Why Verizon Wireless helped T-Mobile: To appease the FCC

Summary:Analysts said the Verizon deal with T-Mobile is all about the regulators and nudging the FCC to approve its $3.6 billion wireless spectrum buy.

Verizon announced a deal to swap Advanced Wireless Services spectrum with T-Mobile in a move that could bolster the latter's network and plans to roll out next-gen services. But Verizon isn't just being altruistic. The wireless giant needs the Federal Communications Commission to approve its own spectrum buying binge.

In a statement, Verizon Wireless and T-Mobile said they will swap spectrum in markets. The catch? The spectrum T-Mobile would get is dependent on Verizon's transactions with SpectrumCo (a cable consortium), Cox and Leap. If Verizon closes its $3.6 billion deal---announced late last year---T-Mobile gets spectrum. Verizon has criticized the FCC's review of its SpectrumCo deal.

Also: CNET: Verizon, T-Mobile swap spectrum for mutual LTE growth

T-Mobile's network coverage map.

T-Mobile

Given that the FCC wants a healthy T-Mobile since it scuttled the carrier's merger plans with AT&T in the name of competition, the Verizon proposal seems like a fair trade.

Terms of the deal weren't disclosed, but T-Mobile will give cash to Verizon amid the spectrum swap. Analysts said Verizon will swap AWS holdings in 218 markets in the U.S. T-Mobile will acquire 60 million POPs from Verizon in exchange for 22 million POPs and cash.

Analysts said the Verizon deal with T-Mobile is all about the regulators. Wells Fargo analyst Jennifer Fritzsche said:

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. 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.

Stifel Nicolaus analyst Christopher King said:

Our sense is the deal would address or largely address the FCC’s spectrum concentration concerns resulting from Verizon’s planned purchase of cable AWS (advanced wireless service) spectrum. T-Mobile has been one of the most vociferous critics of the Verizon-cable spectrum transfer, arguing that Verizon should be forced to divest significant chunks of spectrum to alleviate concerns about its post-transaction spectrum holdings.

For wireless services buyers, the Verizon-T-Mobile deal works out. Verizon gets its spectrum and helps out T-Mobile's network. T-Mobile has the potential to be disruptive on wireless pricing.

However, the Alliance for Broadband Competition wasn't as impressed.

As the Alliance has maintained from the onset, the proposed transaction between Verizon and Cable is about far more than spectrum. 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 DoJ and FCC to continue their thorough examination of these agreements to ensure a competitive telecommunications industry.

Background:

Verizon boosting network after major purchase from Comcast, Time Warner | AT&T lashes out at opponents following latest FCC report | CNET: Verizon’s $3.6 billion spectrum deal: Who wins and who loses?

Topics: Government : US, Government, Mobility, Verizon

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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