Verizon Wireless works FCC angle in T-Mobile deal

Verizon has announced a deal to swap Advanced Wireless Services spectrum with T-Mobile in a move that could bolster the latter's network and plans to roll out next-gen services. But Verizon isn't just being altruistic. The wireless giant needs the Federal Communications Commission to approve its own spectrum buying binge.

In a statement, Verizon Wireless and T-Mobile said they will swap spectrum in certain markets. The catch? The spectrum T-Mobile would get is dependent on Verizon's transactions with SpectrumCo (a cable consortium), Cox and Leap. If Verizon closes its $3.6 billion deal -- announced late last year -- T-Mobile gets spectrum. Verizon has criticized the FCC's review of its SpectrumCo deal.

Given that the FCC wants a healthy T-Mobile since it scuttled the carrier's merger plans with AT&T in the name of competition, the Verizon proposal seems like a fair trade.

Terms of the deal weren't disclosed, but T-Mobile will give cash to Verizon amid the spectrum swap. Analysts said Verizon will swap AWS holdings in 218 markets in the U.S. T-Mobile will acquire 60 million POPs from Verizon in exchange for 22 million POPs and cash.

Analysts said the Verizon deal with T-Mobile is all about the regulators. Wells Fargo analyst Jennifer Fritzsche said:

This is a proactive move by Verizon to improve its position with regulators that are reviewing the SpectrumCo acquisition by helping T-Mobile acquire needed spectrum and likely reducing its pro forma AWS holdings in cities where it would have the highest concentration in the band. This is a positive transaction for both Verizon and T-Mobile, in our opinion, and should bolster the chances of the SpectrumCo transaction being approved.

Stifel Nicolaus analyst Christopher King said:

Our sense is the deal would address or largely address the FCC's spectrum concentration concerns resulting from Verizon's planned purchase of cable AWS (advanced wireless service) spectrum. T-Mobile has been one of the most vociferous critics of the Verizon-cable spectrum transfer, arguing that Verizon should be forced to divest significant chunks of spectrum to alleviate concerns about its post-transaction spectrum holdings.

For wireless services buyers, the Verizon-T-Mobile deal works out. Verizon gets its spectrum and helps out T-Mobile's network. T-Mobile has the potential to be disruptive on wireless pricing.

This story was originally published at ZDNet's Between the Lines under the headline "Why Verizon Wireless helped T-Mobile: To appease the FCC."