Verizon Adds Spectrum from Comcast and Time Warner
Verizon (NYSE: VZ) announced on Friday that it was acquiring wireless spectrum from Comcast (NASDAQ: CMCSA) and Time Warner (NYSE: TWX) in its bid to address growing demand for wireless services. The company said it was buying 122 spectrum licenses, enough to allow it to improve its 4G standards and boost its capacity to an additional 259 million customers. Verizon will pay 3.6 billion for the licenses to a group of companies, which along with Comcast and Time Warner includes privately held Bright House Networks.
Currently, the company serves approximately 107 million mobile subscribers, which rank it as the number one national carrier in the United States. Its push to boost capacity and quality of service comes in the heels of a strong push on the part of the number two, AT&T (NYSE: T) to boost its own coverage through the acquisition of Deutsche Telekom-owned T-Mobile USA. AT&T currently serves just over 100 million customers, so the acquisition of 33 million subscribers through T-Mobile would make it an automatic number one.
The deal provides strategic value to Verizon with its fight to remain number one. Under the terms of the spectrum deal, the sellers effectively become sales channels for Verizon. Similarly, Verizon will push Comcast, Time Warner and Bright House products. Rob Marcus, Time Warner Cable's president and CEO said of the arrangement, “We're excited to be able to offer the nation's best wireless service to our customers and to bave Verizon Wireless as a sales channel for our superb wireline services.” He added that he was pleased to get attractive pricing on the spectrum. Time Warner stands to make 1.1 billion from the deal. Bright Works will receive $189 million for its share on the sale, and Comcast will receive the balance of the $3.6 billion.
The push for spectrum will result in increased capacity for customers. Carriers are moving to adapt to the increasing data use on their networks, in light of deep smartphone penetration in customer base. Capacity importance is especially vital as all carriers are pushing their 4G capabilities, even though their existing 3G networks are not where they could be.
Although Verizon and the sellers of the spectrum said they were pursuing the deal to ensure that available resources are ”used effectively to serve customers,” the preemptive nature of the deal on competitive grounds cannot be discounted. Even as number two AT&T stands to fail on its T-Mobile merger according to consensus, the two companies are reported to have a back-up plan that has them cooperating on spectrum.
As in the case of AT&T/T-Mobile, the FCC is expected to weigh in. Unlike the merger, however, the spectrum sale is expected to gain approval without issues as the government has long lobbied for the full utilization of available spectrum across mobile and cable providers.
Following today's news, VZ gained slightly at the open to settle at yesterday's close of $37.77 a share. Comcast appears to be a bigger winner so far in trading, at $23.49 a share, up 4.03 percent. TWX has also seen gains of 1.1 percent at $34.61 per share. Elsewhere in the market, T is up 0.35 percent at $28.94 a share.
Sign up for a free subscription to the Weekly Radar - Benzinga's weekly newsletter highlighting technical levels and analysis for major markets for the week ahead.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.