NEW YORK-In this day of mega-mergers and high-dollar corporate buyouts, the thought of exchanging assets of similar value seems like a throw-back to our bartering ancestors. Trading objects of similar value is now largely left to the realm of sports, where teams exchange players and kids exchange player cards.
But bartering made a comeback last week as four of the largest wireless operators swapped spectrum in two separate deals. The first deal involved Cingular Wireless, the new joint venture between SBC Communications Inc. and BellSouth Corp., exchanging spectrum with Voice-Stream Wireless Corp. The second involved AT&T Wireless Services Inc. swapping spectrum with Sprint PCS.
In a bold move to save money and expand coverage, Cingular and VoiceStream announced plans Nov. 2 for a spectrum swap of licenses covering 35 million people for each carrier.
Cingular would gain entry to the city of New York for the first time and add to its holdings in St. Louis and Detroit. VoiceStream will gain spectrum in all of California and Nevada.
VoiceStream is giving Cingular 10 megahertz each in the St. Louis and Detroit basic trading areas and in the New York major trading area. The New York MTA covers all of New York City and Long Island and parts of upstate New York, Connecticut, New Jersey and Pennsylvania.
“That leaves us with 30 megahertz of spectrum in New York. There’s no way we’re giving up New York,” said Kim Thompson, VoiceStream’s communications manager, reached in Dallas where the carrier launched commercial service Nov. 2.
Under terms of the agreement, VoiceStream will receive 10 megahertz of spectrum in the Los Angeles and San Francisco MTAs. VoiceStream already owns 10 megahertz of spectrum in San Francisco, Los Angeles, San Bernardino, Calif., and Reno, Nev., Thompson said.
After completion of the exchange, anticipated by mid-2001, Cingular will retain 20 megahertz of spectrum in San Francisco and Los Angeles, said Ken Keatley, a spokesman for the company.
“This deal enhances our footprint to include New York and provides additional spectrum in two key markets in the United States, without spending a penny,” said Stephen Carter, president and chief executive officer of Cingular, in a statement the two carriers released jointly.
The plan, structured as a tax-free exchange, is subject to approval by the Federal Communications Commission and the Department of Justice.
“This transaction allows VoiceStream to bring our `Get More’ value proposition to even more U.S. consumers while maintaining enough spectrum in our existing properties to meet the service needs of our customers in those areas,” noted John Stanton, chairman and chief executive officer of VoiceStream.
VoiceStream is a GSM carrier, while Cingular owns some networks operating on the GSM standard and others using TDMA.
“We believe VoiceStream did very well in this transaction, giving up what we consider to be excess, although valuable, capacity in St. Louis and Detroit and even in parts of New York, in return for much-needed, valuable spectrum in California and Nevada,” said wireless analyst Dave Rao of ING Barings L.L.C. “VoiceStream should now have enough spectrum to proceed with a legitimate business plan on the West Coast.”
ING Barings was not so rosy on Cingular’s part of the deal, noting, “Cingular has been seeking to gain access to the New York region and has now done so without laying out any cash. It did, however, pay the bill with some very valuable capacity, in our opinion. If Cingular were to become capacity constrained, it would have to split cells in order to expand service.”
Sprint PCS’ deal with AT&T Wireless involves the exchange of 10 megahertz blocks covering a licensed population of 18.5 million people. The results will give Sprint 20 megahertz of PCS spectrum in several unnamed markets in which it previously held only 10 megahertz. The company noted that the majority of its spectrum holdings will continue to consists of 30-megahertz blocks.
“The combination of this strengthened, single-frequency, national PCS license, and the significant, demonstrated spectral efficiencies of our CDMA technology provides us with ample spectrum in these markets and reduces our spending needs at the upcoming FCC auction,” said Charles Levine, chief operating officer of Sprint PCS.
AT&T said in a statement that the exchange will bolster its spectrum holdings in the markets without affecting its total licensed POPs, and better positions the company as it moves to a third-generation wireless network.
“Not only does this exchange complement our existing spectrum portfolio, it improves our position for offering customers a full array of third-generation multimedia services in the near future,” said John Zeglis, chairman and CEO of the AT&T Wireless Group.
Many analysts said the deals show that wireless companies are preparing themselves for the upcoming re-auctioning of 1.9 GHz spectrum scheduled for December.
“If the strategy of these deals is to shore up spectrum, it should provide leverage ahead of the upcoming auctions,” noted Adam Zawel, wireless analyst with The Yankee Group.
Cingular is expected to be an aggressive bidder in the auction as it seeks to fill out its national footprint and avoid the expense from roaming agreements associated with national plans.
VoiceStream’s recent purchase of Powertel Inc. gives the company plenty of coverage in Southeast markets, but it may look to add more capacity in regions where it has less than 30 megahertz of spectrum, including California.
Both AT&T and Sprint are not expected to be aggressive bidders in the 1.9 GHz auction because they both own 30 megahertz in most markets. ING Barings said Sprint might use the auctions to add to some of its 20 megahertz markets if the price is right, while AT&T will only bid if prices are reasonable or to protect itself in certain markets.
