AT&T (T) And Verizon (VZ): Worst Nightmare, Spectrum Sale

As the land-line businesses at large telcos like AT&T (T) and Verizon (VZ) have been eroded by technology, especially cable-delivered VoIP, earnings have been kept strong by their cellular divisions. Cell subscriber growth has been robust and calling plans allow the companies to lock in customers for as much as two years.

While the two big phone companies wait and hope that their fiber-to-the-home programs pick up TV/broadband/voice bundled customers from cable companies, cellular earnings should be able to carry them another three or four years until market saturation slows the wireless business.

Those strategies may get flushed down the sewer if the FCC’s new plan to auction wireless spectrum makes it to the market. The US Treasury expects to get $15 billion from the process.

A number of companies, including Google (GOOG) and Intel (INTC) have made a persuasive argument that the death grip the the telcos have on wireless should be eased. If this happens, it would allow other large tech companies to enter the wireless business and offer communications networks of their own. While it is unlikely that there will be a Google cellular service, certainly a number of companies could put together a network of services and offer them on a new spectrum.

The move would also free handset firms like Nokia (NOK) and Motorola (MOT) to sell their handsets to a broader array of customers. The big wireless duopoly of AT&T and Verizon would no longer shove pricing and service features down their throats.

But, for the phone companies, the earnings bridge between land-line service and fiber to the home could be burned. Cell revenue means that much to them. And, their historically high share prices

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.