Verizon Buying Nationwide AWS Spectrum from Cable

Posted by Sam Churchill on

In a slick strategic move, Verizon today announced it is buying 122 AWS licenses from cable giant Comcast, Time Warner Cable and Bright House Networks for $3.6 billion. Comcast will receive $2.3 billion from the sale, with Time Warner Cable receiving $1.1 billion – both of which own around 95% of the holding company SpectrumCo, which bought the frequencies for cable operators in the 2006 AWS auction.

Bright House Networks, which owns 5.3% of the company, will receive $189 million. Bright House is owned by Advance/Newhouse which owns dozens of major newspapers and magazine chain Conde Nast.

Verizon spent $2.8B for 20 MHz F blocks covering the Northeast while SpectrumCo spent $2.4B covering most of the country using 20 MHz licenses in the B block. Those two investments total $5.2 billion (in 2006 dollars). T-Mobile, by contrast, spent $4.1B in 2006, for nationwide AWS coverage using D-F blocks, which are divided by REAG – covering larger areas.

The cable spectrum covers 259 million POPs but it remains unused – as does Verizon’s AWS spectrum. Comcast says the deal will make wireless services more broadly available. Each of the companies will enter several agreements to sell each other’s products and services. That may be a big part of the deal, but the companies did not elaborate on specifics. The new AWS network must be built from scratch — neither Verizon nor SpectrumCo have AWS infrastructure.

The cable operators currently resell Clearwire’s WiMAX services with Sprint Nextel and have over $1.6 Billion invested in Clearwire. That seems to indicate that cable operators are cooling on their relationship with Sprint/Clearwire.

Comcast and Time Warner Cable will stop reselling Clearwire’s 4G wireless service following the closing of the AWS spectrum deal with Verizon, CNET has learned. Cable will resell Verizon’s wireless service, which will become the cable providers’ exclusive partner, said Time Warner Cable spokesman Alexander Dudley.

According to Neil Smit, President, Comcast Cable, four years from signing, Comcast could become a reseller of Verizon Wireless’ service through a Mobile Virtual Network Operator (MVNO) agreement. Comcast could then purchase wireless service at wholesale rates and sell its own, branded wireless service.

The Verizon-SpectrumCo deal is subject to approval by the FCC and the companies did not give a timetable for when the deal is expected to close. If Verizon does get approval for the deal, the carrier may combine the spectrum with its other AWS holdings for 20 MHz channels, which coupled with LTE-Advanced technology could give it significant throughput gains.

The $3.6 billion Verizon/Cable deal values the spectrum purchased at $0.69 per MHz-POP (the number of people covered by each megahertz). That’s a big jump from the $0.45 per MHz-POP that cable operators paid in 2006.

Dish recently acquired 20 MHz of spectrum from TerreStar for about $0.23/MHz-POP. It might be worth 2-3 times that now (since Dish is next to AWS frequencies). Clearwire’s spectrum was trading at $0.17-$0.22 per MHz-POP. But it’s a world band, so phones and gear will be commoditized. If Clearwire’s 2.6 GHz spectrum sells for $0.30 – $0.40 per MHz-POP, then a 20 MHz chunk might go for around $3-4 billion. If Clearwire has 80MHz available for sale, then that might indicate their spectrum asset could be worth $12-$16 billion.

The Verizon/SpectrumCo deal could cut AT&T off at the knees.

AT&T needs spectrum. They hoped to get it from T-Mobile. AT&T may be left holding a lousy 12 MHz of AWS. Leap Wireless, MetroPCS, and other smaller carriers also utilize the AWS spectrum for their 3G/4G services. But their spectrum footprint is tiny compared to T-Mobile and SpectrumCo.

AT&T (Cingular) owns the smallest chunk of AWS spectrum compared to Verizon and T-Mobile. They bought it under the Cingular brand in 2006, but AT&T has hardly any AWS coverage in the East. Now AT&T has no place to go with their island of AWS. AT&T may have to up the ante on their last, best hope — Dish Networks.

Dish owns a 40 MHz chunk in the nearby 2.1 GHz MSS band, combining their 20MHz from TerraStar and 20MHz from ICO. Dish also owns a 700 MHz unpaired chunk that could aggregate with AT&T’s adjoining 700 MHz unpaired chunk from Qualcomm.

That’s big-time “wireless cable”.

The AWS spectrum (1710-1755 MHz and 2110-2155 MHz) is currently only used by T-Mobile and smaller carriers. Sprint doesn’t have any. MetroPCS is deploying LTE on its AWS holdings while Leap Wireless (Cricket) announced an LTE initiative last month. Merging the complimentary coverage of the two CDMA-based companies might have advantages, especially in regions where the companies duplicate service.

Leap (Cricket) picked up 100 licenses in the AWS auction at an aggregate cost of $984 million. Their AWS coverage compliments that of MetroPCS. Those two companies could form a large company to compete with T-Mobile, especially if they got Dish Networks on their side. If Dish teams with AT&T, then MetroPCS may purchase additional spectrum from Clearwire.

A Metro/Cricket deal could establish another a national player with 20 MHz of LTE spectrum from Clearwire. Same thing with T-Mobile (if it looses Dish to AT&T).

A newly awakened smartphone/tablet marketplace, including Apple, Amazon, Facebook, Google, and Microsoft all want to play that game — and have cash to make it happen.

While it’s just speculation, tech giants may have the motivation to create a better T-Mobile — stronger, faster, more competitive with another 40 MHz from Dish for terrestrial LTE. Conversely, a joint venture between Dish and AT&T might leave T-Mobile out of the picture. In that scenario, T-Mobile and tech partners might expand into 2.5 GHz. That plays well with T-Mobile’s European operations that are heavy into 2.5 GHz.

AT&T would have little choice if they can’t merge with T-Mobile or Dish. They’d have to buy 2.5 GHz from Sprint/Clearwire. The TV band auctions won’t happen for years, finding 20 MHz of spectrum would be tricky, and the tv band may have issues for urban coverage, such as antenna size and self-interference.

The wireless trade group CTIA says that for the first time, the number of wireless subscriber connections surpassed the U.S. population—327.6 million versus 315.5 million (102%), meaning many people have two subscriptions (such as home and business).

What’s best for consumers? Competition and efficiency.

That might imply a strong T-Mobile, supplemented by Dish LTE services with tech backing. Wireless data is a growing pie – there should be plenty of profits for all.

Related Dailywireless article include, Verizon and Cricket Swap Spectrum, Cricket Announces LTE, FCC Releases Critical Report on AT&T Merger , AT&T: Selling Assets for Merger Approval?, Plan B for T-Mobile?, AT&T/T-Mobile Merger: Unlikely? AT&T Looking To Sell Spectrum?, Merger Salvage Plan by AT&T, DOJ Blocking AT&T/T-Mobile Merger, AT&T Merger: More Heat, Dish Network’s 700 MHz Spectrum, Spectrum Drama: Made for TV, AT&T Defends Jobs Claim, AT&T Looking To Sell Spectrum?, Merger Salvage Plan by AT&T, Spectrum Drama Unfolding, FCC Receives Pro & Con Support for ATT Merger, LTE Spectrum: It’s War , Cox Kills Wireless Phone Service , Dish Talks Up Terrestrial LTE, ViaSat-1 Launched, Charlie Ergen’s Spectacular Triple Play, Charlie’s Big Play, EchoStar Closes $2B Hughes Deal, Dish LTE-Advanced Called “Ollo”

Posted by Sam Churchill on Friday, December 2nd, 2011 at 8:56 am .

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