Report: FCC views Verizon/T-Mobile spectrum swap favorably

Verizon Wireless' (NYSE:VZ) proposed AWS spectrum swap with T-Mobile USA is being viewed warmly by FCC officials, according to a Washington Post report. Verizon has said that the spectrum swap will occur upon it receiving regulatory approval for its $3.9 billion AWS spectrum that it plans to purchase from a group of cable companies as well as a deal with Leap Wireless (NASDAQ:LEAP).

The swap, which covers 281 markets across the country, will result in an overall net transfer of spectrum from Verizon Wireless to T-Mobile and a cash payment from T-Mobile to Verizon. The license transfers require FCC approval, which Verizon said it expects to receive later this summer.

According to the report, which cited unnamed sources familiar with the regulators' thinking, the proposed swap with T-Mobile could help push the FCC to approve the $3.9 billion AWS spectrum deal. "The announcement is significant and unprecedented," one source told the Post.

The $3.9 billion AWS spectrum deal, in which Verizon would purchase nationwide AWS spectrum from SpectrumCo, a joint venture of cable companies Comcast, Time Warner Cable and Bright House Networks as well as Cox Communications, could be approved by Aug. 7, the report said. Officially, the FCC declined to comment on the spectrum swap.

T-Mobile's reversal was significant, as it had been one of the staunchest opponents of Verizon's deals with the cable companies, mainly because of the spectrum concentration Verizon would achieve. Now that T-Mobile would be in line to get AWS spectrum covering 60 million POPs, those concerns appear to have been put aside.

Kathleen Ham, vice president of federal regulatory affairs for T-Mobile, said that deal is a win for both Verizon and T-Mobile. "We reached an agreement that resolves our concerns that we think is pro-competitive," she told Politico. "It's a good result."

T-Mobile said the transaction will improve its spectrum position in 15 of the top 25 markets in the United States by giving it the opportunity to acquire additional AWS airwaves and to realign its existing spectrum holdings. T-Mobile said it will be able to quickly use the spectrum for LTE services, which it plans to deploy next year.

T-Mobile said it will gain spectrum covering 60 million POPs--notably in Philadelphia; Washington, D.C.; Detroit; Minneapolis; Seattle; Cleveland; Columbus, Ohio; Milwaukee; Charlotte, N.C.; Raleigh-Durham, N.C.; Greensboro, N.C.; Memphis, Tenn.; and Rochester, N.Y.--in exchange for spectrum covering 22 million POPs and cash it will pay to Verizon. Verizon already owns substantial AWS holdings east of the Mississippi River, and the spectrum it will get from the cable companies is mainly in the West.

According to a Credit Suisse analysis of the swap, the deal would result in a 10 MHz reduction in Verizon's spectrum covering 36 million POPs, which amounts to a 1.2 percent reduction in Verizon's average nationwide spectrum position In general, Verizon would give up 10 MHz of spectrum in markets where it has 40 MHz of AWS in exchange for spectrum in markets where it only has 20 MHz of AWS spectrum.

However, the deal with the cable companies also hinges on the Department of Justice's review of the cross-marketing agreements Verizon has struck with the MSOs. The arrangement includes the possibility of the companies reselling each other's services as well as a technology joint venture. The DOJ may impose conditions on how the marketing deals are structured before it gives its approval. Public interest groups, which have said the deal will lead to higher prices for consumers and less competition, were not swayed by the spectrum swap announcement.

"That Verizon Wireless feels the need to buy off T-Mobile to close its spectrum/marketing deals with the country's largest cable operators underscores just how bad this deal really is for American consumers and competition generally," Harold Feld, legal director of Public Knowledge, said in a statement.

For more:
- see this Washignton Post article
- see this CNET article
- see this Politico article
- see this Bloomberg article
- see this PCWorld article

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