Verizon Wireless wrapped up the sale of lower 700 MHz spectrum assets, announcing late last week that it sold off the remaining chunk of licenses to rival AT&T in a spectrum swap for $1.9 billion. The deal finalizes a stipulation on Verizon Wireless’ acquisition of 1.7/2.1 GHz (AWS) spectrum assets from a handful of cable operators placed on the carrier last year.
The latest deal saw Verizon Wireless sell 39 lower B-Block licenses covering 42 million potential customers across 18 states to AT&T for $1.9 billion, including spectrum covering Chicago, Miami and Los Angeles. Most analysts expected AT&T to be the biggest acquirer of Verizon Wireless B-Block licenses as it already owned a significant number of those licenses.
In return, AT&T handed over 10 megahertz of spectrum in the AWS band covering five western markets, including Los Angeles, Phoenix and Portland, Ore.
AT&T noted that deal complements its current B-Block spectrum holdings that in addition to its lower C-Block holdings are a core part of its ongoing LTE network rollout plans. Wells Fargo Securities Senior Analyst Jennifer Fritzsche noted that AT&T Mobility should now have 20 megahertz of combined spectrum in the 700 MHz band in which to support LTE services. AT&T has said it plans to cover approximately 300 million potential customers with LTE services by the end of 2014.
The move also continues AT&T’s spectrum buying spree that began last year after the FCC and Department of Justice shot down the company’s $39 billion attempt to acquire rival T-Mobile USA. Those spectrum deals included the acquisition of licenses in the AWS and 2.3 GHz band from a number of players. The carrier is also busy shuttering legacy operations in the 850 MHz and 1.9 GHz band in order to further support the rollout of newer technology.
The deal with Verizon Wireless also follows on the heels of AT&T announcing plans to acquire Atlantic Tele-Network, which operates under the Alltel brand, for $780 million. That deal includes spectrum assets in the 700 MHz, 850 MHz and 1.9 GHz bands.
In addition to the AT&T deal, Verizon Wireless also reported that it sold 700 MHz B-Block licenses covering markets in North Carolina to Florida-based equity firm Grain management for $189 million. Grain will in turn lease access to the three B-Block spectrum licenses to AT&T in exchange for a single AWS license.
In total, Verizon Wireless noted the latest deals complete the necessary sell off of 700 MHz spectrum assets required by government regulators as part of its $3.9 billion spectrum deal approved mid-2012. The carrier noted that it managed to sell off its lower 700 MHz spectrum assets to seven entities, including five small or regional telecom players and one minority owned firm. Verizon Wireless is currently relying on upper C-Block spectrum in the 700 MHz band for its LTE rollout, with plans to add capacity in high-density markets using its now robust AWS spectrum holdings.
Verizon Wireless had originally spent about $4.7 billion for the 700 MHz A- and B-Block spectrum licenses during the 2008 auction. Those licenses included a total of 12 megahertz of spectrum per license.
The deal is expected to close later this year, though opponents of the deal are hoping the FCC takes a close look at the proposed transaction.
“[This] announcement unfortunately is another instance of the largest carriers continuing to warehouse spectrum to the detriment of consumers who had previously benefitted from competitive choice,” noted Competitive Carriers Association President and CEO Steve Berry. “The FCC must address interoperability, consolidation and spectrum aggregation in consideration of this proposed massive spectrum transfer.”
Washington, D.C., observers noted that while the FCC has turned a critical eye towards industry consolidation, spectrum deals such as these have for the most part been approved. However, the FCC is expected to revise its current spectrum screening provisions that could see spectrum deals, especially those involving spectrum below the 1 GHz band, come under increased scrutiny.
“The extent to which the FCC might tighten the spectrum screen, including the possibility of according greater weight to spectrum below 1 GHz, could go a long way to shaping the contours of any government approval to the AT&T spectrum deals,” noted Jeffrey Silva, senior policy director of telecommunications, media and technology at Medley Global Advisors. “Indeed, the spectrum screen risk could perhaps be a key driver of the timing of AT&T’s latest transactions. AT&T is playing catch-up to Verizon in the evolving LTE market, but remains significantly ahead of other wireless competitors on that score.”
AT&T seemed to have girded itself against the sub-1 GHz concern earlier this year when in a blog post the carrier dismissed claims by rivals that the government needed to take a closer look at spectrum deals involving licenses below the 1 GHz level.
“The entire premise of these proposals is that low band spectrum has superior propagation properties, which can, in some areas, decrease the deployment costs of a network,” said Joan Marsh, VP of federal regulatory at AT&T. “But in areas and in circumstances where the propagation properties of a given spectrum band decrease deployment costs, that spectrum will command a correspondingly higher price in the marketplace, thus offsetting any deployment cost advantage that might exist.”
Silva did add that he expected the transaction between Verizon Wireless and AT&T to be approved later this year.
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