Verizon Wireless’ move to acquire wireless spectrum licenses from cable companies for $3.6 billion is a brilliant one that squeezes AT&T as well as Sprint. Verizon’s purchase, however, illustrates that a wireless spectrum shortage is ahead.
On Friday, SpectrumCo, a venture between Comcast Corporation, Time Warner Cable, and Bright House Networks, sold 122 advanced wireless spectrum licenses. The cable companies make out nicely and agreed to sell Verizon Wireless service wholesale.
That reseller agreement nudges out Clearwire, which was selling wireless service through the cable companies.
Related: Verizon boosting network after major purchase from Comcast, Time Warner | AT&T lashes out at opponents following latest FCC report | Clearwire inks new network deal with Sprint | CNET: Verizon’s $3.6 billion spectrum deal: Who wins and who loses?
To truly understand the value of Verizon’s move consider the following:
- There’s not enough wireless spectrum and buying these licenses on the open market makes a lot of sense for Verizon. This capacity is expected to be used in 2015, but some analysts said Verizon may have to use it earlier.
- AT&T’s purchase of T-Mobile is all about the advanced wireless spectrum (AWS) licenses. By acquiring spectrum, Verizon squeezes AT&T, which doesn’t look like it will be able to acquire T-Mobile.
- Sprint had to save Clearwire. On the surface, Sprint’s move to pay Clearwire up to $1.6 billion over the next four years for 4G service—with a big chunk coming in 2012—is unrelated to Verizon’s move. However, Verizon’s resale agreement with cable companies means that Clearwire was pushed out. Clearwire was hoping to use the cable companies to diversify from Sprint. Now Sprint and Clearwire are basically the same company. Sprint got 4G service and Clearwire could pay its $237 million interest payment. Sprint will have to fund Clearwire going forward.
In other words, Verizon forced a lot of wireless hands last week.
Wells Fargo analyst Jennifer Fritzsche said:
We think the timing of this move is a wise one for Verizon as AWS spectrum is what T was going after with T-Mobile. If the AT&T-T-Mobile merger went through, AT&T had laid out plans to roll out LTE on T-Mobile’s AWS spectrum. For Verizon to act now during this period of regulatory flux for the AT&T-T-Mobile deal is a smart one as it strategically anticipated a move which AT&T possibly could have made had this merger not been approved.
Fritzsche noted that the Federal Communications Commission wouldn’t approve the Verizon spectrum purchase if it was just going to sit on the licenses. Fritzsche added that Verizon’s wireless spectrum acquisition from the cable companies indicates that the demand mobile data is already straining capacity.
Oppenheimer analyst Tim Horan called Verizon’s deal with cable companies ingenious. Horan said:
Spectrum is the most critical infrastructure bottleneck in the cloud services industry, and whoever controls the most will have the best quality/cost trade-off.
Collins Stewart analyst Greg Miller rounded up a few wireless spectrum deals. Here’s a look at the going rate:
