Verizon Wireless and a consortium of cable operators, which includes Comcast, Time Warner Cable, and Bright House Communications, today won approval from U.S. regulators to go through with their $3.9 billion deal to exchange wireless spectrum.
The Department of Justice announced it has negotiated a settlement with Verizon Wireless and the cable companies. And FCC Chairman Julius Genachowski said he supports the deal and will recommend approval with certain conditions in place. The full FCC has yet to vote on the deal. Once that's completed, the sale of the spectrum will be allowed to proceed.
Genachowski said he was satisfied by Verizon's move to divest some of itsin the secondary market. And the Department of Justice negotiated a deal with Verizon Wireless and the cable companies, in which the cable companies and Verizon agreed to limit the scope of their co-marketing and resale 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 DOJ'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."
In December, Verizon and the SpectrumCo cable operators announced a deal worth $3.9 billion that would give Verizon Wireless an additional 20 megahertz of wireless spectrum in the valuable Advanced Wireless Services block. Verizon planned to use the additional spectrum to add capacity to its 4G LTE network. Also as part of the deal, Verizon agreed to a co-marketing arrangement, a reseller agreement, and a joint-technology development deal with the cable companies.
The FCC and the DOJ took issue with several pieces of the original agreement. Specifically, the FCC didn't like the fact that Verizon, which already owns 20MHz of AWS spectrum, would get its hands on an additional 20MHz of spectrum. Verizon had stated it didn't need the cable spectrum for immediate use in building its 4G LTE network. Meanwhile, competitors, who own much less spectrum, were being shut out of an opportunity to buy it.
The DOJ was most concerned with the commercial agreements between Verizon and the cable operators. The agency said that it was worried about possible antitrust issues, particularly with Verizon Wireless's agreement to resell cable services throughout the country, including areas where its parent company also sells Fios broadband and TV service that competes directly with cable services.
Working with the agencies, Verizon and the cable companies agreed to concessions and addressed these issues to alter the original agreement, which seems to have ultimately satisfied the regulators.
The FCC hasn't officially given the green light to the transaction. But FCC Chairman Genachowski said in a statement that he supports the deal and Verizon's plan to sell spectrum to T-Mobile. He said he's also recommending some additional conditions to be put on the deal. The full five commissioner FCC will have to vote on the proposal to make the spectrum license transfer official.
"A rigorous review by the Federal Communications Commission and Department of Justice staffs revealed that the deal as proposed by Verizon Wireless and the cable company owners of SpectrumCo posed serious concerns, including in the wired and wireless broadband and video marketplaces," Genachowski said in a statement. "In response to the agencies' objections, the parties have made a number of binding pro-competitive commitments and will also make fundamental changes to their agreements."
So what changes were made?
On the wireless side, the FCC seems to be satisfied with a deal that Verizon struck earlier this summer with competitor T-Mobile to sell T-Mobile some spectrum. This seems to have allayed concerns that Verizon would gain control of too much wireless spectrum in the AWS block.
There are still some other concerns, but the FCC hasn't yet said what other conditions it will impose on the deal. Once the deal is officially approved by the full commission, those details will be revealed. But it's expected the FCC will require Verizon to adhere to a faster timeline for the build-out of the AWS spectrum. This means Verizon will have to put the cable spectrum to use much more quickly than the original auction rules required. And the FCC is also likely to require Verizon to adhere to data roaming rules.
Changes and controversy
But the biggest changes to the deal are in the commercial arrangements between Verizon Wireless and the cable operators.
This was also the most complicated piece of the deal between the companies. There are three major components to the commercial arrangement.
The first is a joint technology-development agreement. In this part of the deal, the cable companies would work with Verizon Wireless to develop new types of technologies that could be used in wireless and broadband services. For the most part, this agreement stayed in tact. The only change had to do with intellectual-property rights of a couple of the cable companies. Also, the DOJ said it will review the joint technology agreement after five years to ensure there are no anticompetitive concerns.
If the DOJ is unsatisfied with what it finds, it can force the companies to terminate the agreement. But the companies also have the right to ask a court to examine the decision.
The second major portion of the deal was a reseller agreement. According to the original agreement, the cable companies could resell Verizon Wireless service as their own branded wireless service. But they had to wait four years before they could begin reselling the service. The new agreement shortens that period to six months. And there's no limitation on how long cable operators can resell that service.
The third piece of the deal was the most controversial. And it has the most changes. It entails the co-marketing arrangements that would allow the cable companies and Verizon to market each other's services. It also allowed cable companies to bundle their services with Verizon services. And it allows Verizon to bundle its wireless service with cable services for its customers.
According to the negotiated deal, cable companies will be permitted to resell Verizon Wireless service for five years. During that period, Verizon is the only wireless service that the cable operators can resell. Once the the five year period is over, the cable companies can continue to resell the service. But the exclusivity clause is no longer in effect, which means cable operators could also resell service from AT&T or Sprint, or whomever else.
Verizon is also allowed to resell cable services to its wireless customers. But there are now several limitations on that arrangement. Verizon is not permitted to market or resell cable broadband and TV services where Verizon currently offers Fios broadband and TV service.
Verizon Wireless is allowed to market and resell cable services in its DSL territory for the next five years. But after that period, the DOJ will review the competitive market. And if it feels there are antitrust concerns, it can restrict Verizon from reselling cable services in DSL territory. The cable companies and Verizon maintain the option to challenge that decision in court.
Comcast, the largest cable operator in the country, is pleased with the negotiated settlement.
David Cohen, executive vice president, for Comcast, issued this statement:
We are pleased that the consent decree that we have negotiated with the Department of Justice preserves the most important goals of the agreements, including Comcast's ability to market Verizon Wireless services throughout our footprint in order to offer our customers a wireless option, Verizon Wireless' ability to market our products in virtually all of our footprint, our ability to opt into an MVNO relationship with Verizon Wireless, and the essential structure of the innovation R&D technology joint venture.
Update, 8:45 a.m. PT: Adds details of the arrangement with the FCC and the DOJ.