Analysts: Verizon Spectrum Bid Risky, But Not Necessarily Nuts

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Bloomberg reports that Verizon Wireless, the biggest winner of airwaves in a government auction that ended this week, may have made a risky investment, Goldman Sachs Group said:

“The company spent $9.36 billion on airwaves in three blocks, each with their own challenges,” Goldman analyst Jason Armstrong said in the report. “With the biggest block, bought for $4.74 billion, Verizon needs to let any type of device run on the network. Another block may have interference, and a third chunk came at an extremely high price.”

According to the article, Verizon Wireless outbid larger rival AT&T to acquire the airwaves, which will help handle tasks such as sending video to phones. The companies, seeking to bolster growth through wireless subscriptions as customers drop home-phone lines, drove up the prices in the bidding contest, while fending off competition from new entrants such Google (which may have just been a bluff all along).

More than 80 percent of the entire spectrum up for bid went to either Verizon or AT&T. But Jennifer Fritzsche, an analyst at Wachovia Securities in Chicago, said in the report that Verizon’s aggressiveness here makes sense: “They bought to protect their only really meaningful vehicle for growth right now,” she said. “Wireless is key to their earnings.”

(Image credit: wireless.fcc.gov)