Verizon Wireless' master stroke and the spectrum crunch ahead

Verizon Wireless' master stroke and the spectrum crunch ahead

Summary: Verizon Wireless forced a lot of hands last week when it acquired wireless spectrum from cable companies.

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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:

Topics: Telcos, Hardware, Mobility, Networking, Verizon, Wi-Fi

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3 comments
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  • RE: Verizon Wireless' master stroke and the spectrum crunch ahead

    will Verizon Communications Inc got hacked and told no one at all not one of the people that have service with them
    ttx19
  • RE: Verizon Wireless' master stroke and the spectrum crunch ahead

    it seems to me you are only telling one side of the story

    look at the waste created by using so much spectrum for 3g and 2g while the most efficent 4g gets relativly little..

    4g connects more users with the same amount of spectrum than any of the previous technologies...

    while true they are hitting issues you are writing this article in a tone that is only sympathetic to big red charging us more for less and less.

    another thing they could do is move to voip so they dont need separate voice and data channels. the tech to do this has existed since 3g times but they chose not to then...and again with 4g.

    please dont claim to be news while pushing propaganda.
    wueth001
  • RE: Verizon Wireless' master stroke and the spectrum crunch ahead

    So how long does 2g have left to exist then? Correct me if I'm wrong assuming that all dumb phones, and most feature phones still need this 2G technology to be existant? This a slight concern to me being a senior with a basic senior value cellphone that surely only runs on the most pimitive technoloogy, as by the sounds of what you're saying is that spectrum is inevitably going to have to freed up, and the old tech would be the first to go. This would consequently force people like me to purchase a more expensive phone that's more sophisticated than what I have need for (?)
    Vyrexting