Verizon Wireless In $3.6B Spectrum Deal

Verizon Wireless is set to acquire a significant swath of wireless spectrum for $3.6bn, potentially reshaping the US telecommunications market at a time when surging smartphone use is putting new demands on the nation's wireless infrastructure.

The deal for the spectrum, which allows wireless companies to transmit telephone calls and data to mobile phones and tablets, is a coup for Verizon, already the largest wireless carrier in the US, and gives it valuable new capacity that it can use to increase the strength and breadth of its services.

The spectrum is owned by a joint venture of three cable companies, Comcast, Time Warner Cable and Bright House Networks, known as SpectrumCo.

The deal, which Verizon said had been under discussion for months, may also throw a spanner into AT&T's pending acquisition of T-Mobile USA from Deutsche Telekom, currently under regulatory review.

As part of the agreement, Verizon and the cable operators will cross-sell each other's products, forming powerful new alliances that will offer video, internet, landline and wireless services from a single provider. "This is much, much bigger than just a spectrum sale," said Craig Moffett, a Bernstein Research analyst. "It will completely reorder the competitive landscape." Verizon Wireless, a joint venture of Verizon Communications and Vodafone, said: "It is great spectrum for us ... continuous and nationwide."

The SpectrumCo licences have been largely unused at a time when demand for wireless offerings is increasing rapidly. Verizon in particular is scrambling for more capacity as more of its customers use data-hungry devices such as the iPhone, which the company began supporting this year. "This move suggests their needs are perhaps greater and more immediate than previously thought," said Jonathan Chaplin, a Credit Suisse analyst.

Some analysts thought AT&T and Deutsche might pass T-Mobile's spectrum to SpectrumCo as a way to smooth over antitrust concerns and allow their deal to proceed. But Verizon's proposed acquisition takes that option off the table. "It leaves T-Mobile on the outside looking in," said Mr Moffett.

Regulators will still scrutinise the deal, with the Federal Communications Commission having to approve the transfer of spectrum and the Department of Justice conducting an antitrust review.

The last big spectrum sale in the US was AT&T's $1.93bn purchase from Qualcomm, which regulators tentatively approved last month, setting a potential precedent for the Verizon deal. "It's difficult to figure out what regulators are going to object to," Mr Moffett said.

The deal also puts to rest speculation that cable operators such as Comcast might build their own wireless network, although Comcast and Time Warner Cable will have the option to offer their own branded wireless offerings using Verizon's network after four years. "With this deal, the cable industry tacitly acknowledges that they cannot do wireless on their own," said Miller Tabak analyst David Joyce.

Tuna Amobi, S&P Capital IQ analyst, said the sale represented a "fairly attractive price", noting that SpectrumCo acquired the licences at a 2006 FCC auction for $2.4bn.

Comcast will receive $2.3bn, Time Warner Cable will gain $1.1bn and Bright House will get $189m.

(Additional reporting by Paul Taylor in New York.)

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