Verizon Wireless 2012 Annual Report Download - page 61

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
NOTE 2
ACQUISITIONS AND DIVESTITURES
Verizon Wireless
Spectrum Licenses
During the third quarter of 2012, after receiving the required regula-
tory approvals, Verizon Wireless completed the following previously
announced transactions in which we acquired wireless spectrum that
will be used to deploy additional fourth-generation (4G) Long Term
Evolution (LTE) capacity:
• Verizon Wireless acquired Advanced Wireless Service (AWS) spectrum
in separate transactions with SpectrumCo, LLC (SpectrumCo) and Cox
TMI Wireless, LLC for which it paid an aggregate of $3.9 billion at the
time of the closings. Verizon Wireless has also recorded a liability of
$0.4 billion related to a three-year service obligation to SpectrumCo’s
members pursuant to commercial agreements executed concurrently
with the SpectrumCo transaction.
• Verizon Wireless completed license purchase and exchange transac-
tions with Leap Wireless, Savary Island Wireless, which is majority
owned by Leap Wireless, and a subsidiary of T-Mobile USA, Inc.
(T-Mobile). As a result of these transactions, Verizon Wireless received
an aggregate $2.6 billion of AWS and PCS licenses at fair value and
net cash proceeds of $0.2 billion, transferred certain AWS licenses to
T-Mobile and a 700 megahertz (MHz) lower A block license to Leap
Wireless, and recorded an immaterial gain.
During 2011, Verizon Wireless entered into commercial agreements,
modified in 2012, with affiliates of Comcast Corporation, Time Warner
Cable, Bright House Networks and Cox Communications Inc. (the cable
companies). Through these agreements, the cable companies and
Verizon Wireless became agents to sell certain of one another’s products
and services and, over time, the cable companies will have the option,
subject to the terms and conditions of the agreements, of selling Verizon
Wireless service on a wholesale basis.
During the fourth quarter of 2012, we entered into license exchange
agreements with T-Mobile and Cricket License Company, LLC, a subsid-
iary of Leap Wireless, to exchange certain AWS licenses. These non-cash
exchanges, which are subject to approval by the Federal Communications
Commission (FCC) and other customary closing conditions, are expected
to close in 2013. The exchange includes a number of intra-market swaps
that will result in more efficient use of the AWS band. As a result of these
transactions, we expect to record an immaterial gain.
On April 18, 2012, we announced plans to initiate an open sale process
for all of our 700 MHz lower A and B block spectrum licenses, subject to
the receipt of acceptable bids. We acquired these licenses as part of FCC
Auction 73 in 2008. On January 25, 2013, Verizon Wireless agreed to sell 39
lower 700 MHz B block spectrum licenses to AT&T Inc. (AT&T) in exchange
for a payment of $1.9 billion and the transfer by AT&T to Verizon Wireless
of AWS (10 MHz) licenses in certain markets in the western United States.
Verizon Wireless also agreed to sell certain lower 700 MHz B block spec-
trum licenses to an investment firm for a payment of $0.2 billion. These
transactions are subject to approval by the FCC and the Department of
Justice (DOJ). When finalized, the sales will result in the completion of the
open sale process. We expect to deploy the remaining licenses as neces-
sary to meet our own spectrum needs.
Alltel Divestiture Markets
As a condition of the regulatory approvals to complete the acquisi-
tion of Alltel Corporation (Alltel) in January 2009, Verizon Wireless was
required to divest overlapping properties in 105 operating markets in
24 states (Alltel Divestiture Markets). During the second quarter of 2010,
AT&T Mobility acquired 79 of the 105 Alltel Divestiture Markets, including
licenses and network assets, for approximately $2.4 billion in cash and
Atlantic Tele-Network, Inc. acquired the remaining 26 Alltel Divestiture
Markets, including licenses and network assets, for $0.2 billion in cash.
During the second quarter of 2010, we recorded a tax charge of approxi-
mately $0.2 billion for the taxable gain associated with these transactions.
Other
During 2012, we acquired various other wireless licenses and markets for
cash consideration that was not significant and recorded $0.2 billion of
goodwill as a result of these transactions.
During 2011, we acquired various other wireless licenses and markets for
cash consideration that was not significant.
During 2010, Verizon Wireless acquired the net assets and related
customers of six operating markets in Louisiana and Mississippi in a trans-
action with AT&T for cash consideration of $0.2 billion. The purchase price
allocation resulted in $0.1 billion of wireless licenses and $0.1 billion in
goodwill.
Merger Integration Charges
During 2010, we recorded pre-tax merger integration charges of $0.9
billion primarily related to the Alltel acquisition. These charges were
primarily due to the decommissioning of overlapping cell sites, preacqui-
sition contingencies, handset conversions and trade name amortization.