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Cable Operators To Sell Verizon Advanced Wireless Spectrum For $3.6 Billion

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A big move for Verizon Wireless (NYSE: VZ) today, and something of a seismic shift for the cable industry as it moves away from its fixation on offering its own wireless services to complement their broadband, TV and phone offerings: Verizon has agreed on a deal to pay $3.6 billion for advanced wireless spectrum from Comcast (NSDQ: CMCSA), Time Warner Cable (NYSE: TWC) and Bright House Networks, which it will use for LTE mobile broadband services.

As part of the deal, the cable operators have also entered into a reselling agreement with Verizon: the cable operators will resell Verizon’s wireless services, and Verizon will resell the cable operators’ products.

The wireless reselling option sounds like great news for Verizon, especially if the operators offer it at a better rate than any other mobile service. Currently Sprint (NYSE: S) is a preferred partner for mobile services, so this could be a move away from that, although that has not been made clear in today’s statement. What is equally unclear is how and if Verizon will position cable services vis a vis its own FiOS TV and broadband packages.

The companies also say they will be forming an “innovation technology joint venture” to work on better integration of wireless and wireline products and services.

SpectrumCo, the JV of the three operators, will be handing over 122 spectrum licenses for advanced wireless services, which cover 259 million POPs. Comcast, as a 63.6 percent owner of the JV, will get $2.3 billion, while Time Warner (NYSE: TWX) will get $1.1 billion for its 31.2 percent stake. Bright House will get $189 million for its 5.3 percent stake in the JV.

The deal marks a big move in the consolidation of wireless assets in the U.S., and comes at a time when smaller operators, consumer groups and regulators are raising the alarm bells around a proposed merger between AT&T (NYSE: T) and T-Mobile, for the amount of market power that the two operators will have combined, and what that would mean for free-market competition.

This news today could go some way to explaining why Verizon has been so quiet about the AT&T merger proposal with T-Mobile: it had a cable card up its sleeve.

As with the AT&T/T-Mobile merger, this deal will need to get regulatory clearance to go ahead.

The news also comes as other pay-TV operators have been rethinking their wireless propositions.

At one time, it was a given that major cable operators should be thinking of owning wireless assets to deliver quadruple-play bundles of services to their consumers covering TV, broadband, phone and mobile. Now, the benefit of owning that network, operating it, and investing in it are not so clear.

For starters, mobile contracts tend to be tied to individuals, while the other services are for households. Although some buy cellular services in family plans, not all do.

But there is also the issue of economies of scale. Newer, and therefore smaller, mobile operators find it hard to compete with larger providers not just for handset procurement, but also in terms of investment to build out advanced networks.

Just last week, Cox announced that it would be discontinuing its wireless service offerings, citing both of these reasons for its decision.