Blog Post

Verizon building a spectrum empire with cable deal

Comcast(s CMCSA), Time Warner Cable(s TWC) and Bright House Networks are selling off the spectrum remnants of their stillborn wireless venture, SpectrumCo, to Verizon Wireless(s VZ)(s vod) 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(s T) 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 (s qcom) 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(s CLWR). 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.

5 Responses to “Verizon building a spectrum empire with cable deal”

  1. This deal will get past the FCC, but the FCC will probably require a network build out timeline so this spectrum doesn’t stand fallow for much longer.

    The cable companies have always been trying to get into wireless with little success. They started Pivot (MVNO of Sprint) and that didn’t go anywhere. They tried the tie up with Clearwire and now they are ditching that effort and turning to Verizon. I think the cable companies will tag along with Verizon until there is consolidation between cable companies and/or between cable and wireless companies.

    • Kevin Fitchard

      Hey Brian, now there’s a thought. After divesting the ILECs and RBOCs all got back into wireless. Verizon can’t buy Sprint and AT&T can’t by T-Mobile, but can Comcast/NBC buy Sprint or T-Mobile?

  2. Andrew J Shepherd

    This transaction will not likely face much of a regulatory challenge, as SpectrumCo’s AWS 2100+1700 MHz spectrum has lain fallow since the auction five years ago. In those five years, the only thing that SpectrumCo has done with the AWS licenses is partition, disaggregate, and/or assign some spectrum to Cox as it departed the partnership to launch its own wireless network. And, now that Cox is already decommissioning its network, do not be surprised if VZW purchases that spectrum, too, in order to recombine it with the SpectrumCo holdings from which it originated.

    On a side note, this move by VZW blocks several potential “Plan Bs” for T-Mobile if the merger disintegrates. The SpectrumCo + Cox AWS licenses are nearly nationwide (the only major markets missing are Buffalo, Cincinnati, St. Louis), and a still independent T-Mobile could have acquired this spectrum for additional HSPA+ capacity, LTE, or both. Alternatively, T-Mobile, instead of VZW, could have been the carrier to strike a partnership with the cable companies. Or, lastly, Comcast and/or Time Warner might have fully acquired T-Mobile. But those options are likely off the table now.

    The timing of this move by VZW — coming just a day after Sprint and Clearwire seem to have finally gotten their house of cards in order — suggests that VZW may have had eyes on Clearwire should it have defaulted on its loans and entered bankruptcy. Now, that Sprint and Clear are back on the same page, SpectrumCo may have been “Plan B” for VZW.

    AJ

    • Agreed. I was hopeful T-Mo would be taking on these licenses if/when the AT&T merger falls through. They would have been a perfect complement to T-Mobile’s existing holds. Now, T-Mobile’s options for adding capacity are definitely more limited. There’s not a lot of fallow spectrum at the moment.

    • Kevin Fitchard

      AJ, sometimes I think you have the FCC license database memorized. :) Any chance you think this could spark a bidding war? Wouldn’t be the first time that a ‘done deal’ was undone. DT would have to step up to the plate, which it hasn’t shown much interest in doing in the past, but if it has no choice but to make T-Mobile U.S. a viable independent, it might be considering making an offer.