Weekly Telecom Notes: Verizon’s Vodafone Stake, Sprint-Clearwire Saga and AT&T’s LTE Binge

by Trefis Team
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The past week was an exciting one for the U.S. telecom sector. The Sprint-Clearwire-Dish tussle took an interesting turn as Clearwire accepted a second monthly financing of $80 million from Sprint (NYSE:S), giving the latter an opportunity to further increase its stake in the wholesale provider and decreasing Dish’s chances at acquiring the same. 

Verizon (NYSE:VZ) squashed all rumors that had sprung up regarding a potential bid for Vodafone’s stake in Verizon Wireless with a public statement that clarified that there were no such plans right now. Meanwhile, AT&T (NYSE:T) launched LTE in 14 new markets this week, taking its population coverage past the 170 million mark and decreasing the gap with industry leader Verizon.

Sprint

Sprint’s takeover attempt of Clearwire looks a lot more likely now that the smaller carrier has decided to accept a second monthly payment of $80 million in April from its largest shareholder. The convertible debt financing is part of the $2.97 per share buyout offer that Sprint had made in December for the remaining 49% of Clearwire’s shares that it doesn’t currently own. As part of that offer, Sprint had set aside a pool of $800 million that Clearwire could withdraw from in 10 equal monthly installments. Clearwire did not initially access the pool in January and February as it evaluated a higher $3.30 per share counter-bid from Dish Network, but has now yielded for two consecutive months despite Dish’s threat of withdrawing its offer in such a scenario. Dish has so far neither acted upon that threat nor given an update regarding the status of its Clearwire bid.

This however doesn’t guarantee that the wholesale service provider will accept Sprint’s offer given some of the minority shareholders’ concerns that the deal significantly undervalues Clearwire’s spectrum. But since Sprint’s debt will get converted into Clearwire’s shares in case the buyout deal doesn’t go through and help it further increase its stake in the company, it could prove to be a big deterrent for a third-party buyer such as Dish to pursue Clearwire for much longer. (see Clearwire Rebuffs Dish By Accepting Second Monthly Financing From Sprint)

Verizon

Verizon recently issued a public statement saying that it has no plans to bid for Vodafone’s stake in Verizon Wireless, quelling multiple speculations that had been made in the last few months regarding the future of the wireless joint venture. This week alone, there were fresh speculations about Verizon roping in AT&T for a joint bid on Vodafone which caused both Verizon and Vodafone’s stocks to make new multi-year highs. But the revelation has now put paid to investors’ hopes of seeing the U.S. telecom giant exert greater control over its wireless cash cow anytime in the near future. Verizon however maintained that it continues to harbor wishes of taking full control of the wireless carrier but has no intention of doing so right now. Going by Verizon’s statement, we believe that the carrier may have expressed interest in buying out Vodafone’s 45% stake in Verizon Wireless but the parties could not come to an agreement over the valuation of the sale.

AT&T

With Verizon racing away with its LTE expansion plans, AT&T is aggressively ramping up its own LTE roll-out. The second largest wireless carrier in the U.S. recently announced the addition of 14 new markets to its growing LTE coverage, taking its total tally to 175 and boosting its population coverage to over 170 million. While this still leaves AT&T some way behind Verizon, which has already covered over 270 million Americans with its 4G LTE network, the carrier has come a long way since the start of 2011 when it had less than half the current LTE coverage. By the end of 2013, the carrier plans to reach 250 million Americans with its LTE network; so Verizon’s big LTE lead shouldn’t be a concern to AT&T’s shareholders for long.

With 2013 shaping up to be a big year for high-speed LTE, AT&T has also drawn up an elaborate plan that will see it spend as much as $14 billion on network upgrades over the next few years. The investment will not only go towards expanding LTE coverage to new markets but also improve network quality and spectrum efficiency. In addition to spending on infrastructure upgrades, AT&T is bolstering its spectrum position with a host of spectrum deals that will help it increase network capacity and expand 4G LTE coverage. (see AT&T Continues Acquisition Spree To Meet LTE Spectrum Needs)

Like other carriers, AT&T is betting on the growing customer demand for data in order to recoup the high CapEx costs over the long-term. As LTE adoption grows and the technology gradually becomes a network standard, AT&T is looking to catch up with Verizon’s far wider LTE network in both coverage and quality as soon as possible  in order to avoid losing market share in an increasingly saturated wireless market.

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