Verizon (NYSE:VZ) continues to add to its Christmas shopping list with another announcement that it has entered into an agreement with cable operator Cox Communications to purchase its 20MHz AWS spectrum licenses for $315 million. [1] The deal is similar in nature to Verizon’s earlier deals with Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWC) and Bright House Networks, which will also allow the two companies to sell each others’ products and services through their individual sales channels. Further, Cox may have the option to wholesale Verizon’s wireless service in the future.
Our price estimate for Verizon’s stock is $43.50, which is about 15% above market price.
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Verizon shows why it’s the market leader
The announcement comes even as AT&T struggles to close out its T-Mobile deal, highlighting Verizon’s foresight and dominance in the wireless sector. Verizon was the first to start rolling out a LTE network, realizing its potential much sooner than competitors. Starting around this time last year, Verizon has so far moved with impressive speed to cover over 200 million people in 190 markets across the U.S. In comparison, its nearest rival, AT&T, has only managed about one-third as much coverage in only 15 markets across the U.S. while Sprint is yet to launch its LTE network.
Should the deal receive regulatory approval, Verizon will be able to use the spectrum to build out its own LTE network and expand coverage pulling itself further away from competitors. The wireless market is mostly saturated with fewer subscribers than wireless connections available. In such a marketplace, it becomes really important for carriers to compete on better customer services such as higher speeds and lesser congestion. By acquiring additional spectrum, Verizon will be able to expand its high-speed network while keeping it congestion-free, thereby luring away more smartphone users from its rivals and winning market share. (see Verizon Scores Huge Win in $3.6 Billion Spectrum Deal)
What impresses us most about Verizon is that its recent moves are suffocating its major rival, AT&T. Going by AT&T’s desperate moves to secure the T-Mobile deal, the company is facing a severe spectrum crunch in its plans to launch LTE. Its T-Mobile deal has faced major regulatory hurdles and looks to be going nowhere. By moving quickly to buy out spectrum from the cable operators, Verizon is limiting AT&T’s options outside T-Mobile while also securing its own spectrum needs for the future. Moreover, it will face lesser regulatory opposition while seeking approvals for these deals. (see Unlike AT&T, Verizon Will Avoid Major Regulatory Hurdles Obtaining New Spectrum)
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Notes:- COX COMMUNICATIONS ANNOUNCES AGREEMENT TO SELL ADVANCED WIRELESS SPECTRUM TO VERIZON WIRELESS, Company press release, December 16th, 2011 [↩]
