In a move expected to bolster its spectrum position and coverage in the western United States, Verizon Wireless reported late last week that it had agreed to acquire Qwest Communications International Inc.’s wireless assets, including spectrum and network infrastructure for $418 million. Analysts noted the deal also could impact Verizon Wireless’ planned rollout of high-speed wireless data services as well as upcoming spectrum auctions.
The deal includes 10-megahertz PCS licenses in 62 markets scattered throughout 14 western states covering 30.8 million potential customers, as well as Qwest’s CDMA infrastructure, including cell sites and network switching centers. Verizon Wireless noted 53 of the licenses are in markets where it currently offers service, including Phoenix, Salt Lake City, Minneapolis, Denver and Seattle, and would be used to bolster capacity. However, nine of the markets are not currently part of the carrier’s network, including Rochester and St. Cloud, Minn.; Lincoln, Neb.; and Longview, Wash.
The deal continues Verizon Wireless’ aggressive spectrum acquisition history that includes its $750 million deal in late 2002 with Northcoast Communications L.L.C. to acquire 50 PCS licenses covering 47 million pops that did not include any infrastructure and its nearly $2 billion acquisition of Price Communications Corp.’s southeast network and half-million subscriber base in mid-2002. Analysts initially predicted Qwest’s network and spectrum could garner close to the $2 billion that Verizon Wireless paid in the Price deal, but a recent glut of spectrum options on the market obviously had an impact on the selling price.
“The Qwest deal looks to be a fair price,” said Jeffrey Hines, president of N. Moore Capital Ltd. “The per-pop price is similar to what Verizon paid for the Northcoast spectrum and includes the benefit of some network infrastructure, though some of that infrastructure will likely overlap Verizon’s current network.”
Hines added that he was surprised other carriers were not as aggressive in attempting to acquire Qwest’s operations, noting that Cingular Wireless L.L.C. lacks spectrum in a number of the markets, though the carrier’s pending buy of AT&T Wireless Services Inc. is expected to fill many of those holes. Cingular also would have had to convert Qwest’s CDMA network to GSM, adding to the complexity and cost of an acquisition.
Qwest said the deal completes its planned focus shift in addition to providing a much-needed cash infusion to a company that at one point was saddled with more than $20 billion in debt.
“The sale completes our shift from a network-centric wireless provider to a more customer-focused operation that is designed to deliver exceptional value and service to customers,” said Oren Shaffer, vice chairman and chief financial officer for Qwest. “The monetization of the network assets further improves our liquidity.”
The deal will not include Qwest’s nearly 1 million customers or its customer service and billing operations, which a company spokeswoman said the company will use to continue to support its agreement announced last year to transition its customers to Sprint PCS’ network as part of a mobile virtual network operator arrangement. That deal has allowed Qwest to offer nationwide wireless service instead of its previous regional offering. The transition originally was expected to be complete early this year, but Qwest’s Chief Executive Officer Richard Notebaert recently confessed that the transition to Sprint PCS’ network was taking longer than expected. Analysts noted that transition could be the reason the deal with Verizon Wireless is not scheduled to close until later this year or in early 2005.
With Verizon Wireless already offering service in most of the markets it is acquiring from Qwest, analysts noted the additional spectrum should help Verizon support the nearly 500,000 customers it has added per month during the last several quarters as well as speed up the rollout of its CDMA2000 1x EV-DO network, which the carrier said would cover approximately one-third of its network by the end of this year and most of the country’s major markets by the end of 2005.
“Extra spectrum is always a plus considering Verizon’s size and EV-DO plans,” Hines said.
The deal is also expected to impact upcoming spectrum auctions conducted by NextWave Telecom Inc. and the Federal Communications Commission, which many forecasted would draw substantial interest from Verizon Wireless. NextWave is scheduled to begin auctioning six PCS licenses this week, including 10 megahertz of spectrum in Denver and Portland, Ore., two markets included in the Qwest deal, while the FCC auctions scheduled for early next year also will include a number of 10-megahertz licenses in cities that were part of Qwest’s operations.
RBC Capital Markets telecommunications analyst Jonathan Atkin wrote in a research note that following the Verizon Wireless/Qwest announcement, Cingular is now likely to be the most aggressive bidder for licenses in Denver and Portland, Ore. He added that Verizon Wireless would probably save its money for an expected aggressive bidding contest for 10 megahertz of spectrum in New York with T-Mobile USA Inc., which is going to lose 10 megahertz of New York spectrum as part of the recently announced termination of its network-sharing arrangement with Cingular.
“Verizon Wireless can keep its powder dry for New York,” Atkin said, noting he expects the New York spectrum to fetch more than $1 billion, while the other markets likely will draw bids close to the minimum selling prices set by NextWave.
RBC added that Cingular should be a motivated bidder for NextWave spectrum in Sarasota and Tampa, Fla., along with Alltel Corp., while Sprint PCS could be looking for spectrum in Tampa.
