Verizon's $3.9B cable deal speeds toward FCC, DOJ approval

Verizon Wireless' (NYSE:VZ) $3.9 billion purchase of nationwide AWS spectrum from a group of cable companies--and the cross-marketing deals Verizon signed with them--will move ahead toward approval by the FCC and Department of Justice.

In a statement FCC Chairman Julius Genachowksi said he will circulate a draft order to his fellow FCC commissioners to approve the deal. Separately, Verizon and the cable companies--SpectrumCo, which is a joint venture of cable companies Comcast, Time Warner Cable and Bright House Networks, and Cox Communications--agreed to a consent decree with the Justice Department to modify their commercial agreements. The DoJ said if the settlement is approved in federal court it will approve the transactions, including Verizon's AWS spectrum swap with T-Mobile USA.

Verizon's AWS spectrum purchase from the cable companies, announced in December, was tied to a series of marketing and commercial deals the companies signed, which drew strong opposition from the regulators, smaller carriers and public interest groups. The proposed settlement limits the duration of the companies' collaboration to December 2016 in many respects, the DoJ said.

The Justice Department said the proposed settlement forbids Verizon from selling cable company products in areas where it offers FiOS service and removes contractual restrictions on Verizon Wireless's ability to sell FiOS,  which it said will "ensure that Verizon's incentives to compete aggressively against the cable companies remain unchanged." Additionally, under the proposed settlement, Verizon's ability to resell the cable companies' services to customers in areas where Verizon sells DSL Internet service ends in December 2016. Finally, the proposed settlement limits the duration of the technology joint venture the companies established and other features of the agreements.

Under the settlement, after five years, the cable companies will not be barred from selling the wireless services of Verizon's competitors, and may partner with other wireless providers; the cable companies can still act as MVNOs of Verizon's wireless service; and upon dissolution of the technology joint venture, all members will receive a non-exclusive license to all the joint venture's technology, and each may then choose to sublicense to other competitors.

Verizon wants to use the nationwide AWS spectrum for added capacity to augment its 700 MHz LTE spectrum position. Verizon had agreed to sell its 700 MHz Lower A and B Block spectrum if the AWS spectrum deal is approved; the AWS spectrum is higher quality spectrum to the carrier. Verizon spokesman Ed McFadden said the company still intends to sell the 700 MHz spectrum but he did not give a timetable for when it will do so. Verizon has said at least 36 companies expressed interest in the 700 MHz spectrum.

In a filing with the FCC, Verizon told the commission it will use the airwaves it is getting from the cable companies, T-Mobile USA and Cricket provider Leap Wireless (NASDAQ:LEAP) to serve  30 percent of the population covered by the spectrum within three years and 70 percent within seven years. Verizon also promised to offer data roaming on the spectrum to other carriers at reasonable rates.

"This is subject to technological compatibility, technical feasibility and economic reasonableness, and use by the requesting provider of a generation of wireless technology comparable to the technology on which the requesting provider seeks to roam," Verizon wrote of the roaming agreement. "This commitment will remain in place for five years following the date of the commission's order approving the AWS license assignments."

Verizon has sued the FCC in federal court to block similar data roaming rules, which the FCC approved in April 2011. Now, it appears the carrier will abide by them. Verizon noted it has already reached agreements with 49 roaming partners with whom it now has 68 data roaming agreements in total.

Recent reports have indicated that the companies and DoJ were wrangling over the nature and scope of the commercial agreements. "By limiting the scope and duration of the commercial agreements among Verizon and the cable companies while at the same time allowing Verizon and T-Mobile to proceed with their spectrum acquisitions, the department has provided the right remedy for competition and consumers," Joseph Wayland, acting assistant attorney general in charge of the Department of Justice's Antitrust Division, said in a statement. "The Antitrust Division's enforcement action ensures that robust competition between Verizon and the cable companies continues now and in the future as technological change alters the telecommunications landscape."

Much of the opposition from within the wireless industry seemed to fade away in June after Verizon and T-Mobile USA announced a proposed AWS spectrum swap, a transaction contingent on Verizon obtaining approval of its deals with the cable companies. The Rural Cellular Association, MetroPCS (NASDAQ:PCS) and public interest groups have remained wary of the deal though, arguing that regulators should impose strict conditions and make sure Verizon is not warehousing its spectrum. T-Mobile has argued that getting the AWS spectrum from Verizon--which will allow it to cover an additional 60 million people--will enable it to deploy LTE more robustly.

For more:
- see this FCC release
- see this DoJ release
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this Verizon FCC filing

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