AT&T to buy divested Verizon assets for $2.35B

It will convert former Alltel networks in rural parts of 18 states, with 1.5 million subscribers, to GSM-based technology

AT&T has agreed to pay US$2.35 billion for network assets in 18 U.S. states that Verizon Wireless has to divest as part of its acquisition of Alltel last year.

Under the cash deal, announced late Friday, AT&T will also acquire licenses in 79 service areas across that region, mostly in rural regions, and 1.5 million subscribers, the carrier said in a statement.

Verizon bought Alltel last June for about $28 billion, including assumption of debt, and in the process gained about 13 million subscribers to became the largest mobile operator in the U.S.

In the first quarter, following the close of the deal, Verizon reported it had 86.5 million subscribers. That made it the clear national leader by subscribers, with AT&T currently claiming 78.2 million wireless customers.

But as a condition of regulatory approval for the Alltel deal, the U.S. Department of Justice required Verizon to sell off assets in 22 states to preserve competition. AT&T agreed to buy a large part of those Alltel assets, as well as some assets from Verizon and the former Rural Cellular.

Verizon and Alltel made a good fit because they both had CDMA (Code Division Multiple Access) networks. In the areas it acquired, AT&T plans to replace that technology with its own GSM (Global System for Mobile Communications) infrastructure.

The carrier expects to make that change in no more than 12 months. AT&T anticipates offering users of the current network incentives to switch to its own system, according to company spokesman Michael Coe.

Along the way, current AT&T subscribers in those regions will get better service, the carrier said.

Verizon will run the remaining CDMA networks until AT&T completes its own networks, which in most cases will probably be equipped with 3G technology, Coe said.

The assets AT&T will acquire are in Alabama, Arizona, California, Colorado, Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, Tennessee, Utah, Virginia and Wyoming.

The deal will dilute AT&T's earnings by about $0.06 per share in the first year after it closes. The network conversion will require additional planned capital investment of more than $400 million in 2009 and 2010.

The transaction requires regulatory approval, and AT&T expects it to close in the fourth quarter of this year.

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