The largest U.S. mobile service provider
Verizon Communications
(
VZ
) has entered into a deal to swap its wireless airwaves with the
low-cost wireless service provider
Leap Wireless
(
LEAP
).
Verizon is moving quickly to acquire more spectrum licenses to
support its video content and other data services in its rapidly
growing smartphone market. The demand for
Apple Inc.
's (
AAPL
) iPhone 4 and 4S is also gaining traction.
We believe the purchase of new spectrum will boost Verizon's
capacity to offer services at a much-higher speed, thereby boosting
data revenues. The swap deal would enable Verzion to acquire 23 PCS
licenses and 13 Advanced Wireless Service (AWS) licenses across the
U.S. for $204 million.
The swap deal comes within a week of the announcement that
Verizon will buy wireless spectrum from a group of cable companies,
including
Comcast
(
CMCSA
),
Time Warner Cable
(
TWC
) and Bright House Networks. In this deal, Verizon will acquire 122
radio (or AWS) spectrum licenses covering 259 million Americans for
$3.6 billion.
This shows Verzion's keenness to acquire new spectrums to
strengthen its competitive position against its major rivals
Sprint Nextel Corp.
(
S
), which is a turnaround story, and
AT&T Inc.
(
T
), which is already battling with its proposed T-Mobile merger. The
purchase of excess airwaves might force AT&T to seal its
ambitious takeover of T-Mobile.
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
expenditures.
Coming to Leap Wireless, it will purchase 12 MHz of 700 MHz
A-block spectrum in Chicago from Verzion for $204 million. The swap
deal would boost its spectrum position in Chicago and support the
deployment of the Long Term Evolution (LTE) network technology.
Leap Wireless is on track to launch a trial run for its 4G LTE
network in Tucson, Arizona by this year-end and targets to expand
its coverage to two-thirds of the current footprint over the next
two to three years.
Additionally, Leap's majority-owned venture, Savary Island
Wireless would sell Advanced Wireless Service worth $172 million to
Verzion.
The swap deal is waiting approval from the Federal
Communications Commission.
We are maintaining our long-term Neutral recommendation on
Verizon. The stock retains the Zacks #3 Rank (Hold) for the short
term (1-3 months).
APPLE INC (
AAPL
): Free Stock Analysis Report
COMCAST CORP A (
CMCSA
): Free Stock Analysis Report
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis
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