A Catalyst to the Cable Deal
Rajesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Verizon Wireless (NYSE: VZ), the largest US wireless provider, agreed to sell some of its wireless spectrum license to T-Mobile in exchange for some of the company’s airwaves. The spectrum swap will help lessen the tension between the two carriers over Verizon’s pending deal. In addition, it will also help Verizon to receive regulatory approval for its long awaited spectrum acquisition deal with cable companies’ joint venture SpectrumCo and regional carrier Leap Wireless (NASDAQ: LEAP).
The deal will help both the companies to offer faster wireless data services particularly as speed is being throttled due to spectrum scarcity. What is strange between all this is that T-Mobile, which a couple of weeks back had serious concerns regarding Verizon’s AWS spectrum acquisition deal, is now acting as a catalyst to the deal. The carrier changed its view about the same.
T-Mobile’s changing opinion
Earlier, T-mobile along with Sprint (NYSE: S) had voiced concerns regarding Verizon’s AWS spectrum acquisition and co-marketing deal with SpectrumCo, which is led by Comcast (NASDAQ: CMCSA). The carrier strongly opposed the deal saying that it would be a severe blow to healthy competition, and so asked the FCC to block the deal to prevent a monopolistic environment. The FCC is reviewing the deal which gives ‘excessive concentration’ of spectrum to the wireless giant. The deal is not only about spectrum, but the co-marketing agreement building a comfy cartel-like association between Verizon and the cable companies.
And now, T-Mobile believes ‘the deal is in the public interest’ and so no longer opposes it. The company has in fact entered into the airwaves swapping agreement with Verizon to ease the regulatory approval process of the Verizon-SpectrumCo deal by the FCC.
Let’s delve deeper into the airwave swapping proposal.
The deal in details
The airwaves exchange program is giving T-Mobile access to cover 60 million people. This swap arrangement will provide the T-Mobile with spectrum that encompasses 218 markets which include 15 of the top 25 markets in the nation. If the deal receives a green signal from the FCC, T-Mobile will start using this spectrum next year which will help it in the deployment of the LTE technology. The carrier has been in great need of the airwaves to ramp up its network, particularly since the unsuccessful deal with larger carrier AT&T (NYSE: T), which invited immense criticism and finally failed on antitrust issues.
Now, what is T-Mobile parting-off with to get the spectrum? In consideration the carrier is giving Verizon spectrum covering 22 million people and an undisclosed amount of cash.
Verizon’s gain
Acquiring spectrum from T-Mobile will certainly improve the company’s depth in certain important markets. In addition, the company can use the AWS spectrum, which is there in the T-Mobile deal, for installing its LTE network which is currently being built on the 700 MHz range. The company proposes to build and extend its LTE network to the AWS band to expand its capacity in the future.
Other than exchanging spectrum with T-Mobile for improving capacity, Verizon is looking for something beyond. This is a move by Verizon to get approval from the watchdogs on the cable company deal. Earlier in April, it had proposed the sale of its A and B block of spectrum in the 700 MHz band.
Rightly summed up by an analyst at Wells Fargo, ‘This is a proactive move by Verizon to improve its position with regulators’ to get clearance for its deals with the cable companies and Leap. Verizon is doing this to emphasize the fact that it does not have any mal-intention of gaining a spectrum monopoly; rather acquiring airwaves is the need of the carrier to serve robust data demand.
Also, the deal would remove its strongest opponent T-Mobile from the path of its deal with SpectrumCo. This will also assist in softening the criticism it received from fellow carriers and smooth the FCC approval process.
To sum up
The fate of this deal of Verizon with T-mobile will decide the outcome of a number of deals. The approval of this deal will improve the likelihood of other agreements being approved. It will surely be a go ahead sign for the company’s SpectrumCo deal. Apart from this, it would also throw some light on whether Dish Network would be allowed to dispose of some airwaves that it amassed to deploy its own network. Carriers are keeping a close watch on the FCC decision as it will give hints of what rules are being set for these wireless providers who need to increase their spectrum holdings.
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