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

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.
Written by Larry Dignan, Contributor

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.


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.


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