The hunt for spectrum by wireless carriers continued last week as Verizon Wireless, the country’s largest operator, offered more than $2 billion for Price Communications Wireless, a wholly owned subsidiary of Price Communications.
While the purchase was not surprising-Price has been looking for a buyer for sometime-it comes on the heels of a flurry of activity by nationwide carriers to shore up their spectrum footprints ahead of the December re-auction of wireless licenses by the Federal Communications Commission.
“I think obviously this deal is a way for Verizon to extend its national footprint into lucrative markets in the Southeast,” said Larry Swasey, wireless analyst at Allied Business Intelligence. “I also think it’s a good way for them to acquire spectrum before the upcoming auctions. Any time you can get spectrum, you have to do it.”
The 15th largest U.S. cellular carrier and one of the last large pure-play carriers, Price’s wireless business covers 3.4 million potential customers in 16 markets throughout Georgia, Alabama, South Carolina and Florida. The purchase will add 500,000 customers to Verizon’s current customer base of 26.3 million subscribers.
“The price seems reasonable considering Verizon’s need to fill out its footprint in the Southeast and that Price has been on the block for some time,” added Peter Friedland, a wireless analyst with W.R. Hambrecht & Co.
In addition to filling out its Southeast footprint, Verizon said it expects the purchase to enhance its customer base from Atlanta south to Jacksonville, Fla., east to Augusta, Ga., and further southeast to the Atlantic coastline, including Savannah, Ga. Verizon also will acquire 41 Price-owned retail stores, a regional call center in Atlanta and network infrastructure.
“It was primarily a move to fill in our Southeast footprint,” said Brian Wood, spokesman for Verizon Wireless. “It was a great strategic purchase that will allow us to increase our presence in those markets.”
Before Verizon can integrate the new markets into its nationwide coverage plan, the company will have to rip out Price’s TDMA infrastructure and replace it with CDMA technology, which Verizon uses in its other markets. The undetermined cost of that process will boost the amount Verizon must pay to integrate Price’s network.
“This purchase was certainly not the easiest for Verizon considering it will have to replace all of the TDMA infrastructure,” Friedland added. “But they must have felt it was the best way to increase its presence in the Southeast markets.”
Wood noted the price for installing all new infrastructure was factored into Verizon’s business plan and the deal still made sense for the company and its stockholders.
“When factoring in the additional costs of converting the infrastructure, you can bet it was an important market for Verizon,” Swasey said.
The only snag in the deal is that it depends on Verizon Wireless completing its delayed initial public offering. Verizon said it will assume or redeem $550 million of Price’s net debt and pay $1.5 billion in Verizon Wireless stock, valued at the offering price of its unscheduled IPO. While Wood could not comment on the exact time frame of the anticipated public offering, the deal includes an out for either company if it is not closed by Sept. 30.
In addition to the Price Communications deal, Verizon announced earlier this month that it had purchased 20 PCS licenses covering more than 11 million pops from Alltel Corp. for an undisclosed sum. That announcement came just after spectrum-swapping deals were announced between VoiceStream Wireless and Cingular Wireless, and AT&T Wireless and Sprint PCS.
In those deals, VoiceStream and Cingular traded 10-megahertz licenses covering 35 million pops, with VoiceStream getting valuable spectrum in California and Cingular gaining a foothold in New York. The AT&T Wireless and Sprint swap involved 10-megahertz licenses in undisclosed markets covering 19 million pops.
“All these companies are getting all of their ducks in a line before the auctions to see where they stand,” said Swasey. “We will probably see more of these deals before the auction is set to begin.”
ING Barrings L.L.C. recently released a report on how the six major U.S. wireless carriers, Nextel Communications Inc., Cingular, Sprint PCS, VoiceStream Wireless Corp., Verizon and AT&T, might approach the upcoming spectrum auction.
Sprint PCS and AT&T may not be very aggressive in the auction, unless they could pick up spectrum at reasonable prices in some of their larger markets. Verizon was also not expected to bid aggressively unless it saw the opportunity to add licenses in major markets for the right price and not violate the spectrum cap, ING Barrings said.
VoiceStream and Cingular have the most to gain from the auction because both are looking to fill in holes in their nationwide coverage. VoiceStream also recently received $5 billion from Deutsche Telekom for the auction, and can compete as a designated entity through its relationship with Cook Inlet.
The report added that Nextel, a quasi-PCS carrier, recently received the right to acquire 900 MHz specialized mobile radio spectrum in major markets, and is expected to approach the auction in a similar manner to the other PCS carriers and pick up spectrum as economics allow.
