Verizon Spectrum Buy Gets DOJ Nod

After many twists and turns in the last eight months, Verizon Wireless’ proposed purchase of wireless spectrum finally seems to be reaching its last chapter, with a successful ending. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ - Analyst Report) and Vodafone Group Plc (VOD - Analyst Report).

The Department of Justice (DOJ) finally approved Verizon’s $3.9 billion airwaves buyout deal with two cable companies – Cox Communications and SpectrumCo. Notably, SpectrumCo is a group of cable companies including Comcast Corp. (CMCSA - Analyst Report), Time Warner Cable (TWC - Analyst Report) and Bright House Networks. The regulators have nevertheless put certain conditions to control unfair competition and higher prices to consumers.

The agency said the U.S. wireless leader would not be able to sell products and services of cable operators in the area where it sells its own products. Verizon already offers FiOS television and Internet services to its consumers, giving strong competition to cable operator.

In addition, the DOJ has reduced the span of the agreement to five years (ending in December 2016) and any extension would again require a new approval from the regulators. Further, Verizon Wireless will have to proceed with its plans to swap radio spectrum with the fifth largest wireless service provider T-Mobile USA, a unit of Deutsche Telekom (DTEGY).

The transaction is still pending clearance from the Federal Communications Commission, which is expected to be received shortly.

In brief, the approval allows Verizon to continue offering bundled services that include DSL, wireless and satellite TV; and enables cable operators to sell wireless services from Verizon’s competitors after five years and resell Verizon wireless services using their own brands.

We are maintaining our long-term Neutral recommendation on Verizon. Currently, the stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).