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Updated. The FCC has approved Verizon’s(s vz)(s vod) $3.9 billion dollar acquisition of 4G spectrum from a consortium of cable operators, clearing the way for Big Red to build the LTE network of its dreams and the wireless-wireline cartel of everybody else’s nightmares.
The deal still must go before a federal judge, but since the US Department of Justice lifted all of its objections to the deal last week, it’s pretty much smooth sailing for Verizon, Comcast(s cmsca), Time Warner Cable(s twc), Cox Communications and Bright House from here on out.
Once it gets the final go ahead, Verizon will take possession of 20 MHz or more of pristine Advanced Wireless Services (AWS) licenses, which it plans to use to build a supplementary high-capacity LTE network parallel to its current near-nationwide 4G infrastructure. While the FCC dealt primarily with the spectrum transfer, the approval implicitly gives Verizon and its new cable buddies permission to divide the wireline and wireless markets between them. The cable companies will resell Verizon’s mobile service, and Verizon can now sell cable broadband and TV service in any area where it doesn’t offer its FiOS fiber-to-the-home connections.
Update: Verizon had made several concessions to grease the wheels Thursday’s approval. It has agreed to sell a large chunk of that new AWS spectrum to T-Mobile, which will use it for its own LTE rollout. Verizon also said it would sell unused licenses among its 700 MHz holdings to any interested buyer. While the FCC said it was satisfied with those spectrum divestitures, it imposed a couple of other conditions.
The big one is a requirement that Verizon open its LTE network to roaming partners, a key demand of rural operators. The second is that Verizon complete 70 percent of its network over the new bands. While billed as concession to the FCC, it seems more like a concession to Verizon. Big Red has said it will run out of capacity from its current spectrum holdings in 2015 if it doesn’t get these new licenses. Rather than hold Verizon to its word, the FCC gave it a four-year pass.
The bigger concerns are the joint-operating agreements that the DOJ signed off on last week and the implications they have for consumer competition. The deals basically allow Verizon to give up on DSL in remaining markets it doesn’t have FiOS. They allow cable and Verizon to pool their mobile and residential services together in all other markets, putting wireless-only and wireline-only carriers at a distinct disadvantage. And they allow cable and Verizon to jointly develop technology that integrates their two services. The DOJ placed a five-year restriction on those pacts (retroactive from December), but a combined cable-Verizon can lay waste to all of competitors in that timeframe. My colleague Stacey Higginbotham paints a frightening picture:
“In a pessimistic view, this means that the cable guys would no longer face competition nor a reason to keep pushing their wireline infrastructure. Today that’s not so bad, since most cable companies have deployed the faster DOCSIS 3.0 technology that can deliver up to 100 Mbps down to homes, but it is depressing to consider that five years from now we may still have that same infrastructure and little opportunity to go forward, unless the cable companies want to invest in fiber to the home. And without Verizon or AT&T pushing them forward, why would they? It’s worth noting that Verizon’s FiOS plans helped jump-start the deployment of DOCSIS 3.0 services in areas where Verizon laid fiber.”