Verizon Wireless to swap AWS, PCS spectrum with T-Mobile
Verizon Wireless (NYSE:VZ) has agreed to swap AWS and PCS spectrum with T-Mobile US (NYSE:TMUS), according to an FCC document. Although neither company has made any announcement about Verizon selling its lower 700 MHz A Block spectrum T-Mobile, Verizon Communications CEO Lowell McAdam has said Verizon would be interested in a spectrum swap as part of a deal for the 700 MHz airwaves.
According to the FCC, which must clear the swap, Verizon and T-Mobile would exchange 10 to 20 MHz of AWS-1 spectrum in 285 counties across 59 Cellular Market Areas. As part of the AWS swaps, Verizon would assign 10 MHz of AWS spectrum to T-Mobile in 16 counties across four CMAs, and after the deal T-Mobile would hold 30 to 40 MHz of AWS-1 spectrum. Additionally, T-Mobile would assign 10 to 20 MHz of AWS spectrum to Verizon in 26 counties across nine CMAs, and after the deal Verizon hold 20 to 40 MHz of AWS-1 spectrum.
With regard to the PCS spectrum, the companies would exchange 5 to 20 MHz of PCS spectrum in 153 counties across 47 CMAs. In addition, in 11 counties across three CMAs in Texas, Verizon would assign 20 MHz of PCS spectrum to T-Mobile, and would receive 10 MHz of PCS spectrum in return. Finally, Verizon would assign 5 to 10 MHz of PCS spectrum to T-Mobile in an additional 34 counties across 13 CMAs.
The FCC said petitions to deny the swap are due Jan. 6, oppositions are due Jan. 16 and reply comments are due Jan. 24.
Verizon Wireless is nearing a deal to sell its 700 MHz A Block spectrum to T-Mobile according to a recent Bloomberg report. The report, which cited an unnamed person close to the deal, said that the deal could be announced as soon as this week.
Verizon executives in general have been open about their willingness to part with the A Block at the right price. Verizon paid $2.4 billion for its A Block licenses, and companies interested in buying the spectrum would likely need to pay that much if not more, according to analysts. The spectrum covers around 150 million POPs, according to the report.
T-Mobile raised $3.8 billion in debt and stock sales last month to increase its war chest for spectrum and is reportedly interested in Verizon's A Block spectrum holdings. In securities filings, T-Mobile has said it is interested in "opportunistically acquiring additional spectrum in private party transactions" and also that it wants low-band spectrum.
New Street Research analyst Jonathan Chaplin wrote in a research note that he does not think the spectrum swap is necessarily a precursor to a deal for Verizon's 700 MHz A Block spectrum, though he thinks T-Mobile might eventually give Verizon some AWS airwaves to get Verizon's spectrum. "The companies intend to swap hundreds of licenses but the net transfer of spectrum is relatively minor; as such, we believe the proposal is primarily intended to increase the amount of contiguous spectrum and better align spectrum blocks across their markets," he wrote. "We still think that TMUS may offer Verizon AWS spectrum as part of compensation for Verizon's 700MHz A-Block and we do not view this current swap as part of a potential 700MHz A-Block transaction."
Chaplin wrote that he thinks T-Mobile is still interested in Verizon's 700 MHz A-Block spectrum "and has excess AWS spectrum where Verizon needs it."
Assuming the swap gets approved, Chaplin wrote that Verizon would still have less than 40 MHz of spectrum across 95 million POPs in the top 100 markets (or 49 percent of POPs in the top 100 markets). Within these markets, he wrote, T-Mobile would have excess AWS spectrum covering 36 million POPs, or 38 percent of Verizon's gap.
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