Verizon Wireless, seeking to gain approval to buy airwaves from cable companies, will sell other spectrum licenses potentially worth billions of dollars if it can complete the purchase under scrutiny from regulators.
The largest U.S. wireless carrier plans to conduct an open sale process for all of its 700 megahertz A and B spectrum licenses, covering dozens of major cities across the U.S. and smaller markets, according to a statement today from the Basking Ridge, New Jersey-based company. Verizon Wireless paid $4.7 billion for the spectrum, according to JPMorgan Chase & Co.
Verizon Wireless said the sale is contingent on the closing of its pending $3.6 billion purchase of unused airwaves from a group including Comcast Corp., the largest U.S. cable provider, and No. 2 Time Warner Cable Inc., as well as separate deals with Cox Communications Inc. and Leap Wireless International Inc. Opponents have said the accord with the cable group, which needs approval from the Federal Communications Commission, would result in less competition and higher prices.
“This is a reflection that their approval process is not going well,” Walt Piecyk, analyst at BTIG LLC in New York, said in an e-mail. “Investors have underestimated the challenges that Verizon faces at the FCC.”
Verizon Wireless and the cable companies also agreed to market one another’s services, an arrangement that the Justice Department is looking into.
“The timing of this announcement has absolutely nothing to do” with the progress of the cable deal’s regulatory review, Peter Thonis, a spokesman for Verizon Wireless’s parent, Verizon Communications Inc., said in an e-mail. Verizon Wireless has long had plans to sell the A and B airwaves after the cable spectrum deal was done, Thonis said.
Verizon Wireless purchased the A and B-block spectrum licenses as part of a $9.9 billion winning bid that also included the C-block during a 2008 FCC auction.
Verizon Communications, which owns the wireless unit with Vodafone Group Plc, retreated 0.2 percent to $37.66 at the close in New York. Rival Clearwire Corp. fell 6.9 percent to $1.76, as investors speculated a big swath of airwaves on the market threatens to dilute the company’s spectrum value.
Verizon Wireless and competitors AT&T Inc., T-Mobile USA and MetroPCS Communications Inc. are seeking to boost their spectrum holdings to ensure they have enough capacity as demand for services such as Web browsing and video streaming rises. AT&T attempted and failed to buy T-Mobile for $39 billion last year, citing spectrum as one of the main reasons for the deal.
Regulators are trying to make sure the market remains competitive and that no one carrier has spectrum holdings large enough to reduce rivalry. The government blocked AT&T’s T-Mobile deal, saying it would have hurt competition.
“This does not resolve the anti-competitive problems” posed by Verizon Wireless’s deal with cable companies, Debbie Goldman, telecommunications policy director for the Communications Workers of America, a labor union, said in an interview.
While Verizon Wireless is volunteering to sell spectrum assets, the FCC may have demanded it do so before approving the deal with cable carriers, Piecyk said.
Based on need and resources, AT&T, MetroPCS, Leap and T-Mobile are the most likely buyers of Verizon’s A and B-block spectrum, said Jonathan Chaplin of Credit Suisse Group AG.
“It would have been some time before they would have needed the A&B block,” the analyst said today in a note. By selling it, Verizon Wireless diffuses “political pressure” and opposition to the cable deal from other carriers, he said.
Creating a Cartel?
Harold Feld, legal director of the Washington-based policy group Public Knowledge, which opposes Verizon’s transaction with the cable providers, said the pledge to sell some airwave assets does little to reduce the harmful effects of the deal.
“Verizon is trying to use the mere offer of a spectrum sale to tempt the FCC and the Justice Department into approving the deal with the cable companies, and the agencies should resist the temptation,” Feld said in an e-mailed statement. “At the end of the day, Verizon and the cable companies will still have created a cartel.”
Neil Grace, an FCC spokesman, declined to comment.
Verizon Wireless has been building a so-called long-term evolution, or LTE, network on its 700 megahertz C spectrum and planned to add the cable companies’ spectrum licenses to its buildout plan.