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As per a Bloomberg report on Dec 18, leading telecom carrier, Verizon Communications Inc. (VZ - Analyst Report) is reportedly swapping spectrum with T-Mobile US Inc. (TMUS - Snapshot Report). According to a Federal Communications Commission (FCC) filing, both these companies are reportedly exchanging airwaves license in 518 U.S. counties covering about 133 cities and towns.

The deal involves exchange of advanced wireless service (AWS) and personal communications service spectrum. We believe the move will allow both the companies to beef up their spectrum holding in key coverage areas as well as streamline unprofitable assets in the form of unused airwaves.

The news failed to see much reaction in the market. The Verizon stock prices did not register much change and closed at $48.43 on Thursday closing. However, T-Mobile USshares grew around 9% to $29.61 on Thursday closing in comparison to $27.25 at Wednesday’s closing.  

According to the FCC filing, Verizon and T-Mobile are exchanging 10–20 MHz of AWS-1 spectrum in 285 counties across 59 markets. In terms of AWS swaps, Verizon would provide 10 MHz of AWS spectrum to T-Mobile in 16 counties across four cellular markets. In exchange, T-Mobile would assign 10–20 MHz of AWS spectrum to Verizon in 26 counties across nine cellular markets.

With respect to PCS spectrum exchange, both the companies would exchange 5–20 MHz of PCS spectrum covering 153 counties across 47 markets. Additionally, Verizon would assign 20 MHz of PCS spectrum to T-Mobile in 11 counties across three cellular markets in Texas and receive 10 MHz of PCS spectrum in exchange. Going forward, Verizon will also offer 5–10 MHz of PCS spectrum in 34 more counties across 13 cellular markets to T-Mobile.

According to the news report, Verizon has struck a separate agreement with T-Mobile US for swapping these spectrums other than its existing deal to sell its 700-megahertz A-block spectrum to T-Mobile US Inc. According to news reports, Verizon spent around $2.4 billion for acquiring these spectrums covering 150 million POPs and company’s willing to repurchase these from Verizon have to strike an at par deal if not more.

Spectrum crunch has become the major issue in the U.S. telecom industry that has a saturated wireless market. Most of the carriers are finding it increasingly difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of Apple Inc. (AAPL - Analyst Report) iPhone and Google Inc. Android-based smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services. We believe the new spectrum exchange between companies and new auction by FCC will likely open up new channels for the companies to address airwaves shortage and issues related to it.

Verizon has a Zacks Rank #3(Hold).

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