An Ignoble Experiment

2. Deutsche Telekom improves offer in T-Mobile/MetroPCS merger

Verizon Wireless (NYSE:VZ) launched a prepaid plan that includes 500 minutes and unlimited mobile web and texting. The plan goes for $35 per month and is only be available on basic phones.

Verizon spokesman David Samberg confirmed the news to FierceWireless. The plan is only available on the 3G CDMA-capable LG Cosmos 2, Samsung Gusto 2, Samsung Intensity III and LG Extravert. Thus, the plan will not be available to smartphones such as those running Android or iOS.

Samberg explained that the plan is designed to appeal to Verizon customers who are heavy data and text users but who don't make many voice calls. For those customers who use more than 500 minutes in a month, extra minutes will cost 25 cents each.

The $35 plan will sit next to Verizon's existing $50 prepaid plan, which offers unlimited calling, texting and data on a handful of 3G feature phones including the LG Cosmos 2 and the Samsung Intensity III.

Verizon's new $35 prepaid plan is an attempt by the carrier to dip into the low-cost, prepaid market, which is dominated by the likes of Sprint Nextel's (NYSE:S) Virgin Mobile, Leap Wireless' (NASDAQ:LEAP) Cricket, MetroPCS (NYSE:PCS) and others. (The plan also takes advantage of CDMA capacity freed by Verizon's LTE network launch.) Verizon has primarily targeted the postpaid market for wireless service, though the carrier has made increasing movements into the prepaid space. As of the end of the fourth quarter, Verizon counted 5.7 million total prepaid customers and 92.5 million postpaid customers.

Indeed, Verizon's new $35 plan could be an attempt by the carrier to goose its prepaid numbers. Verizon added 142,000 prepaid customers in the fourth quarter of 2012 down from the 228,000 it added in the third quarter of 2012 and the 252,000 it added in the same quarter a year prior.

Further, Verizon could be attempting to take advantage of its rivals' troubles. During the fourth quarter Leap reported losing 337,000 net prepaid subscribers, MetroPCS lost 93,000 prepaid customers and AT&T Mobility (NYSE:T) lost 166,000 prepaid subscribers.

The $35 plan from Verizon is the carrier's latest prepaid tweak. Verizon in February effectively cut the price of its high-end prepaid smartphone plan from $80 to $70, bringing its prepaid pricing closer to rival AT&T. Verizon also offers a $60 per month prepaid smartphone plan with unlimited voice, texting and 500 MB of data.

Verizon also offers prepaid plans with per-minute and per-day pricing.

Read more about: Leap Wireless, prepaid, Virgin Mobile
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This week's sponsor is ID Analytics.

By Phil Goldstein

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3. FCC budget allocates $500M for broadcasters, but disagreements remain

T-Mobile USA parent Deutsche Telekom sweetened its offer for MetroPCS (NYSE:PCS) shareholders less than two days before MetroPCS shareholders will vote on a merger between MetroPCS and T-Mobile. The move represents a major concession by DT to MetroPCS shareholders, which have been demanding for weeks that the company improve its offer.

DT said in a statement that under the revised terms of its "best and final offer" it will slash the amount of debt the combined company will hold by $3.8 billion. DT also said it will lower the interest rate it plans to charge on the loan by half a percentage point. The new offer would cut the loans to $11.2 billion, from $15 billion.

Additionally, DT also expanded the so-called "lock-up period," during which it cannot publicly sell shares in the company, to 18 months after the deal closes. Importantly, however, the new offer does not change the ownership structure of the combined company, in which DT will own 74 percent.

MetroPCS delayed the shareholder vote on the deal to April 24. New Street Research analyst Jonathan Chaplin wrote in a research note that the deal should now be able to pass muster with MetroPCS shareholders.

"While the improved offer is below the [$6 billion] in debt reduction we had pushed for, we believe it is enough to get the deal done," Chaplin wrote. "The company has been on the road meeting with investors over the last several weeks and should have a good sense of what would be required to get the deal approved."

"With deal terms settled, the focus shifts to fundamentals, specifically, the turnaround of postpaid," Chaplin wrote. "We continue to think that it could take longer and cost more than mgmt. has forecast. The recent improvement in churn coupled with the iPhone launch should help. The churn reduction seems to be largely driven by the tightening of credit policy and seem to be sustainable; however we don't expect much improvement from here."

