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Summary:

Comcast, Time Warner Cable, and Bright House Networks are selling off the spectrum remnants of their stillborn wireless venture, SpectrumCo, to Verizon Wireless for $3.6 billion. The deal allows Verizon to double up on its LTE network, while creating a new alliance between Verizon and cable.

Handshake

Comcast, Time Warner Cable and Bright House Networks are selling off the spectrum remnants of their stillborn wireless venture, SpectrumCo, to Verizon Wireless for $3.6 billion. 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.

Meanwhile, the cable operators aren’t wiping their hands of the wireless business completely. Instead, Verizon and the three MSOs have entered into a rather mysterious sounding “agent” agreement. The most obvious result of that deal would be to allow the cable operators to become MVNOs on Verizon’s network, but it may also hold the possibility of Verizon becoming a kind of cable virtual operator or agent outside of its traditional wireline territory, selling home broadband, TV and phone services out of its stores.

Under the sale agreement, Verizon will gain SpectrumCo’s Advanced Wireless Service (AWS) licenses covering much of the cable operators’ territory in the lower 48 states. Verizon is paying a premium $1.2 billion premium over the $2.4 billion the cable operators bid at auction for the spectrum in 2006. With that spectrum, Verizon can fill out its AWS footprint, which today is limited to the eastern U.S. SpecrtumCo owns 20 MHz blocks in all the major populated regions of the U.S. (Phonescoop published detailed maps after the auction, which you can see here.) Today, Verizon’s AWS spectrum lies unused, but it’s targeting the spectrum for the next phase of its LTE deployment.

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.

Gaining approval, however, might be a challenge given the anti-acquisition regulatory environment in Washington. Both the Federal Communications Commission and the U.S. Department of Justice are trying to block AT&T’s merger with T-Mobile and the resulting mood is not one that’s very pro-consolidation. That said, a $3.6-billion spectrum acquisition is not a $39 billion merger, and the FCC looks set to approve AT&T’s purchase of Qualcomm’s 700 MHz spectrum. There’s little chance the FCC would deny the same opportunity to Verizon.

As for the agent agreements, the joint announcement contained few details, and Verizon officials declined to comment on future plans while the deal is still pending. The press release stated cable companies will have the option of selling Verizon’s wireless service, becoming MVNOs, and that the four entities are forming an “innovation joint venture” to explore the deeper integration of wireless and wireline technologies.

The deal, however, could upset the relationship that these three MSOs have with Clearwire. All of them are major investors in the WiMAX operator and have begun reselling its mobile broadband service on limited basis in their territories. Verizon’s LTE network would give them a second — and much more extensive — 4G option.

Image courtesy of Flickr user buddawiggi.

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