Following weeks of speculation, Verizon Wireless inked an agreement late last week to acquire bankrupt NextWave Telecom Inc. and its remaining spectrum licenses for $3 billion.
The deal, which is subject to government approval as well as approval from NextWave’s bankruptcy court, will add considerable spectrum in a number of top markets to Verizon Wireless’ portfolio and is expected to better position the carrier as it battles Cingular Wireless L.L.C., which overtook Verizon Wireless as the nation’s largest carrier following its recent $41 billion acquisition of AT&T Wireless Services Inc.
Once the deal closes, which is scheduled for the middle of next year, Verizon Wireless will gain 1.9 GHz spectrum licenses covering 73 million potential customers in 23 markets. The licenses include 20 megahertz of spectrum in New York, Boston, Baltimore and Washington, D.C., as well as 10 megahertz of spectrum in 19 markets, including Denver, Detroit, Los Angeles, Philadelphia and Portland, Ore.
According to The RCR Wireless News Wireless Carrier Database, Verizon Wireless will also gain spectrum in a number of new markets, including Tulsa, Okla.; Corpus Christi, Texas; Daytona Beach and Ocala, Fla.; El Centro-Calexico, Calif.; Madison and Janesville-Beloit, Wis.; and Dover, Del.
“We will put this spectrum to work on our network to benefit customers, by having the long-term capacity in place when they need it to meet their growing demand for wireless voice and data services,” said Verizon Wireless President and Chief Executive Officer Denny Strigl.
Verizon Wireless, which is owned by Verizon Communications Inc. and Vodafone Group plc, added that it would fund the transaction through cash flow from operations and inter-company loans.
Analysts noted the $2.85 per megahertz per pop Verizon Wireless was paying for the licenses was slightly more than the $1.70 per megahertz per pop Cingular paid NextWave earlier this year for 34 spectrum licenses covering 83 million pops, but well below the $4.63 per megahertz per pop that Verizon Wireless paid NextWave for 10 megahertz of spectrum in New York last summer.
“It’s not a steal for Verizon, but it’s definitely a good deal,” said Roe Equity Research L.L.C. telecommunications industry analyst Kevin Roe.
Analysts added that taking out the value of the New York licenses, Verizon Wireless is paying approximately $1.95 per megahertz per pop for the remaining licenses.
The deal appears especially favorable for the carrier considering it was willing to spend $4 billion for 20 megahertz of spectrum in New York during the Federal Communications Commission’s ill-fated attempt to re-auction NextWave’s licenses in early 2001.
Of more importance to Verizon Wireless is that it will now control 65 megahertz of spectrum in New York, which is just below the 70-megahertz soft-spectrum cap the Federal Communications Commission set in its approval of Cingular’s acquisition of AWS. New York is the only market where Verizon Wireless’ management has acknowledged it was nearing its spectrum capacity. Verizon Wireless acquired 10 megahertz of spectrum in New York from NextWave earlier this year for $935 million and picked up an additional 10 megahertz of spectrum in the nation’s largest wireless market as part of its $750 million acquisition of Northcoast Communications L.L.C.’s 50 licenses in late 2002.
Verizon Wireless will also control 65 megahertz of spectrum following the deal in Baltimore and Columbia, Md., and Greenville, S.C., as well as 55 megahertz in Boston.
“We view this transaction as strategically important and likely necessary for Verizon to plug a deficient spectrum position in its most important regional markets (New York City) and bolstering its holdings throughout the Northeast corridor … enabling it to continue to aggressively pursue subscribers, expand wireless data capabilities, more efficiently deploy capital and preserve its industry-leading leadership position,” said Legg Mason in a report.
The additional spectrum is expected to prove especially useful in a number of the larger markets, including New York, Baltimore, Washington, D.C., Los Angeles and Philadelphia, where Verizon Wireless has recently begun to deploy its CDMA2000 1x EV-DO BroadbandAccess wireless data services. The carrier also has been experiencing a dramatic increase in customer growth, including more than 4.5 million net subscriber additions this year and nearly 11 million new subscribers added between 2001 and 2003.
Verizon Wireless has made several spectrum deals during the past several years, solidifying its spectrum position. In addition to the Northcoast and NextWave transactions, the carrier acquired Price Communications Corp.’s operations in the Southeast (which included both spectrum and the carrier’s TDMA network servicing more than 500,000 subscribers) in 2001 for just under $2 billion. Verizon Wireless also announced a deal earlier this year to acquire Qwest Communications International Inc.’s spectrum and network infrastructure covering 30.8 million pops in 14 states for $418 million.
Legg Mason added that while Verizon Wireless will be close to the FCC soft cap, it does not expect any problems with the deal gaining governmental approval.
“We are not aware of any potential deal breakers, though the spectrum acquisition by Verizon Wireless will presumably receive careful government scrutiny, particularly the additional 20 [megahertz] in New York,” Legg Mason noted.
The deal also requires both antitrust and regulatory approval. There is a demand in the agreement that the Federal Communications Commission specifically state in its license-transfer approval that neither NextWave nor Verizon Wireless is required to pay unjust enrichment penalties.
Since NextWave bought its licenses at a set-aside sale for small businesses, there were certain rules about who could buy them. Those obligations have been met and/or decided as part of the settlement NextWave reached with the FCC in April. The settlement included provisions where the FCC would be paid additional money if NextWave sold its licenses. The agreement with Verizon Wireless includes payment to the FCC. NextWave won a long and involved legal battle with the FCC almost two years ago that included a U.S. Supreme Court decision.
Washington Reporter Heather Forsgren Weaver contributed to this report.
