August 16, 2012

DOJ Approves Verizon Spectrum Deal

Peter Suciu for - Your Universe Online

In real estate it is all about location, location, location. With mobile communication it is about spectrum, spectrum, spectrum — and it continues to be a problem. As more and more devices go wireless, consumer´s stream photos and videos, send text messages, surf the mobile web, utilize apps and even talk on their phones it means the crowded spectrum is getting all the more crowded.

The solution to this problem goes back to real estate. It is about location, as in the location of the spectrum being used, and on Thursday the Justice Department approved Verizon´s airwaves-and-marketing deal with a number of cable companies.

The deal still has yet to clear the FCC, but is on track to approve the $3.9 billion deal that would exchange wireless spectrum.

FCC Chairman Julius Genachowski, who back in May at the CTIA Wireless trade show in New Orleans suggested that the wireless spectrum concerns were being overstated, said this week that he now supports the deal but recommended approval provided certain conditions are in place.

The DOJ negotiated the deal with Verizon and the consortium of cable operators that includes Bright House Communications, Comcast, Cox Communications and Time Warner Cable, in which the parties involved agree to limit the scope of their co-marketing and resale agreements.

“By limiting the scope and duration of the commercial agreements among Verizon and the cable companies while at the same time allowing Verizon and T-Mobile to proceed with their spectrum acquisitions, the department has provided the right remedy for competition and consumers,” Joseph Wayland, acting assistant attorney general in charge of the DOJ's Antitrust Division, said in a statement. “The Antitrust Division's enforcement action ensures that robust competition between Verizon and the cable companies continues now and in the future as technological change alters the telecommunications landscape.”

Verizon looked to the spectrum swap — which included the 20MHz of AWS spectrum, of which Verizon already owned a share of - as a way to build out its 4G network, and in return the cable companies will be able to buy access to Verizon´s 4G services and bundle it with their respective triple-play offerings (that typically include cable, Internet and wireless services).

The companies further plan to cross-sell one another´s services, while Verizon will advertise and bundle cable services with its own wireless and landline services. The cable companies can do the same for Verizon, but not with Verizon´s competitors such as AT&T, T-Mobile and Sprint. Hence, this is where the red flags were raised by the DOJ that saw this as cartel of sorts, one that would exclude the other mobile phone carriers completely.

The DOJ responded by filing an antitrust lawsuit against the parties, which was quickly settled by the companies involved. This included promises to meet certain conditions, which include barring Verizon from actually selling cable services in areas where its own FiOS service is available.

Additionally, the DOJ limited the terms of the agreement with the length limited to just five years, ending in December 2015. At that point the cable companies will be allowed to sell other wireless companies´ services.

Verizon is also required to retain the ability to bundle its own DSL Internet services with satellite TV providers, and the company has made a deal with DirecTV.

Comcast has since responded to the approval with a prepared statement from David Cohen, Executive Vice President, for Comcast:

“We are pleased that the consent decree that we have negotiated with the Department of Justice preserves the most important goals of the agreements, including Comcast's ability to market Verizon Wireless services throughout our footprint in order to offer our customers a wireless option, Verizon Wireless' ability to market our products in virtually all of our footprint, our ability to opt into an MVNO relationship with Verizon Wireless, and the essential structure of the innovation R&D technology joint venture.”

And so that no spectrum goes to waste, the DOJ has even said that it would allow Verizon to sell some of its unwanted spectrum to rival T-Mobile. This deal has since raised its own red flags, as consumer advocates who had long questioned the deal noted that if Verizon was simultaneously buying and selling spectrum that this was a sign that the company didn´t need the deal with the cable company.

The DOJ has approved the T-Mobile deal however, noting that it will benefit T-Mobile customers.

Given that everyone is happy it should be questioned whether something is wrong with this picture, as usually it is agreed that if everyone goes away at least a bit unhappy it was a fair deal.