The largest U.S. wireless provider, Verizon Communications (VZ) has completed its swap deal to acquire spectrum from the low-cost wireless service provider Leap Wireless (LEAP). The deal was announced in December last year.
Verizon acquired 23 PCS licenses and 13 Advanced Wireless Service (AWS) licenses across the U.S. for $120 million. The transaction will enable Verizon to offer services at a much-higher speed, and thereby boost its data revenues. The purchase would increase the current number of Verizon airwaves available for Long Term Evolution, a 4G network.
The transaction further strengthens Verizon’s position against its major rivals Sprint Nextel Corp. (S), which is a turnaround story, and AT&T Inc. (T), which is still in need of additional airwaves.
The completion of the swap deal was the condition of the Department of Justice (DOJ) and Federal Communications Commission (FCC) for approving the purchase of $3.9 million wireless spectrum from a group of cable companies. Verizon gained all necessary approvals to buy airwaves from Cox Communications and SpectrumCo, a group of cable companies including Comcast Corp. (CMCSA), Time Warner Cable (TWC) and Bright House Networks.
Now, Verizon has to finalize its radio spectrum swap deal with the fifth largest wireless service provider T-Mobile USA, a unit of Deutsche Telekom (DTEGY). The deal is expected to be finalized within a month.
We believe the spectrum deals would be accretive to Verizon in the long term and reshape the overall telecommunication industry when demand for smartphones is at its peak. But it might put pressure on the balance sheet in the short term due to reduced cash balances and increased capital expenditures.
We are maintaining our long-term Neutral recommendation on Verizon. Currently, the stock retains the Zacks #3 (Hold) Rank for the short term (1-3 months).
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