The largest U.S. mobile service provider
Verizon Communications
(
VZ
) has agreed to buy wireless spectrum from a group of cable
companies, including
Comcast Corporation
(
CMCSA
),
Time Warner Cable
(
TWC
) and Bright House Networks.
Verizon will acquire 122 radio (or Advanced Wireless Service)
spectrum licenses covering 259 million Americans for $3.6 billion.
The company will buy $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. Nevertheless, the
acquisition is currently under review by the Hart-Scott Rodino Act.
It is also pending customary clearances from the Federal
Communications Commission. The deal is expected to close in the
middle of the next year.
If approved, Verizon and cable operators would be able to market
and sell each other's products and services, thereby solidifying
their competitive positions in the telecom sector. The companies
will now offer video, Internet, landline and wireless services
under one roof.
The transaction would reshape the overall telecommunication
industry when demand for smartphones is at its peak. Notably,
Verizon is moving quickly to acquire more spectrum licenses to
support its video and other data services. In addition, the demand
for
Apple Inc.
's (
AAPL
) iPhone 4 and 4S is 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 purchase
would double the current number of Verizon airwaves available for
Long Term Evolution, a 4G network.
In addition, the agreement would put pressure on its largest
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 airwaves might force AT&T to seal its ambitious
takeover of
T-Mobile.
Coming to cable companies, the deal would be a big win as they
might sell wireless services to their customers without investing
in their own networks. Hence, the cost of deploying their wireless
services would be lower. The three companies could use their own
brand names to sell Verizon's products after four years. Over the
past years, Comcast and Time Warner Cable failed to successfully
offer Sprint's wireless services and more recently
Clearwire Corporation
's (
CLWR
) services to customers at low costs.
Moreover, Verizon competes aggressively with cable TV companies
in the field of FiOS TV services. The deal between Verzion and
cable TV operators will lower this cut-throat competition. Further,
both would enjoy profitable offerings in certain areas, minimizing
the overlapping regions.
We are maintaining our long-term Neutral recommendation on
Verizon. The stock retains the Zacks #3 (Hold) Rank for the short
term (1-3 months).
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AAPL
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CMCSA
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S
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AT&T INC (
T
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