(VZ) Verizon Communications Gets a Blow to Spectrum Deal

Verizon Communications’ (VZ) proposed $3.9 billion purchase of wireless spectrum is facing a major setback.

T-Mobile, a unit of Deutsche Telekom, is urging Federal Communications Commission (FCC) to block the deal citing unfair competition. T-Mobile as a strong foe stated that the purchase would lead to concentration of excess spectrum in the hands of Verizon, which is already the largest U.S. mobile service provider with the maximum number of licenses. The deal would also allow the cross selling of each other’s products and services, and raise concerns among some politicians and consumer advocacy groups.

In December last year, Verizon proposed to buy wireless spectrum from a group of cable companies, including Comcast (CMCSA), Time Warner Cable (TWC) and Bright House Networks for $3.6 billion, and radio-spectrum licenses from the privately held cable operator Cox Communications Inc. for $315 million.

The low-cost wireless carrier MetroPCS Communications Inc. (PCS) and ten public interest groups have also joined the conflict. The third-largest U.S. wireless carrier Sprint Nextel Corp. (S) did not oppose to the deal directly but asked for a careful evaluation and its overall impact.

The move comes two months after T-Mobile failed to sell itself to the second-largest U.S. wireless operator, AT&T Inc. (T), amid opposition from the FCC and Justice Department.

On the other hand, Verizon is defending its rival’s antagonism by saying that the spectrum is presently idle and will become useful when made available to customers. Verizon wants to acquire these spectrums in order to support its video content and other data services in the rapidly growing smartphone market, thereby enhancing the download speeds.

We are maintaining our long-term Neutral recommendation on the stock. Currently, the stock retains the Zacks #3 Rank (Hold) for the short term (1–3 months).
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