Spectrum poker continued this morning as Verizon Wireless and T-Mobile USA announced a deal to exchange 1.7/2.1 GHz spectrum licenses covering 218 markets, with a catch.
The proposed deal calls for T-Mobile USA to pick up spectrum in 15 of the top 25 markets covering approximately 60 million potential customers and enhance its recently announced LTE build out plans. Those markets include Philadelphia; Washington, D.C.; Detroit; Minneapolis; Seattle; Cleveland and Columbus, Ohio; Milwaukee; Charlotte, Raleigh-Durham and Greensboro, N.C.; Memphis, Tenn.; and Rochester, N.Y.
Verizon Wireless will pick up licenses covering 22 million pops and an unannounced amount of cash.
In addition, the companies will swap some licenses in select markets that they said will create “more contiguous blocks of spectrum and re-align spectrum in adjacent markets.”
Now for the catch: The deal is contingent on Verizon Wireless closing a number of currently pending acquisition of AWS licenses from a handful of cable operators. Those deals include its $3.6 billion bid for licenses covering 259 million pops from Comcast, Time Warner Cable and Bright House Networks; a deal with Cox to purchase licenses covering 28 million pops for $315 million; and a spectrum swap with Leap Wireless.
“Since this agreement includes spectrum that will be purchased by Verizon Wireless in its transactions with SpectrumCo, Cox and Leap, this agreement is contingent on the closing of those transactions.
The Federal Communications Commission is currently looking at the proposed transactions, having last month asked the parties involved to provide additional details. The request came after Verizon Wireless said it would be willing to sell off its A- and B-Block 700 MHz spectrum licenses should it garner approval if its AWS license deals. The FCC is currently at day 134 of its 180-day review process. During the recent CTIA event, FCC Chairman Julius Genachowski openly questioned spectrum crunch claims by carriers, showing that he was looking for more than superficial reasoning to approve such deals.
For T-Mobile USA, the deal comes after AT&T dropped, or was denied its attempt to acquire the carrier for $39 billion, a deal that AT&T said was needed to garner access to T-Mobile USA’s spectrum holdings. AT&T was forced to fork over a cache of AWS licenses, and $3 billion in cash, following the collapse of that deal. T-Mobile USA announced earlier this year an extensive spectrum re-organization plan designed to allow the carrier to install LTE services, and has also announced various spectrum deals designed to strengthen its current position.
The proposed deal also seems to remove T-Mobile USA’s opposition to Verizon Wireless’ attempts to acquire the AWS spectrum, which the carrier had previously said would “unduly tip the scales in favor of the largest wireless carrier at a critical juncture in the mobile broadband industry.” A number of smaller operators and rural trade associations have come out in opposition to Verizon Wireless’ spectrum deals, citing the consolidation of spectrum assets in the hands of the nation’s largest wireless operator.
Analysts noted that the proposed Verizon Wireless/T-Mobile USA spectrum swap was yet another attempt by Verizon Wireless to “improve its position with regulators,” a claim Verizon Wireless has previously stated it was not trying to do.
“This is a proactive move by Verizon to improve its position with regulators that are reviewing the SpectrumCo acquisition by helping T-Mobile acquire needed spectrum and likely reducing its pro forma AWS holdings in cities where it would have the highest concentration in the band,” noted Wells Fargo Securities senior analyst Jennifer Fritzsche, in a report. “This is a positive transaction for both Verizon and T-Mobile, in our opinion, and should bolster the chances of the SpectrumCo transaction being approved.”
Opponents to the Verizon Wireless deal with the cable companies remain unconvinced.
“As the Alliance has maintained from the onset, the proposed transaction between Verizon and cable is about far more than spectrum,” noted Alliance for Broadband Competition. “The deal is a far-reaching non-compete agreement between two huge competitors. While it’s nice that Verizon will cede a small portion of its vast spectrum holdings to T-Mobile, that does nothing to mitigate the fact that Verizon and cable want to stop competing, stop investing, and stop innovating to the great detriment of consumers and the American economy. Our position remains the same: We urge the [Department of Justice] and FCC to continue their thorough examination of these agreements to ensure a competitive telecommunications industry.”
Bottom Line: Verizon Wireless’ latest move to secure its AWS spectrum deals should be commended, at least in showing that the carrier is willing to pull out all stops to get these deals approved. By bringing T-Mobile USA into its spectrum sphere of influence, Verizon Wireless removes one potential opponent and continues to show regulators that it’s willing to dole out some of its spectrum holdings in order to gain access to other assets.
The deal also plays well for T-Mobile USA in that it could gain access to much-needed spectrum to bolster its LTE plans. The deal could also lead to a closer relationship with Verizon Wireless down the road, including potential roaming agreements or even network sharing arrangements for LTE services.
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