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Verizon wins approval for $3.6bn cable spectrum swap

Modified terms allay regulators' objections

Internet Security Threat Report 2014

Verizon looks to have the green light to acquire around 20MHz of wireless spectrum from a consortium of four of the US's largest cable companies, with two government agencies having voiced approval of the deal, albeit in modified form.

The deal, which would see Verizon spending $3.6bn to acquire spectrum licenses from Bright House Networks, Comcast, Cox Communications, and Time Warner Cable, has been opposed by labor unions, public interest groups, and competing companies, who claim it would be anticompetitive and cost jobs.

It seems the US Department of Justice (DOJ) agreed, at least in part.

"If left unaltered, the agreements would have harmed competition by diminishing the companies' incentive to compete, resulting in higher prices and lower quality for consumers," the DOJ said in a press release issued on Thursday.

The DOJ said it was prepared to approve the deal, however, provided the companies were willing to modify the terms of the cross-marketing agreements they had made as part of it.

Under the original terms of the spectrum sale, Verizon would have bundled cable services with its own wireless and landline services, and the cable companies would have offered Verizon services to their customers in return.

But the DOJ called foul, pointing out that the companies were "direct competitors" in various areas of their businesses, and that the proposed exclusive cross-selling arrangements would threaten that competition.

The proposed DOJ settlement forbids Verizon from selling cable company products in areas where it markets its own fiber FiOS landline service, as well as removing proposed restrictions on where and how it can sell FiOS. It also puts a four-year time limit on Verizon's ability to resell cable services in areas where it also sells DSL service, which the DOJ says will preserve Verizon's incentive to keep upgrading DSL areas to FiOS.

In addition, the settlement limits the amount of time the cable companies are barred from reselling the wireless services of Verizon's competitors, and it allows the cable companies to resell Verizon's services under their own brand, if they choose.

Under the original terms of the deal, Verizon and the cable companies planned to form a joint venture to develop new technologies that would integrate wired and wireless services. The settlement limits the duration of that venture, and once that time period elapses it grants all participants a non-exclusive license to use all of the technology it produced, including the right to sublicense it to other companies.

Finally, the DOJ warned Verizon and the cable companies that they should avoid swapping commercially sensitive information, and that collusion would not be tolerated. Under the terms of the settlement, the companies must provide the department with regular reports to demonstrate that their agreements are not harming competition.

The DOJ also said it would approve a side deal wherein Verizon would sell "a significant portion" of the spectrum it acquires from the cable companies to its competitor, T-Mobile. T-Mobile had originally been one of the most vocal opponents to the spectrum swap, before arriving at its own arrangement with Verizon.

Assuming Verizon and the cable companies agree to the DOJ's terms, the spectrum sale must still be approved by the Federal Communications Commission (FCC) if it is to become a reality. But that hurdle, too, appears already to have been cleared.

In a separate statement issued on Thursday, FCC chair Julius Genachowski said that although his agency too had concerns about the deal in its original form, he was also now ready to recommend that the modified agreement be approved.

"The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct," Genachowski wrote. "And vitally, it will put approximately 20 megahertz of prime spectrum – spectrum that has gone unused for too long – quickly to work across the country, benefiting consumers and the marketplace." ®

Internet Security Threat Report 2014

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