(Reuters) - Verizon Wireless plans to put a chunk of wireless spectrum up for sale in a move that is seen improving its chances of gaining regulatory approval of its controversial plan to purchase a block of spectrum from cable service providers.
The company’s offer to sell spectrum follows opposition from several smaller rivals to its efforts to buy about $3.9 billion worth of wireless airwaves from cable companies including Comcast Corp (CMCSA.O) and Time Warner Cable Inc TWC.N.
Verizon Wireless, the biggest U.S. mobile provider, said its plan, announced on Wednesday, to sell A and B spectrum licenses in the 700 Megahertz (MHz) frequency band will only go ahead if the U.S. Justice Department and the Federal Communications Commission approve its cable deal.
Verizon rivals Sprint Nextel (S.N), T-Mobile USA and MetroPCS Communications PCS.N, all complained to the FCC about the bigger company’s deal with the cable companies on the basis that additional spectrum would give too much market power to the already dominant company.
The FCC declined to comment on Verizon’s proposal. However, analysts said it should help Verizon’s case with regulators.
“The best way to take the wind out of (its rivals) argument is to offer up some of their spectrum” said Pacific Crest analyst Steve Clement who sees the sale was “shrewd move.”
However RCA, a trade group of smaller callers, whose members include Sprint, T-Mobile USA and MetroPCS, said the proposal was “not sufficient to resolve competitive concerns.”
Molly Feldman, vice president of business development questioned whether the sale would have any impact on the current FCC process but told Reuters she expects to make a profit on the licenses which Verizon Wireless bought for $4.4 billion in 2008.
“We anticipate there being strong interest in this spectrum” Feldman said, adding that she expects the FCC to view the proposal positively.
U.S. wireless service providers all say they are in dire need of access to more airwaves in order to support heavy demand for data services such as mobile video.
But Pacific Crest’s Clement said it was not immediately clear whether smaller companies like MetroPCS or T-Mobile USA would be in a position to pay a high price for the licenses.
He noted that the spectrum Verizon wants to buy from the cable operators would be far more attractive to T-Mobile USA than the spectrum Verizon is proposing to sell. Officials from T-Mobile USA and MetroPCS were not immediately available for comment. Sprint declined comment.
Verizon’s biggest rival AT&T Inc (T.N) has said it would look at all options for gaining more spectrum after regulators last year blocked its efforts to buy No. 4 U.S. mobile service, T-Mobile USA, a Deutsche Telekom (DTEGn.DE) unit. AT&T declined to comment on Verizon’s announcement.
While AT&T has much deeper pockets than MetroPCS or T-Mobile USA Clement speculated that AT&T could be more interested in the B licenses than the A licenses, which could potentially cause interference problems with broadcasters in nearby bands.
“Traditionally you’ve seen the value of spectrum go up. It should be fair to assume they’d expect a premium. At the same time it’s possible the market of folks who can afford to pay a lot is relatively thin,” he said.
Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L), said it hopes the spectrum purchase is approved by mid-summer. The cable deal also involves a service resale agreement and the formation of a joint venture.
Feldman told Reuters that the licenses come with conditions, which would require a buyer to put a certain amount of the spectrum to use for a wireless network by June 2013. But she said she does not expect this to dampen demand.
“Since wireless operators, large and small, have expressed concern about the availability of high-quality spectrum, we believe our 700 MHz licenses will be attractive to a wide range of buyers,” Feldman said in a statement.
“Moreover, provided our acquisition of AWS spectrum is approved, our open sale process will ensure these A and B spectrum licenses are quickly and fairly made available for the benefit of other carriers and their customers,” Feldman said.
Verizon Wireless would begin the sale process of the A and B licenses it bought in a 2008 FCC auction, once the cable deal is completed. It is already building high-speed wireless services in the upper C block of spectrum in the 700 MHz band and aims to supplement with the spectrum from the cable companies.
It has hired Stephens Inc to manage the spectrum sale process.
Reporting By Sinead Carew; Editing by Gerald E. McCormick, Leslie Gevirtz