Sprint's case against Verizon deal shot down by cable companies

SpectrumCo and Cox Communications say Sprint Nextel's (NYSE:S) allegations that their $3.9 billion deal to sell AWS spectrum to Verizon Wireless (NYSE:VZ) will negatively impact the backhaul and Wi-Fi offload markets are not only wrong but also irrelevant to the proposed license transfer.

In a highly redacted Aug. 2 letter to the FCC, SpectrumCo--the joint venture of Comcast, Time Warner Cable and Bright House--and Cox assailed claims made by Sprint and others that the commercial agreements they are planning to participate in with Verizon as part of the spectrum deal will lead them to foreclose access to their backhaul services and Wi-Fi networks.

Sprint has said it does not oppose the deal between the MSOs and Verizon, but since June it has been asking the FCC to consider the transaction's possible impacts on small cell backhaul and Wi-Fi offloading.

In a July 26 letter, Sprint asked the FCC to require that Verizon and the cable companies not restrict the use of their Internet access facilities for connection by femtocells and other small cells, mandate the MSOs offer other wireless carriers the same terms and conditions for backhaul that they offer Verizon and ensure the cable companies that operate Wi-Fi networks provide nondiscriminatory access to subscribers of all wireless networks using procedures that are no less favorable than those provided to Verizon subscribers.

But the cable companies say such protections are unnecessary. "There is no provision in the commercial agreements that prohibits the MSOs from providing backhaul services to any other party, or that prohibits Verizon Wireless from purchasing backhaul services from any provider other than one of the MSOs," they said.

The MSOs cited an economic analysis conducted by Mark Israel, who they say found the commercial agreements "do not create incentives for the MSOs to act in a way that harms backhaul competition, and the conjured theories of harm are not supportable."

Further, the cable companies said that since the Verizon/SpectrumCo transaction was announced Comcast has entered into long-term backhaul contracts with a number of parties, the number of which was redacted from the public version of the letter.

"The MSOs compete with numerous other backhaul providers, including AT&T (NYSE:T), CenturyLink, Dragon Wave, DukeNet, FPL Fiber, Level 3, TMI, tw telecom, Verizon Telecom, Windstream, XO and Zayo. To the extent the backhaul provisions in the commercial agreements would enable an MSO to compete and secure more backhaul business from Verizon Wireless, the MSOs will become more effective competitors in offering backhaul to non-Verizon Wireless carriers, and the marketplace will become even more competitive," the cable companies said.

Addressing Sprint's assertions regarding Wi-Fi offloading, the MSOs observed that a Wi-Fi offload market does not exist and, thus, cannot currently be regulated. None of the four MSOs sells Wi-Fi access directly to any wireless provider, including Verizon Wireless.

"Any allegations that the commercial agreements would harm Wi-Fi are, thus, purely speculative. Indeed, a Wi-Fi offload market has yet to develop and may never become an input into wireless service," they said. Further, the cable companies noted there is no provision in the commercial agreements that grants Verizon Wireless the right to offload its traffic onto the MSOs' Wi-Fi access points.

Sprint's regulatory proposals would represent a departure from the FCC's historical stances. For example, said the cable companies, Sprint is asking the commission to impose rate regulation on the backhaul services provided by the MSOs, even though the commission previously has declined to impose regulations on new entrants.

The cable companies also contend that the application of common carrier-style regulation to Wi-Fi and Wi-Fi offload, both unlicensed services, could harm the future development of a Wi-Fi offload market should it come into being.

Meanwhile, on Aug. 3 the FCC announced it has consolidated four sets of applications involving Verizon. These include the SpectrumCo and Cox transactions, a pending spectrum swap between Verizon and Leap Wireless and another spectrum deal between Verizon and T-Mobile USA. The licenses that Verizon Wireless would assign to T-Mobile include 47 licenses that Verizon has proposed to acquire from SpectrumCo, Cox and Leap, the FCC noted.

Verizon first announced its intention to buy the cable companies' AWS spectrum in December, and Reuters reported Friday that the deal appears close to winning approval from the FCC and U.S. Department of Justice, though the latter's Antitrust Division will likely demand strict conditions in exchange for approval.

The acquisition as proposed includes commercial agreements that enable the companies to cross-market their services and for the MSOs to become MVNOs of Verizon Wireless. The companies also intend to set up a technology development joint venture.

For more:
- see this SpectrumCo letter
- see this FCC notice
- see this Reuters article

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