Rivals AT&T and Verizon Wireless are swapping assets after government regulators required they divest properties related to each companies’ respective acquisitions of Centennial Communications and Alltel.

AT&T will pay $2.35 billion in cash for Verizon assets covering 1.5 million subscribers in 18 states, primarily in rural areas . The transaction has not yet been approved by the government but is expected to close in the fourth quarter of this year.

Verizon was required to divest 2.1 million wireless subscribers in 22 states (story here), as well as spectrum and business management assets as a result of regulatory approvals related to its $28.1 billion purchase of Alltel earlier this year.

AT&T will have to convert the Verizon assets from CDMA to GSM. The undertaking is expected to take about a year and cost AT&T about $400 million.

In turn, Verizon will buy AT&T assets in five areas covering 120,000 subscribers for $240 million as a result of government approvals related to AT&T’s purchase of Centennial Communications in November of last year.