AT&T Inc (T.N) is buying the equity of NextWave Wireless Inc (WAVE.PK) for up to $50 million and taking on $550 million of the company's debt as it looks to expand its spectrum for high-speed wireless services.

AT&T, the No. 2 U.S. mobile service provider, has been on the prowl to expand its spectrum holdings since its $39 billion bid to buy No. 4 rival T-Mobile USA failed last year as it needs more capacity to compete with bigger rival Verizon Wireless.

The U.S. wireless service providers say they need additional spectrum to boost capacity to meet increasing consumer usage of data services such as video on smartphones and tablet computers.

UBS analyst John Hodulik said he expects AT&T to increase its spectrum holdings for high-speed services in top markets by 44 percent from the NextWave deal and other sources, giving it almost the same amount of spectrum as Verizon Wireless.

"While we believe a larger deal may still be in AT&T's future, these moves will buy the company time and increase its leverage while lowering its dependence on any single source of spectrum in the future," Hodulik said.

On top of the NextWave deal, Hodulik expects AT&T to buy spectrum licenses from Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L).

Verizon Wireless, which is currently seeking regulatory approval to buy about $3.9 billion worth of spectrum from cable providers, said that it would sell some other spectrum if the cable deal is approved.

The equity portion of the NextWave deal includes a roughly $25 million payment plus a contingent payment of up to approximately $25 million, AT&T said in a statement on Thursday.

AT&T said it expects the deal, which is subject to U.S. regulatory review, to close by the end of the year. The U.S. Federal Communications Commission would need to approve the spectrum license sale and NextWave's transfer of assets may be subject to Hart-Scott-Rodino antitrust review by the Federal Trade Commission or the Department of Justice.

Should AT&T gain all required regulatory approvals, it said it expects it would begin to use NextWave's spectrum licenses for the Wireless Communication Services (WCS) spectrum to offer high-speed services in about three years.

The WCS spectrum, which was first auctioned in 1997, has not been used for mobile Internet services because of technical rules aimed at avoiding interference with satellite radio services like those offered by Sirius XM Radio Inc (SIRI.O).

In order to use the spectrum, AT&T would need FCC approval for its plan to eliminate the interference concerns on top of the spectrum license transfer approval.

NextWave also has licenses in the Advanced Wireless Service (AWS) band. According to AT&T the deal will give it WCS spectrum covering markets with 212 million people and AWS spectrum covering about 6 million people.

AT&T did not immediately provide details on how much spectrum it will gain in each market

UBS's Hodulik said the deal brings AT&T 5 megahertz of spectrum. If AT&T also buys the Verizon Wireless spectrum, he said that both deals would increase its holdings to 109 megahertz in the top 100 markets from 94 megahertz.

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