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Verizon Wireless splashes out on spectrum

The initial proposal was met with strong opposition

Verizon Wireless will acquire 122 AWS spectrum licences for $3.6bn, subject to approval

Verizon Wireless has announced that it will be acquiring Advanced Wireless Services (AWS) spectrum from a number of other US carriers in a bid to boost its LTE offering. The announcements as the US is facing a spectrum shortage, and Verizon’s rival AT&T is awaiting the outcome of its proposed merger with T-Mobile USA, which if blocked, will leave it needing more spectrum for its own operations.

Verizon intends to buy 122 AWS spectrum licences  from SpectrumCo, a joint venture between cable companies Comcast, Time Warner Cable and Bright House Networks. The firm will pay $3.6bn for the spectrum.

Comcast owns 63.6 per cent of SpectrumCo and will receive approximately $2.3bn from the sale as a result, whereas Time Warner Cable owns 31.2 per cent of the firm and will receive approximately $1.1bn.  Meanwhile, Bright House Networks owns 5.3 per cent, and will receive approximately $189m.

Verizon has also agreed terms for a spectrum swap deal with Leap Wireless. Under the terms of the agreement, Leap will acquire 12 MHz of 700 MHz A block spectrum from Verizon Wireless for $204m, and sell its excess PCS and AWS spectrum to Verizon in various markets across the US for $188m.

The companies anticipate that the transactions will close simultaneously, subject to regulatory approval.

In addition, Leap Wireless’ majority-owned venture, Savary Island Wireless, has entered into an agreement with Verizon Wireless to sell its AWS spectrum in various markets for $172m.

Verizon Wireless claims that by buying this AWS spectrum, it can bring even better 4G LTE products and services to its customers—and according to Sara Kaufman, an analyst at Ovum, the deal puts the carrier in a much stronger position to compete on LTE.

“Acquiring spectrum that it can use for LTE is a key objective for Verizon, and this deal gives it a lot of spectrum that it can use for its 4G services,” she said.

“AWS is not the preferred spectrum for LTE, but it can be used for it; T-Mobile has a great deal of AWS spectrum that AT&T is looking to gain for its LTE endeavours if that acquisition goes ahead, and I would imagine that this is entirely Verizon’s objective from this deal.”

The cable companies that co-own SpectrumCo were keen to sell spectrum, according to Kaufman, as they will be gaining large sums of cash for spectrum that they purchased some time ago with the intention of establishing wireless service. But the cable firms have not been successful in adding wireless to their portfolio of services and have not found the right formula to entice customers.

The cable companies also announced that they have entered into several agreements with Verizon, providing for the sale of various products and services.

Through these agreements, SpectrumCo’s co-owners and Verizon Wireless will become agents to sell one another’s products and, over time, the cable companies will have the option of selling Verizon Wireless’ service on a wholesale basis.

Additionally, the cable companies and Verizon Wireless have formed an innovation technology joint venture for the development of technology to better integrate wireline and wireless products and services.

“From my perspective, it seems as though that will favour Verizon in that the cable companies will very likely be selling more of Verizon’s services than the other way around,” commented Kaufman.

“For the cable companies, the spectrum that they hold is valuable, so this gives them a big influx of cash that they can use for more important, relevant objectives. At the same, they don’t close the door on being able to offer wireless, as Verizon has the brand and expertise to do that better, as is evidenced by their leading position in wireless,” she added.

The deal is subject to approval by the Federal Communications Commission (FCC), but Kaufman doesn’t anticipate any major resistance to the transaction.

“It’s certainly not a deal that is on the same scale as the T-Mobile-AT&T merger – and there’s been spectrum purchases that have happened in the past, so it’s not an unusual transaction for Verizon or spectrum holders, so I don’t anticipate the same kind of resistance to the T-Mobile acquisition,” she concluded.


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