Verizon Wireless has received the approval from the Federal
Communications Commission (FCC) to purchase $3.9 wireless spectrum
from a group of cable companies. Verizon Wireless is a joint
Verizon Communications Inc.
Vodafone Group Plc
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With all regulatory approvals now obtained, Verizon will buy 122
radio (or Advanced Wireless Service) spectrum licenses covering 259
million Americans for $3.6 billion from SpectrumCo, a group of
cable companies including
Time Warner Cable
) and Bright House Networks. The company will purchase $2.3 billion
wireless spectrum from the country's largest cable provider, $1.1
billion from Time Warner Cable and $0.2 billion from Bright House
Additionally, the company will acquire the 20 MHz Advanced Wireless
Service (AWS) licenses from Cox Communications covering 28 million
Americans in cities including Boston, New Orleans, Jacksonville,
Florida, Phoenix, San Diego and Las Vegas for $315 million.
The transaction has reformed the overall telecommunication industry
when demand for smartphones is at its peak. We believe the new
spectrum would boost Verizon's capacity to offer services at a
much-higher speed, thereby boosting data revenues. The purchase
would double the current number of Verizon airwaves available for
Long Term Evolution, a 4G network.
The FCC approved the transactions to resolve the spectrum crunch,
to a certain extent, which is considered a major issue in the
wireless industry. The carriers are finding it increasingly
difficult to manage mobile data traffic, which is growing by leaps
and bounds, with limited capacities. The sanction also follows the
approval from the Department of Justice (DOJ) last week with
certain conditions to control unfair competition and higher prices
Under the agreements, cable operators will market Verizon's
services and products and in some cases sell their own services
inside Verizon's stores. On the other hand, the U.S. wireless
leader will sell products and services of cable operators in areas
where it does not sell its own products. Verizon already offers
FiOS television and Internet services to its consumers, giving
strong competition to cable operators.
Additionally, Verizon Wireless has to deploy its services to at
least 30% of the population covered by the spectrum it is buying
within three years and would extend its coverage to 70% within
Further, Verizon has to proceed with its plans to swap radio
spectrum with the fifth largest wireless service provider T-Mobile
USA, a unit of
) and swap wireless airwaves with the low-cost wireless service
These new sets of spectrums will strengthen Verizon's competitive
position against its major rivals
Sprint Nextel Corp
), which is a turnaround story, and
), which is still in need of additional airwaves.
We believe the spectrum deals would be accretive to Verizon in the
long term. But it might put pressure on the balance sheet in the
short term by reducing cash balances and increasing capital
We are maintaining our long-term Neutral recommendation on Verizon.
Currently, the stock retains the Zacks #3 (Hold) Rank for the short
term (1-3 months).