Verizon, T-Mobile Agree Spectrum Swap Pending Cable Deal

Verizon Wireless, the largest U.S. wireless carrier, agreed to sell airwave licenses to T-Mobile USA Inc., contingent on Verizon completing a $3.6 billion acquisition of spectrum from cable companies.

The exchange will allow Verizon to sell T-Mobile some of the surplus spectrum it will have in certain cities as a result of the SpectrumCo deal, which was proposed by Verizon in December. SpectrumCo is a joint venture of cable companies led by Comcast Corp. (CMCSA), which forged the accord as part of a plan to jointly market services with Verizon.

In the deal, Verizon will swap advanced wireless services, or AWS, spectrum covering 60 million people for airwaves from T- Mobile covering 22 million people plus an undisclosed payment.

The agreement with T-Mobile, which had opposed the SpectrumCo deal, is the second move by Verizon to sell spectrum pending approval of the cable airwaves purchase. In April 18, to help ease approval by the Federal Communications Commission for the SpectrumCo deal, Verizon agreed a sale of 700 megahertz A and B spectrum it bought in 2008.

Verizon, based in Basking Ridge, New Jersey, said today’s deal will be used to improve coverage and features. The plan involves “spectrum swaps that will result in better use of the AWS band for both companies,” according to a statement.

“This is a proactive move by Verizon to improve its position with regulators,” Jennifer Fritzsche, an analyst with Wells Fargo, said today in a note.

High-Speed Wireless

Neil Grace, a spokesman for the FCC, declined to comment.

The agreement “would seem to push the Verizon-cable deals closer to completion,” Jeffrey Silva, a Washington-based analyst with Medley Global Advisors, said in an interview.

It would remove T-Mobile as the strongest industry opponent of Verizon’s deal with cable companies, and undermines critics’ argument that the SpectrumCo agreement would leave competing companies without airwaves needed to serve high-speed wireless applications, Silva said.

Verizon wasn’t forced to sell the spectrum to T-Mobile by the FCC as a condition of the SpectrumCo approval, said Robin Nicol, a spokeswoman for the company.

“We have demonstrated that the cable spectrum deals will serve the public interest,” she said. “This transaction with T-Mobile strengthens that case.”

Voluntary Transactions

Verizon executives met with the FCC on June 18 to discuss whether the agency should require the company to sell some airwaves in return for approval of the cable deal, according to a filing. The executives discussed the benefits of voluntary transactions to adjust companies’ airwaves holdings, Verizon said in the filing.

Today’s agreement doesn’t eliminate the threat of job losses and higher customer prices in the industry, “even if today’s announcement resolves some of the FCC’s concerns,” Debbie Goldman, telecommunications policy director for the Communications Workers of America, said in an e-mailed statement.

The union has been in contract negotiations with Verizon since last year and has said regulators should ensure the company doesn’t unfairly use advantages it gains from the marketing deals.

For Deutsche Telekom AG (DTE), the parent of T-Mobile, the added spectrum would help with its expansion of its long term evolution, or LTE, network. DT plans to boost U.S. network spending by $1.4 billion over two years in a race to upgrade equipment and bring faster connections to smartphones.

Verizon Communications Inc. (VZ), which controls the wireless carrier, fell less than 1 percent to $43.65 at the close in New York. The stock has gained 8.8 percent this year.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net