Cable giants cash out for $3.6 billion in spectrum sale


Verizon Wireless is paying $3.6 billion to buy 122 Advanced Wireless Services spectrum licenses from SpectrumCo LLC. That’s a joint venture of Comcast, Time Warner Cable and Bright House Networks.

The licenses cover 259 million POPs (point-of-presence), which is how the wireless industry measures its reach.

Comcast owns 63.6% of SpectrumCo and will receive approximately $2.3 billion from the sale.  Time Warner Cable owns 31.2% of SpectrumCo and will receive approximately $1.1 billion.  Bright House Networks owns 5.3% of SpectrumCo and will receive approximately $189 million. 

“This sale of spectrum is an important step toward ensuring that the needs and desires of consumers for additional mobile services will not be thwarted by the current spectrum shortage,” said the announcement from Verizon Wireless. “While government action to free more spectrum is expected, this transaction ensures that the spectrum which is already available for mobile services is used effectively to serve customers.”

In addition to the spectrum sale, the three cable companies have entered into agreements with Verizon Wireless to market each other’s products and services. The cable companies, on the one hand, and Verizon Wireless, on the other, will become agents to sell one another’s products and, over time, the cable companies will have the option of selling Verizon Wireless’ service on a wholesale basis, the parties said. Additionally, the cable companies and Verizon Wireless have formed an innovation technology joint venture for the development of technology to better integrate wireline and wireless products and services.

“These agreements, together with our Wi-Fi plans, enable us to execute a comprehensive, long-term wireless strategy and expand our focus on providing mobility to our Xfinity services.  We’re excited about this partnership with Verizon Wireless and the future innovations we will bring to consumers,” said Comcast Cable President Neil Smit.

Dan Mead, President and CEO of Verizon Wireless, said, “Americans deserve excellence from a wireless service provider, and innovative wireless companies plan ahead in order to deliver on that expectation.  Spectrum is the raw material on which wireless networks are built, and buying the AWS spectrum now solidifies our network leadership into the future, and will enable us to bring even better 4G LTE products and services to our customers.  American businesses and consumers can have confidence that the best wireless network has the foundational resources to deliver on that promise.”

“We’re excited to be able to offer the nation’s best wireless services to our customers and to have Verizon Wireless as a sales channel for our superb wireline services.   We’re also pleased to have obtained an attractive price for the spectrum we’re selling,” said Time Warner Cable President and Chief Operating Officer Rob Marcus said.

“We are always looking for ways to provide new and exciting product offerings for our customers.  We look forward to working with our partners through these agreements toward achieving that end goal to add additional value for our customers,” said Bright House Networks CEO Steve Miron.

The spectrum sale is subject to approval by the FCC and antitrust regulators.

RBR-TVBR observation: This seems like a good deal on both sides. Verizon Wireless gets more spectrum for expansion without waiting for any clearing by the FCC and Congress, while the cable companies turn a nice profit on their spectrum investment. Analyst Marci Ryvicker at Wells Fargo Securities notes that the joint venture paid $2.4 billion for these licenses in 2006, so it looks like the investment returned a 60% profit.

Ryvicker says the deal also removes the fear by investors that the cable companies might actually spend big money to build out their own wireless infrastructure and answers the question for Comcast and TWC “what is the wireless strategy?”

The analyst also notes that Dish Network owns a big chunk of wireless spectrum and she used this sale to put a valuation on it. “Our back of the envelope calculation of the $3.6B sale of Spectrum Co. gets us to a $0.695/MHz/pop value for the AWS spectrum. Applying this to DISH’s [MSS and 700MHz] spectrum gets us a $10B value, or roughly $22 [per share] in equity value, which is clearly not in DISH’s stock price. While 2.0GHz would currently sell at a discount to AWS, it could appreciate to that value given the ‘upcoming spectrum crunch’,” Ryvicker wrote.