MetroPCS has been feuding with two of its shareholders, Paulson & Co. and P. Schoenfeld Asset Management LP, known as PSAM, which argued that the original deal was poorly structured and that MetroPCS shareholders should have rejected it. MetroPCS has argued repeatedly that the shareholders are distorting the terms of the deal, that no other bidder has emerged since last fall, and that MetroPCS shareholders will benefit from being part of the combined company with a stronger spectrum position. Metro's minority shareholders have said they are concerned about the debt load the new company will take on and want MetroPCS to retain a greater share of the combined entity than 26 percent.

PSAM said it was pleased Deutsche Telekom had improved the terms and said it was reviewing the new offer, according to the Wall Street Journal.

For more:
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)

Related Articles:
DT could delay T-Mobile/MetroPCS vote if initial tally comes in short
Deutsche Telekom: We won't change T-Mobile/MetroPCS merger terms
T-Mobile/MetroPCS merger gets thumbs-down from influential proxy adviser
T-Mobile's Legere confident MetroPCS shareholders will approve merger
MetroPCS: We have no other buyer but T-Mobile
MetroPCS shareholder slams company, Linquist over T-Mobile deal
FCC approves T-Mobile/MetroPCS merger

By Phil Goldstein

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4. Clearwire shareholder Crest wages proxy fight to block Sprint deal

President Obama's budget proposal for the 2014 fiscal year sets aside $500 million for the FCC to help TV broadcasters modify their infrastructure to deal with changes that will come with incentive auctions of TV broadcast spectrum, which will be repurposed for wireless broadband.

However, as FCC Chairman Julius Genachowski prepares to step down in the next few weeks, there are signs that significant tension still remains between the FCC and the National Association of Broadcasters.

The incentive auctions, and a large portion of Genachowski's legacy, depend on robust voluntary participation from broadcasters to reach the goal of freeing up 120 MHz of spectrum for mobile broadband. However, broadcasters have remained fairly chilly to the idea, though Genachowski was at the NAB conference in Las Vegas this week to try to bridge the divide.

"The opportunity to free up a significant amount of spectrum for all of our smartphones and tablets is a big, big deal," Genachowski said at the NAB show, according to Reuters. Yet, he said, the auctions are "not a zero-sum game where any time the mobile industry wins, the broadcasting industry loses. This could be the single biggest opportunity in front of us to grow the content economic pie for everyone."

"Mobile is an exciting, new platform for exactly what broadcasters do, which is produce great national and local content," Genachowski added, according to CNET. "If you look back, cable was initially resisted by broadcasters. But ultimately, it's been a boon for the broadcast industry. And given the new economic models, the same thing could happen to mobile."

Under the FCC's proposed rules for the auctions, which are currently scheduled to begin next year, broadcasters will submit bids to relinquish their 6 MHz pieces of spectrum in a reverse auction where the FCC will pay them. The process is voluntary for broadcasters, but many worry that broadcasters might not give up their spectrum based on their previous resistance to the auctions.

After broadcasters give up their spectrum, it will be "repacked" so that broadcasters that do not give up their spectrum can stay on the air--which is what the $500 million in the budget is intended to help with. Then the FCC will conduct a traditional "forward" auction in which wireless carriers will bid for the freed spectrum.

NAB President Gordon Smith was feisty in his response to Genachowski's entreaty. In an interview with Variety, he said Obama, in selecting Genachowski's successor, should give "fair consideration" to selecting someone who "understands the irreplaceable architecture for broadcasting and the demand currently for more broadband. There is a balance there, there is a tension there that needs to be satisfied."

Of Genachowski's stance on that "balance," Smith said: "He certainly gave lip service to it, but I think his strong bias was to the world of broadband. I always tend to look at what people do and not just at what they say, and we have a lot of pressure on us to surrender our spectrum. But once you surrender your spectrum, you don't get it back. And you surrender an industry that the American people can count on, especially in emergencies."

Phil Weiser, a former senior adviser for Obama on technology and innovation who is now dean of the University of Colorado's law school, told the Washington Post that a "two-sided auction" has not been done before.

