The largest U.S. mobile services provider
Verizon Communications
(
VZ
) plans to buy radio-spectrum licenses from the privately held
cable operator Cox Communications Inc. The deal is awaiting approv
al from the Federal Communications Commission.
Verizon is progressing fast to acquire more spectrum licenses in
order to support its video content and other data services in the
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 driving
data revenues. Verizon would acquire the 20 MHz Advanced Wireless
Service (AWS) licenses covering 28 million Americans in cities
including Boston, New Orleans, Jacksonville, Florida, Phoenix, San
Diego and Las Vegas for $315 million.
Verizon and Cox would be able to market and sell each other's
residential and commercial products and services, thereby
solidifying their respective competitive positions in the telecom
sector.
The transaction is similar to the agreement Verizon announced
earlier in the month. The company agreed to purchase wireless
spectrum from a group of cable companies, including
Comcast
(
CMCSA
),
Time Warner Cable
(
TWC
) and Bright House Networks. The deal would entail Verizon to
acquire 122 radio (or AWS) spectrum licenses covering 259 million
Americans for $3.6 billion.
This shows Verizon's keenness to acquire new spectrums to
strengthen its competitive position against
Sprint Nextel Corp.
(
S
), which is a turnaround story, and
AT&T Inc.
(
T
), which is already battling 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. Butit might pressure the balance sheet in the sh ort
term by reducing cash balances and increasing capital
expenditures.
Last month, Cox announced it would not sell its wireless service
effective April 2012. Hence, the transaction will benefit its
customers and enh ance its mobility, particularly in accessing
Verizon Wireless 4G LTE network and wireless devices. Cox could use
its own brand name to sell Verizon's products.
We are maintaining our long-term Neutral recommendation on
Verizon. The stock retains a Zacks #3 (Hold) Rank for the short
term (1-3 months).
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