WSJ: FCC likely to approve Verizon's $3.9B spectrum deal, with conditions

FCC Chairman Julius Genachowski is preparing to recommend the FCC approve Verizon Wireless' (NYSE:VZ) $3.9 billion deal to acquire AWS spectrum from SpectrumCo (a joint venture of cable companies Comcast, Time Warner Cable and Bright House Networks) and Cox Communications, according to a report in the Wall Street Journal, which cited unnamed people familiar with the matter. However, the FCC's approval of the deal will come with conditions: Verizon will have to offer data roaming at reasonable rates to its competitors and the company will have to put its spectrum to use within a short time.

The FCC does still have some concerns that Verizon's deals with the cable firms will hinder competition through their cross-marketing agreements. Currently, some Verizon Wireless stores offer service from Comcast, Time Warner Cable and other cable companies in markets where Verizon doesn't offer its FiOS service. The companies have said that they plan to extend the cross-marketing deals into additional FiOS markets.

Both the FCC and the Department of Justice have balked at the language in the cross-marketing deals, which lets the companies extend the pact for several years. The DoJ is reportedly holding up its approval of the spectrum deal unless Verizon and the cable companies can convince the agency that the joint marketing deals won't impact competition. Verizon and the cable companies assert that the joint marketing programs are independent of the spectrum deal.

The conditions the FCC is reportedly going to require are not surprising. Although Verizon Wireless has said it plans to swap AWS spectrum with T-Mobile USA, should its proposed purchase of cable company spectrum be approved by the FCC and the DOJ, many groups have argued that the swap is not enough and Verizon will still be warehousing broadband spectrum.  

The Verizon/T-Mobile AWS spectrum swap covers 218 markets across the country, and both companies have said the deal will help their respective LTE network rollouts.  But regional carrier MetroPCS (NASDAQ:PCS) said that even with Verizon's proposed sale of spectrum to T-Mobile, Verizon will still hold 20 MHz of undeveloped spectrum throughout most of the U.S. and up to 40 MHz of unused spectrum in major markets.

Verizon competitor Sprint Nextel (NYSE:S) is also still concerned that Verizon's joint marketing deals with the cable companies could prevent the cable firms from offering backhaul and Wi-Fi services to firms like Sprint. In a letter to the FCC, Sprint said that it's unclear whether the marketing agreements between Verizon and the cablecos offer incentives that would make it more lucrative for a cable company to act as a reseller of Verizon's service compared to being a backhaul provider. Sprint argued that the reseller agreements change the nature of Verizon's relationship with the cable companies from that of a competitor to a partner, and that they now have the ability to offer incentives that will reduce competition.

For more:
- see this WSJ article (sub. req.)
- see this Sprint letter to the FCC

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