Verizon Wireless, T-Mobile Agree to AWS License Swap

"Prior to these divestitures, we believed the transaction represented an unfair concentration of spectrum in the hands of the nation’s largest wireless carrier,” said a T-Mobile spokeswoman. “The significant divestitures by Verizon announced today are good for competition and consumers.” T-Mobile said the transaction will give it spectrum covering 60 million people and improve its spectrum position in 15 of the top 25 markets, especially some key cities in the Eastern U.S. Among these markets: Philadelphia; Washington; Detroit; Minneapolis; Seattle; Cleveland; Columbus, Ohio; Milwaukee; Memphis, Tenn.; Rochester, N.Y., and the North Carolina markets of Charlotte, Raleigh-Durham and Greensboro. T-Mobile in exchange will give Verizon Wireless licenses that cover 22 million people. Credit Suisse estimated that T-Mobile will make a cash payment of less than $1 billion as part of the deal, but the carrier did not release any dollar figures. T-Mobile got $3 billion as part of its breakup fee with AT&T.

The addition of the AWS licenses will not meet all of T-Mobile’s spectrum needs, and the company remains in the market for more spectrum, a company official said Monday. “This additional AWS spectrum will be used to facilitate T-Mobile’s ongoing network modernization project and will thereby enable T-Mobile better to compete with Verizon Wireless’ and other carriers’ LTE services in more markets than it would have been otherwise able to do given its existing spectrum constraints,” T-Mobile Senior Vice President Tom Sugrue said in a letter to the FCC. “More specifically, such spectrum will enable T-Mobile to deploy LTE services in a number of markets where it otherwise would have been impossible and to enhance its LTE service in a number of markets where it would have been limited to a 5 x 5 MHz deployment.”

"This is a proactive move by Verizon to improve its position with regulators that are reviewing the SpectrumCo acquisition by helping T-Mobile acquire needed spectrum and likely reducing its pro forma AWS holdings in cities where it would have the highest concentration in the band,” Wells Fargo analyst Jennifer Fritzsche said in a research note. “This likely clears the path for a rapid approval of the SpectrumCo and Cox deals … by removing a major regulatory obstacle in T-Mobile USA,” said Sanford Bernstein’s Craig Moffett. “This is a clear positive for Verizon, which would solidify its leading spectrum position. Second, it suggests that the FCC may be setting the groundwork for a de facto 100 MHz spectrum cap by market. If Verizon gets its SpectrumCo deal through by selling some AWS holdings off to T-Mobile USA, the implication may be that the FCC would like to ensure more plural ownership of spectrum going forward."

But the Communications Workers of America, Public Knowledge and Free Press each said that concerns remain. “The threat of job loss and higher consumer prices from the proposed Verizon Wireless-Big Cable deal remains, even if today’s announcement resolves some of the FCC’s concerns about one piece of the agreement,” said Debbie Goldman, CWA telecom policy director. “The CWA -- along with major consumer groups and elected officials -- continues to voice concerns with federal regulators about the monopolistic cross-marketing arrangement and urges regulators to put conditions on this deal to ensure it is in the public interest."

"The proposed license transfer from Verizon Wireless to T-Mobile does nothing to address the ability of Verizon and its cable partners to use its marketing and research agreements to develop a patent portfolio capable of bringing the mobile patent wars from handsets to online video,” said Public Knowledge Senior Vice President Harold Feld. “Nor does it address the ability of these supposed competitors to block new forms of competition through Wi-Fi offload, Wi-Fi roaming, and control over the backhaul market. The parties cannot justify creating a web of anti-competitive agreements and tools for future anti-competitive collusion by divesting a handful of licenses.” Free Press Policy Adviser Joel Kelsey said, “We will reserve our judgment on the Verizon-T-Mobile deal until more details are disclosed, but our goal all along has been to ensure that consumers have access to more competitive wireless market and that spectrum policy is used to achieve, not thwart that goal.”

The Free State Foundation saw the deal as positive. “Foremost, the spectrum swap announcement by Verizon and T-Mobile is good for consumers because it should result in getting additional spectrum in use for 4G broadband services sooner rather than later,” said President Randolph May. “It paves the way for T-Mobile to become a stronger competitor, which is a positive for consumers. And it ought to mean the Commission acts with dispatch to approve the Verizon-SpectrumCo transaction. I assume the FCC was not involved, sub rosa, in dictating this agreement, because I'd like for the FCC to just allow the secondary market to function so that spectrum is freely transferable.”

The FCC must impose additional conditions as part of approving the Verizon/cable transactions, the Rural Cellular Association said. “I'm glad to see a competitive carrier may get access to some of the spectrum that Verizon Wireless has proposed to purchase as part of the SpectrumCo and Leap transactions,” said President Steve Berry. “However, this reaffirms our concern that Verizon Wireless will hold more spectrum than they currently plan to use, and some of their spectrum should go to competitive carriers. T-Mobile is one carrier that certainly will benefit from additional spectrum, and I understand that T-Mobile is more than willing to discuss with other competitive carriers the possibility of access to certain blocks of the spectrum.”