By J. Sharpe Smith —
Even as a Sprint/T-Mobile merger appears more likely, the Spectrum Screen Order released by the FCC this week may cast some more doubt on the regulatory approval fortunes of the transaction.
The proceeding expounds on how competition between service providers is important to the pricing of service, technology innovation and infrastructure investment. Specifically, the FCC updated the spectrum screen that it uses in its competitive review of secondary market spectrum acquisitions to reflect the suitability and availability of spectrum.
“As expected the FCC changed the denominator calculation of the spectrum screen (and what bands are included in it) as well as offered some subtle (but seemingly very purposeful) language about the future M&A activity in the industry and how it would be evaluated in terms of spectrum ownership,” Jennifer Fritzsche, senior analyst, Wells Fargo, wrote in a published Equity Research note.
This new denominator is 446.5 megahertz of spectrum, which includes 90 megahertz of AWS-1, 40 megahertz of AWS-4, 10 megahertz of H Block; and 156.5 (of the 194) megahertz of spectrum in the 2.5 GHz band. The higher amount of 2.5 GHz spectrum is significant because it represents a 3X increase over the previous denominator, which was 55 megahertz. Why is 2.5 GHz spectrum so important? Sprint would have to divest its vast holdings of 2.5 GHz spectrum in order to couple with T-Mobile, and Verizon Wireless is the obvious buyer.
“We note this was something Verizon Wireless was especially passionate about getting included in this screen calculation — as it represents a real asset for Sprint,” Fritsche wrote.
The FCC created a spectrum reserve provision for the 600 MHz band and then stated it would revisit that decision if there are “significant changes in the marketplace structure affecting the top four nationwide providers and their spectrum holdings.”
“We believe this language is very purposeful and could signal the FCC’s displeasure with the possibility of a Sprint/T-Mobile merger,” Fritzsche wrote. “According to our regulatory legal experts, this language could indicate that if this transaction is filed, the FCC will disallow Sprint, T-Mobile, or both from bidding on the 600 MHz band spectrum reserved for all bidders except AT&T and Verizon Wireless.”
J. Sharpe Smith is senior editor, AGL Link.