Originally published: December 4, 2011
Last updated: December 22, 2011 - 12:15am
Verizon Wireless, the largest U.S. mobile-phone carrier, struck an alliance with cable companies that will change how customers buy Internet, mobile and pay-TV services and present new challenges for rivals such as AT&T. Verizon Wireless will pay the group $3.6 billion for wireless spectrum: Comcast, the country’s largest cable provider, will receive $2.3 billion, while Time Warner Cable gets $1.1 billion and Bright House Networks LLC gets $189 million.
The deal would allow Verizon to double-up on its LTE network – in some regions triple up – creating huge overhead for future mobile broadband growth. With that spectrum, Verizon can build what amounts to another LTE network parallel to its current 4G network at 700 MHZ. In areas where its current AWS holdings overlap with SpecrtumCo’s, Verizon will have a total of 60 MHz of spectrum, which would be enough to build mobile broadband networks with three times the capacity it has on LTE today. If it can get this deal by regulators, Verizon will seal its mobile broadband future for years to come.
Verizon Wireless and the cable companies will also market and sell each other’s services under the agreement. Verizon will offer cable-TV products in its retail stores and receive a percentage of revenue for every cable customer it signs up, while cable companies will receive fees for each wireless customer they sign up. “This is a strategic masterstroke for Verizon,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. The agreement will lead to “a complete reordering of the competitive universe as we know it today.” The partnership may make Verizon and cable operators more cooperative “frienemies,” said David Joyce, an analyst at Miller Tabak. “This might slow the competitive push from FiOS to drive down prices, which could help the cable companies,” said Joyce.
The partnership still needs approval from regulators. The Federal Communications Commission will “undertake a thorough, fair and fact-based review of the proposed transaction,” according to FCC spokesman Neil Grace. The FCC and Justice Department are likely to approve the deal, though they may require the sale of assets in certain markets, said Jeff Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors LLC in Washington. “This deal is likely to eventually get approved with possible divestitures in any markets that the FCC and Justice Department find that Verizon would have excessive spectrum concentration,” he said. The companies said that they do not think federal regulators can review their marketing agreement. They noted that AT&T has a similar cross-promotional deal with satellite company DirecTV. But antitrust experts said that either Justice or the FCC could expand its review and question how the marketing partnership would affect consumer choice. “It’s fair to say this is going to get a hard and thorough review,” said the person familiar with the concerns of federal antitrust officials, who spoke on condition of anonymity because the review process is not publicly disclosed. “If not in the review, in an investigation.”
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