Cincinnati Bell has sold its wireless spectrum licenses and some tower leases to Verizon Wireless for $210 million. The total value of the deal is estimated to be 4.5 and 6 times 2014 and 2015 adjusted EBITDA, respectively. The deal is expected to close in the second half of 2014.
But you won’t see the spectrum on Verizon’s books, however. The carrier turned around and assigned its rights to acquire the spectrum licenses being sold by Cincinnati Bell to Grain Management, a small private equity firm. Verizon Wireless will then lease spectrum from Grain Management.
This spectrum two-step has happened before. Last September, Verizon Wireless sold lower 700-MHz B Block licenses covering the Charlotte, Greensboro and Raleigh-Durham markets in North Carolina to Grain Management for $189 million. Grain then leased the spectrum to AT&T. In addition, Verizon Wireless began leasing an AWS license covering Dallas from Grain Management, which Grain had acquired from AT&T.
Why is Grain Management buying spectrum and then leasing it out? From a business model standpoint, it could be compared with its other business buying towers and leasing space. As everyone knows, spectrum is money. Grain Spectrum Funding raised more than $330 million backed by payments due from AT&T and Verizon Wireless pursuant to two leases of wireless spectrum.
From the perspectives of AT&T and Verizon Wireless, having a small private equity firm own the spectrum may help from a regulatory standpoint with getting nods from the FCC and the Department of Justice. Especially with Sprint’s Son Masayoshi calling on the industry to fight the “wireless duopoly,” AT&T and Verizon Wireless have more incentive than ever to avoid the appearance that their spectrum caches continue to grow.