Fitch Comments on Verizon Wireless' Proposed $3.6B Spectrum Purchase

In Fitch Ratings' view, Verizon Wireless' plan to pay $3.6 billion to acquire 122 Advanced Wireless Services wireless spectrum licenses pursuant to an agreement with SpectrumCo, LLC, will not have an effect on the current credit profile of Verizon Communications Inc. or Verizon Wireless. The licenses, nearly all of which cover 20MHz of spectrum, are in markets covering 259 million person of population. SpectrumCo is a joint venture between Comcast Corporation, Time Warner Cable and Brighthouse Networks. The spectrum acquisition is expected to close in mid-2012 and is subject to regulatory approval. In Fitch's opinion, the spectrum acquisition is a long-term positive with respect to the spectrum position of Verizon Wireless and the potential demands on its network of continued, rapid wireless data growth. The acquired spectrum will also complement Verizon Wireless' existing AWS spectrum portfolio, which is located east of the Mississippi River. The acquisition is expected to extend the adequacy of Verizon Wireless' spectrum position in a significant number of markets to beyond its previously stated date of approximately 2015. The wireless industry as a whole is facing capacity constraints while the Federal Communications Commission engages in a painfully slow process of allocating new spectrum. While Fitch expects progress in 2012 regarding timeframes for future auctions of additional broadband spectrum, Verizon Wireless will be in a strong position within the industry with regard to spectrum capacity for the foreseeable future in a majority of its markets without facing the uncertainty of the auction process. Verizon Wireless has ample financial flexibility with which it can finance the $3.6 billion spectrum acquisition as well as a $10 billion distribution in January 2012 to its partners--Verizon and Vodafone Group Plc. Simple free cash flow (FCF) (EBITDA less capital spending) at Verizon Wireless was $17.4 billion for the latest 12 months (LTM) ending Sept. 30, 2011. In addition, Verizon Wireless had indicated that the $10 billion distribution, when declared in mid 2011, was one-time in nature and would be subject to the need to invest in the wireless business. Fitch expects the spectrum acquisition will be taken into account when the next distribution is considered.