Verizon Buying Wireless Spectrum - Analyst Blog
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).