Verizon Swaps Spectrum With T-Mobile; Moves Closer To Getting FCC Approval

Verizon (NYSE:VZ) took a big step forward in getting its spectrum purchase deals with the cable companies approved through an AWS spectrum swap deal with T-Mobile announced on Monday. T-Mobile, along with Sprint (NYSE:S), has been a vocal critic of the Verizon-cable deals and Monday’s announcement should alleviate concerns that the country’s largest wireless carrier is trying to hoard spectrum. ^[1]

The FCC is also likely to take a more favorable view of the cable spectrum purchase in the aftermath of this deal. Verizon had announced the controversial $3.6 billion deal with SpectrumCo, a joint venture formed by Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWC) and Bright House Networks, to buy all its AWS spectrum late last year in December. Soon after, it signed a similar deal with Cox Networks to add to the spectrum pile it is building to bolster its LTE plans.

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AWS spectrum swap addresses many concerns

Sprint and T-Mobile have been opposing the cable spectrum deals on the grounds that the spectrum purchase will give Verizon way too much spectrum and skew the wireless dynamics completely in favor of the larger incumbents.

Verizon has been trying to dispel these concerns by moving to put some of its unused 700 MHz spectrum for sale. It even hired advisers Loop Capital and Stephens Inc to help it find potential bidders for the spectrum. T-Mobile has said that it is not interested in the 700 MHz spectrum that Verizon is offering. But the AWS spectrum swap deal with Verizon recently announced should alleviate T-Mobile’s concerns to a large extent. We have previously argued that Verizon may have to divest some of the AWS licenses it acquires from the cable companies to appease the regulators and it does seem that Verizon will transfer some of these licenses to T-mobile should the cable deals be approved. (see The Verizon-Cable Deal Will Go Through Despite FCC Delays)

As for the 700 MHz spectrum Verizon wants to sell, several other smaller carriers such as Leap and MetroPCS may want to get their hands on the resource. We know that at least one carrier, U.S. Cellular, has expressed its interest to the FCC for the spectrum that Verizon is willing to part with. (U.S. Cellular interested in buying Verizon’s 700 MHz spectrum, FierceWireless, May 11th, 2012)) Finding enough number of buyers for this spectrum will help Verizon further its case that it is not buying the spectrum simply to hoard it. Further, it will help Verizon prove to the FCC that the spectrum it sells will see many benefactors in the wireless industry and help increase competition in the industry.

At a time when demand for data services soaring as subscribers increasingly use mobile devices to remain connected and watch videos on the move, bringing spectrum back to the wireless industry will not only see the resource being put to use but also help improve speeds and prevent network clogging. Additional spectrum will also allow an increasing number of wireless service providers to lay out LTE networks, which not only provide higher 4G speeds but also serve to improve network efficiency. This will see smartphone users increasingly use data intensive applications on their smartphones, driving data ARPUs up for carriers.

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1. Is Verizon buying off T-Mobile with its new spectrum deal?, Digital Trends, June 25th, 2012 [↩]