Peter Svensson, AP
Verizon Wireless said it has agreed to sell some wireless spectrum rights to T-Mobile USA and swap others, in a continuing quest to get regulators to approve a bigger spectrum deal it has worked out with a consortium of cable companies and another wireless carrier. The deal with T-Mobile USA would improve the ability of both companies to offer fast wireless data services, Verizon said. T-Mobile, the fourth-largest U.S. wireless company, is particularly starved for spectrum compared to its larger competitors, and regulators are likely to favor a deal that would improve its position.
Neither T-Mobile nor Verizon said what T-Mobile would pay Verizon for the spectrum. Sanford Bernstein analysts Robin Bienenstock and Craig Moffett estimated the amount at $260 million, figuring that T-Mobile is getting the spectrum at a roughly 50 percent discount. The Verizon-T-Mobile deal is contingent upon Verizon getting government approval for three deals to buy spectrum from cable companies and Leap Wireless for a total of about $4 billion. Those deals were struck in November and December, but have met resistance from public-interest groups who say the cellphone company, already the nation's largest, doesn't need more spectrum and shouldn't be cozying up to competitors such as the cable companies.
T-Mobile had also opposed the Verizon-cable deals, saying they would place an "excessive concentration" of spectrum in Verizon's hands. Verizon is the largest cellphone company in the country, and has a relatively strong spectrum position already. Harold Feld, senior vice president at public-interest group Public Knowledge, said Verizon is trying to "buy off" T-Mobile. "The true danger lies not only in the concentration of spectrum in the hands of the leading wireless provider, but with the cozy, cartel-like arrangements between Verizon, Comcast, and the other (cable companies) party to the deal," Feld said.
As part of the deal, Verizon and the cable companies agreed to resell each other's services in their stores. Verizon Communications, Inc., the New York-based phone company that controls Verizon Wireless, sells home broadband and TV services that compete with cable. Cellphone companies need spectrum rights, or slots on the airwaves, to do business, much like radio stations. With the growth of wireless data use, cellphone companies have a newfound need for more spectrum. The amount of spectrum they have available in any area determines the maximum download speeds they can offer.
To get the deals with the cable companies and Leap cleared, Verizon has already offered to auction other airwaves it isn't using.
T-Mobile, which is a unit of Deutsche Telekom AG of Germany, said the Verizon deal encompasses spectrum in 218 areas, and would improve its spectrum position in 15 of the top 25 markets in the U.S., notably Philadelphia, Washington, Detroit and Seattle. T-Mobile hopes to put the spectrum to use as early as next year, if the Federal Communications Commission approves the deal this summer. "This is good for T-Mobile and good for consumers, because it will enable T-Mobile to compete even more vigorously with other wireless carriers," T-Mobile USA CEO Philipp Humm said, in a statement.
Deutsche Telekom shares fell 2.3 percent in European trading, in line with the overall market. Verizon shares fell 0.7 percent, less than the broader markets. Shares of Sprint Nextel Corp. sank more than six percent on news of the deal. There has been speculation that the No. 3 cellphone company would work out some kind of deal with T-Mobile USA. Shares of Dish Network Corp., the satellite company, also sank on the news, dropping almost five percent. The company has spectrum rights that would be valuable to phone companies, but says it will use the rights to build its own network.