regulatory hurdles.

According to the Federal Communications Commission (FCC), the buyout of Qualcomm’s wireless spectrumin the lower 700 MHz frequency band and the ambitious $39 billion proposed mega-merger of AT&T and T-Mobile USA hold the same regulatory concerns. Hence, the FCC has combined the investigation and review of both transactions, postponing the completion of the spectrum purchase to the first quarter of 2012 from the second half of the year.

The FCC said that the Qualcomm deal as well as theT-Mobile purchase would give additional spectrum rights to AT&T, boosting data services to customers. However, the Commission is concerned that AT&T could create a monopoly in terms of spectrum (airwaves that carry signals for phone and wireless-Internet data), especially in overlapping regions. The FCC will now review the transactions more minutely to ensure fair competition, innovation and investments in the industry.

The second-largest U.S. mobile services provider had announced plans to acquire Qualcomm’s spectrum in December and Deutsche Telekom unit  – T-Mobile USA in March. Several wireless providers such as Sprint Nextel Corp. (S), MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) are strongly opposing the proposed AT&T/T-Mobile deal.

With the announced takeover of T-Mobile, the probability of the completion of Qualcomm’s deal has lessened. We believe both deals are positive for AT&T. The acquisition of severallicenses from the transaction will boost the company’s network capacity and improve its competitive position. AT&T expects to enhance its Long-Term Evolution, a 4G technology, mobile broadband service through the acquired spectrum that will encounter intense competition over Apple Inc.’s (AAPL) iPhone.

We are currently maintaining our long-term Neutral rating on AT&T. For the short term (1-3 months), the stock retains a Zacks # 3 (Hold) Rank.

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