"Customer demand for mobile services, including voice, data , and video, is continually increasing," said Forrest Miller, AT&T's group president of corporate strategy and development, in a statement. "Aloha's spectrum will enable AT&T to efficiently meet this growing demand and help our customers stay connected to their worlds."

The acquisition adds 12 MHz to AT&T's spectrum holdings, and essentially makes AT&T the largest owner of 700-MHz spectrum ahead of next year's auction. The licenses cover 196 million people in the 700-Mhz range, including people located in all of the top 10 markets and 72 of the top 100 markets.

Mobile Video a Possibility

While AT&T did not say what it intends to do with the spectrum, some reports speculated that AT&T might use it to deliver video over its cellular networks. Additionally, it could be used to deliver Internet connectivity via WiMax. "This allows them to provide more capacity to more customers," Christopher Larsen, a Credit Suisse analyst in New York, told Bloomberg. "This spectrum has very few practical limitations."

AT&T certainly has been looking into video delivery over cellphones. In February, the company announced a deal with Qualcomm subsidiary MediaFLO. The video service was to be based on MediaFLO features due to come out in the second half of this year, including a multicast video clip service, a datacasting application, and related audio services.

The auction on January 28, 2008, is expected to net some $15 billion in license fees, as telecom companies such as AT&T, Verizon, and Sprint Nextel compete with Google for rights to the 700-MHz spectrum. Part of the spectrum will be sold off under "open access" rules, which will require operators to allow third-party devices and applications to run over the airwaves.

Shift to Wireless World

AT&T spokesperson Michael Coe said the company isn't quite sure what it will do with the spectrum. Part of it will be available as soon as the deal is approved by regulators in 2008, the rest in 2009.

The move could have an impact on AT&T's exclusive contract to provide service for the iPhone, as it would allow AT&T to run a faster voice and data network . Future generations of the iPhone would probably support such a network.

In June, AT&T acquired Dobson Communications for $2.8 billion in a deal that expanded AT&T's reach into rural markets. The Dobson buy and the current Aloha spectrum purchase reflect a rapidly shifting transition from landlines to wireless telephony. AT&T lost 1.38 million landlines in 2006, while revenue from wireless advanced 67 percent in the second quarter from a year ago.