"The FCC did a fabulous job with the initial spectrum auctions, reflecting a lot of thought and care about how to conduct them," he said. "In this case, the FCC will also have to make a number of important decisions about how the two sides of the auction will be carried out. Because there is no longer free and open spectrum that the government has that it can give out, it is extremely important that the FCC develops this new model and implements the two-sided auction successfully."

On that note, Obama's budget also sets aside $7.5 million in funding for the National Telecommunications and Information Administration to study spectrum usage patterns in 10 major metropolitan areas. Under the program, the NTIA will explore ways to potentially repurpose some government spectrum for commercial uses, which is also a big goal of the FCC.

The budget proposal also calls for the FCC to set user fees for spectrum licenses, which would total $4.8 billion through 2023. However, Obama has included that language in past budgets and Congress has not included it. The fees are opposed by carriers and broadcasters alike.

For more:
- see this WSJ article (sub. req.)
- see this Washington Post article
- see this Reuters article
- see this CNET article
- see this Variety article

Related Articles:
FCC to hold workshop on incentive auction spectrum band plan
FCC's Genachowski to step down; Clyburn, Wheeler, Strickling floated as replacements
CTIA, NAB battle over freeing BAS band for mobile broadband
CTIA's grab at BAS frequencies raises public-safety questions
NAB endorses T-Mobile/MetroPCS deal, points to healthy market for spectrum
FCC to auction 1695-1710 MHz and 1755-1780 MHz bands as early as 2014

Read more about: Julius Genachowski
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By Phil Goldstein

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SPOTLIGHT ON... Network gear vendors race to rake in service revenues

Crest Financial, the largest minority shareholder in Clearwire (NASDAQ:CLWR), made good on its promise to wage a proxy battle in an effort to block Sprint Nextel's (NYSE:S) $2.97-per-share offer to buy the 50 percent of Clearwire that Sprint does not already own.

Crest said it filed a preliminary proxy statement that, if cleared by the Securities and Exchange Commission, will urge Clearwire shareholders to reject the Sprint offer. Last month Crest said it hired proxy-solicitation firm D. F. King & Co. to help it oppose the deal.

A Clearwire spokeswoman declined to comment.

Along with other minority Clearwire shareholders, Crest has said the Sprint proposal undervalues Clearwire; Crest supports Dish Network's (NASDAQ: DISH) conditional $3.30-per-share counterbid to Clearwire. Clearwire's shares were trading at $3.27 per share this morning.

Crest is the largest Clearwire shareholder not allied with Sprint, and holds around 3.9 percent of all common stock of Clearwire. Last week Crest proposed that Clearwire's board accept its offer of $240 million in financing as opposed to continuing to take $80 million monthly payments from Sprint, which are part of Sprint's offer. So far Clearwire has taken two financing payments from Sprint, totaling $160 million.

"The filing of Crest's proxy statement is the next step in our ongoing effort to block Sprint's unfair merger offer and we are optimistic that we can do so," David Schumacher, general counsel of Crest, said in a statement. "We look forward to the SEC clearing our preliminary proxy statement so that we can begin educating Clearwire shareholders in earnest about the disadvantages of the Sprint offer and the alternative future for Clearwire and its valuable trove of wireless spectrum."

"Crest is of the opinion that it would be better for Clearwire to remain a stand-alone company, while examining opportunities to consummate alternative transactions, rather than accept the merger consideration of $2.97 in cash per share being offered to Clearwire stockholders in the Proposed Sprint-Clearwire Merger," it said in the proxy statement.

A special committee of Clearwire's board is looking at both the Sprint and Dish options, but it has not changed its recommendation to vote in favor of Sprint's offer. The special committee is also looking at the $240 million financing offer from Crest.

For more:
- see this Crest release
- see this Reuters article
- see this AllThingsD article

Related Articles:
Clearwire shareholder Crest offers $240M to block Sprint deal
Clearwire takes another $80M payment from Sprint
FCC's Genachowski says review of Sprint/Softbank deal is on track
Clearwire shareholder Crest puts up more resistance to Sprint deal
Sprint, Softbank and Clearwire press cases for deals to FCC's Genachowski
Clearwire execs stand to rake in millions if Sprint deal goes through

Also Noted

This week's sponsor is CCA.

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