Will Qualcomm Lose Billions on T-Mobile Acquisition?

Mar.30.11 | About: Qualcomm Inc. (QCOM)

The proposed AT&T (NYSE:T) acquisition of T-Mobile raises serious antitrust issues, which have yet to be investigated by the FCC. (Of course, if the deal is blocked, T-Mobile’s long-term viability will be called into question.) One casualty of the merger controversy could be Qualcomm’s (NASDAQ:QCOM) expected windfall unloading the spectrum from its unsuccessful MediaFlo venture.

The FT reported Wednesday:

[T]he Washington-based Rural Cellular Association, which represents nearly 100 rural and regional telecommunications network operators in the U.S., told the Federal Communications Commission that it should delay AT&T’s proposed acquisition of the Qualcomm spectrum.

“AT&T is on a spectrum-buying binge, including both this Qualcomm acquisition and the recent announcement that it will acquire T-Mobile,” said Steven Berry, the association’s chief executive.

“These actions are further proof that AT&T is doing everything possible to strengthen its already dominant position in the wireless industry at the expense of competition.”

I don’t know how seriously the criticism will be taken, but the logic is understandable: Helping AT&T get more spectrum was less anti-competitive when taken separately, rather than in combination with buying its largest GSM rival.

The other implication, unfortunately, is that if AT&T can’t buy the spectrum, who will? If Verizon (NYSE:VZ) knows it’s the only serious bidder, it will try to buy it for 40¢ or 50¢ on the dollar. I’m guessing independent network operator LightSquared could use the network to build a nationwide LTE footprint, and Qualcomm spinoff Leap Wireless (LEAP), a.k.a. Cricket, would certainly be happy to have more spectrum for its LTE supplier. However, I’m guessing LightSquared can’t go to its VCs and say, “Uou got an extra $2 billion lying around anywhere?”

So, if not sold to AT&T or Verzion, I suspect Qualcomm will need to sit on its spectrum or find some other use: The sub-10% market share carriers have less cash than QCOM does to buy its valuable spectrum. Its balance sheet at the end of FY 2010 (Sept. 26, 2010) showed $18 billion in cash and cash equivalents.

Disclosures: None