A merger deal that results in the U.S. mobile market having only three national operators rather than four might be approved but only if the parties involved divest some of their spectrum holdings, predicted Verizon Communications (NYSE:VZ) CEO Lowell McAdam.
McAdam was asked during the Citi Internet Media & Telecommunications Conference to address the potential for major industry mergers. Widely reported rumors indicate Sprint (NYSE:S), the third-largest U.S. operator, is eyeing a takeover of No. 4 ranked T-Mobile US (NYSE:TMUS).
The Verizon executive said past regulatory regimes have focused on ensuring the existence of four national operators, and there appears to be escalating competition among the current market leaders. "I think they [regulators] are beginning to see some of the things that they were hoping to see out of four, and my guess is that they're going to want to play that hand out," McAdam said.
U.S. regulators previously blocked AT&T (NYSE:T) from acquiring T-Mobile in 2011, and McAdam suggested regulators would only approve another proposed deal between national operators if the companies involved sell large chunks of spectrum as a condition for approval.
If such a major merger occurs, "I'll look forward to all the spectrum that'll be divested from that group because I'll have so much extra" thanks to the deal, McAdam said.
As for Verizon, McAdam said the company's "No. 1 priority this year" is closing on its $130 billion agreement to buy out Vodafone Group's 45 percent stake in Verizon Wireless. He said the companies still expect the acquisition will occur during this quarter.
The FCC approved the arrangement last month, and Verizon shareholders will vote on the proposal later this month. Vodafone must get approval from its shareholders as well as go through a court process before the deal can close, McAdam said.
Bringing Verizon Wireless entirely into the Verizon Communications fold has major ramifications for future services. "What really makes this a home run is the ability to leverage every asset Verizon has and provide new services that customers aren't looking for today," he said.
McAdam said video and converged services "is a huge opportunity for us," particularly given Verizon Communications' existing FiOS broadband footprint, Verizon Wireless' LTE footprint and the companies' vast content relationships.
McAdam also addressed the sustainability of unlimited data plans, such as those being offered by Sprint and T-Mobile. "The physics of spectrum and network management" mean that the industry as a whole will more widely adopt tiered data plans, as Verizon and other operators, such as AT&T, already have.
It is not a viable policy to keep "servicing incremental bits and not get any incremental revenue," he said. "Eventually, unlimited has got to go away. It's just a fact of life," McAdam continued.
As tiered data plans have replaced unlimited data at Verizon, McAdam said the carrier's customers are changing their behavior accordingly. He said Verizon is showing that people are accepting of and willing to pay for tiered service.
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