MVP Spectrum & Tower Update - January, 2012

Media Venture Partners (“MVP”) believes 2012 will be a very exciting year for tower owners and developers.  Verizon’s recent announcements to acquire over $4 billion of AWS spectrum, AT&T’s termination of its proposed merger with T-Mobile, and the FCC’s approval of AT&T’s acquisition of Qualcomm’s 700 MHz spectrum have turned the spectrum race on its head.  Historically, as wireless carriers have invested in new spectrum, there has been an increase in the amount of lease up and new build activity realized by tower owners.    <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

 

AT&T | T-Mobile Merger:  After nine months of regulatory review and opposition, AT&T's proposed merger with Deutsche Telekom's T-Mobile USA was terminated on December 19, 2011.  As a result of the collapsed $39 billion merger, T-Mobile will receive $3 billion in cash, AWS spectrum (specific licenses have yet to be announced) and a favorable roaming agreement with AT&T.  Given that both AT&T and T-Mobile were focused almost exclusively on the merger for the majority of 2011, MVP believes both wireless operators will refocus their efforts on acquiring spectrum assets.  We anticipate AT&T will focus initially on completing its 700 MHz Lower B and C Block footprint and likely pursue the acquisition of DISH Network's 700 MHz E Block spectrum, which would pair nicely with the E Block AT&T acquired from Qualcomm.  T-Mobile, on the other hand, is likely evaluating many strategic options, including adding to its AWS license holdings through raw spectrum acquisitions and potentially selling its towers.

 

Verizon AWS Acquisitions:  Between November 23, 2011 and December 16, 2011, Verizon announced the acquisition of 171 AWS licenses representing more than 6.3 billion MHZ pops from SpectrumCo, Cox Wireless and Leap Wireless.  With those acquisitions, Verizon will be the largest holder of AWS spectrum. Below we have highlighted key points from each transaction.

 

Verizon | Leap Spectrum Swap:  Verizon is trading its 700 MHz A Block license covering Chicago, IL (valued at $204 million) and $156 million in cash to Leap in exchange for 24 PCS and 17 AWS licenses from Leap (valued at $188 million) and two AWS licenses from Leap affiliate Savary Island Wireless (valued at $172 million).  The 41 PCS and AWS licenses Leap owns cover more than 49.7 million pops and are valued at $0.32 per MHz pop.  The two Savary Island Wireless AWS licenses cover 27.6 million pops and are valued at $0.62 per MHz pop.  The 700 MHz A Block Chicago license covers more than 11 million people and has an implied value of $1.54 per MHz pop, representing a 33% premium to the price Verizon paid for the license in Auction 73.

 

Verizon | SpectrumCo Deal:  Verizon is acquiring 122 AWS licenses for $3.6 billion from SpectrumCo, a joint venture between Comcast, Time Warner Cable and Bright House Networks.  The licenses cover more than 269 million pops, representing a value of $0.68 per MHz pop and an 80% premium to Auction 66 prices.  Additionally, all three cable companies will be given the opportunity to resell Verizon Wireless service to their respective customers.

 

Verizon | Cox Wireless Deal:  Verizon agreed to acquire 30 AWS licenses covering a population of more than 28 million from Cox Wireless for $315 million.  The transaction represents a value of $0.56 per MHz pop and a 70% premium to Auction 66.  Notably, this transaction did not include Cox Wireless' 700 MHz licenses.  Similar to the SpectrumCo transaction, Cox will have the opportunity to resell Verizon Wireless service.

FCC Approval of AT&T | Qualcomm Spectrum Transaction:  On December 23, 2011, the FCC approved AT&T’s $1.9 billion acquisition of Qualcomm’s 700 MHz D and E Block spectrum.  The FCC approved the transaction without the requirements for interoperability that several parties had requested.  This transaction is notable because both the 700 MHz D and E Blocks are one-way, unpaired blocks of spectrum.  AT&T’s acquisition of these blocks insures its commitment to Qualcomm’s Asymmetric Downlink Technology and also solidifies this technology’s position in the LTE standards.  We believe the move to asymmetric technology will change the way carriers pursue spectrum both in FCC auctions and in the secondary market.

 

Conclusion

 

The overall result of these industry-shifting events will be increased deployment in both the 700 MHz and AWS bands.  MVP believes AT&T will accelerate its LTE deployment in all of its 700 MHz bands.  We also believe that Verizon and T-Mobile will bolster their respective AWS positions in select markets.  How does this effect tower owners?  Verizon’s commitment to the AWS band should create additional lease up as well as more add/ mods of existing installations.  With limited opportunities to acquire additional PCS spectrum we expect carriers to cell split and look for new sites in congested areas. 

 

For tower owners, we believe 2012 will be much more robust than 2011 in terms of new site builds and lease up on existing towers.  While AT&T and Verizon will continue their pattern of modifying their existing sites through lease amendments, we also believe they will be more aggressive in deploying new sites as they compete for new customers.  We believe T-Mobile will resume its rural roaming overbuild.  While it will focus on colocating on existing towers in those markets, it may need to build additional towers to satisfy both capacity and coverage needs.  Sprint’s Network Vision project will continue to result in lease modifications.  With Clearwire now having a more certain future, we expect to see them to modify installations in some markets to bolster their network.  With the uncertainty created from the AT&T and T-Mobile merger now removed, carriers will more than ever be focused on expanding their coverage and capacity through spectrum acquisitions and additional site deployment.

 

ABOUT MEDIA VENTURE PARTNERS

 

Media Venture Partners is a San Francisco-based investment bank specializing in telecom, media and technology companies.  We provide merger and acquisition and capital raising services.

 

Since MVP was founded in 1987, the firm has completed hundreds of transactions representing more than $15 billion in value.  During 2011, MVP completed more telecom, media and technology transactions in the U.S. than any other M&A advisory firm (Source: SNL Kagan). 

 

In the tower industry, MVP’s team has completed over 110 transactions with an aggregate value of over $1.5 billion - the most of any intermediary - while MVP's telecom practice has completed over 60 spectrum transactions with an aggregate value of nearly $1 billion.

 

Please contact us if you have any questions about the current tower market and what it may mean for your tower sites.  We look forward to hearing from you soon.

 

Clayton Funk | Managing Director | cfunk@mediaventurepartners.com | 816.523.8566

Jason Hill | Managing Director | jhill@mediavneturepartners.com | 617.345.7316

Greg Widroe | Managing Director | gwidroe@mediaventurepartners.com | 415.391.4877

Tim Beach | Vice President | tbeach@mediaventurepartners.com | 415.277.0878

Jason Nicolay | Associate | jnicolay@mediaventurepartners.com | 816.994.7640

Kent Johnson | Associate | kjohnson@mediaventurepartners.com | 415.277.0877