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Roger Entner |
Right before CES--where we cared more about who crashed whose party and got kicked out rather than substance--Verizon and T-Mobile came to a significant spectrum deal. Under a series of agreements, Verizon will sell T-Mobile 23 700 MHz A Block licenses covering more than half of the U.S. population, including some of the largest markets in the United States: Los Angeles, San Francisco, Dallas, Atlanta and Detroit. As part of the agreement, T-Mobile and Verizon are re-aligning spectrum blocks in Northern California and Atlanta. Furthermore, Verizon is swapping AWS licenses in 285 counties in 59 Cellular Market Areas with T-Mobile. T-Mobile is paying $2.365 billion to Verizon and Verizon is paying $950 million to T-Mobile for a net gain of $1.415 billion for Verizon.
So what is the impact of this? After this deal, T-Mobile will hold low-frequency 700 MHz A Band spectrum in 9 of the top 10 markets and 21 of the top 30 markets covering more than half of the U.S. population. After all of T-Mobile's complaining about how unfair it was that it did not have any low frequency spectrum following its decision not to enter the appropriate auction, T-Mobile found that it is a lot faster to buy the spectrum on the market than to wait for the FCC to fix its competitive miscalculations through regulatory fiat. The 700 MHz spectrum allows T-Mobile to add capacity in the urban markets in which it's already active and to expand into suburban and rural parts of the U.S. for roughly 30 percent of the cost if it had used its current spectrum because of the superior propagation of 700 MHz compared to 1900 MHz.
The real winner, however, is Verizon. It gains access to important PCS and AWS spectrum it needs to fix capacity holes in various markets, especially in and around San Francisco and Atlanta. These licenses are critical to fixing some of the capacity issues Verizon has experienced. Furthermore, the deal substantially deflates T-Mobile's already weak argument that there should be limits for AT&T and Verizon in the Broadcaster Incentive Auction because it does not have any low frequency spectrum. The only wireless providers left without low frequency spectrum are those who sold it after it was given to them in the 1980s. Furthermore, the deal keeps the spectrum out of the hands of AT&T, which is still viewed by Verizon as the number one competitor.
Ironically, this deal was only possible due to the comprehensive AT&T/Dish agreement limiting interference in the 700 MHz E Block, realignment of the DSS spectrum, and Dish's commitment to bid on the H Block. However, it is still contingent on the success of the incentive auction. Without the groundbreaking AT&T/Dish agreement limiting interference, the A Block ecosphere would have had a much harder time getting off the ground.
Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.