Analyst: Verizon considers Sprint's 2.5 GHz spectrum an option - but no deals are in motion

Verizon (NYSE: VZ) considers Sprint's (NYSE: S) 2.5 GHz airwaves something that could fit into its spectrum portfolio, but has not made any moves to look into buying that spectrum, according to a report from J.P. Morgan analyst Philip Cusick.

In a research note following a meeting yesterday with Verizon Communications CEO Lowell McAdam, Cusick wrote that "Sprint's 2.5 GHz spectrum is an option, but no discussions have taken place." Sprint controls around 120 MHz of 2.5 GHz on average in 90 of the top 100 markets and is using that spectrum for additional LTE network capacity, including via carrier aggregation.

A Verizon spokeswoman did not immediately respond to a request for comment. 

In February, former Verizon CTO Tony Melone said on a call with financial analysts that regarding 2.5 GHz spectrum, "provided the spectrum is a fairly common industry band and we have significant enough spectrum where we can deploy it fairly ubiquitous, it's certainly a spectrum that we would consider," according to a Seeking Alpha transcript of his remarks.

Cusick wrote that Verizon "does not have a driving need for more spectrum and would rather have mid- to high-band spectrum than 600 MHz, though it would not rule out participation in the 600 MHz auction."

Verizon management also thinks that using LTE in unlicensed spectrum bands is a better alternative to Wi-Fi due to security and interference concerns. "Network sharing generally has not worked out, and it seems unlikely that Verizon would be interested in a network sharing deal," Cusick wrote.

Verizon also remains happy with its deal to buy AWS-1 spectrum from a group of cable companies, and "believes there is room for a win-win cable MVNO on its network." Under the companies' agreements, Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC), Cox Communications and Bright House Networks have the option of becoming MVNOs on Verizon's network, but none have excursed that right.

Some analysts think that, as LTE data traffic continues to increase, Verizon will face LTE network congestion issues over the next couple of years while others are more skeptical. Cusick wrote that Verizon "is determined to maintain its network advantage and is willing to" increase capital expenditures "as necessary to maintain superiority; this superiority justifies a continued 10-15% pricing premium that customers seem content to pay."

Verizon is deploying pico cells, small cells and Distributed Antenna Systems to densify its network, which Cusick said is "necessary and available as Verizon moves from its legacy CDMA network (which was more forgiving on coverage) to the GSM/LTE ecosystem."

Interestingly, Cusick wrote that "Verizon thinks a four player market is unsustainable long term as the two smaller players will be unable to continue to adequately invest in their wireless network with discount pricing and that the FCC may eventually allow consolidation."

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