Verizon wins FCC approval for spectrum deals -- with caveats

The Federal Communications Commission has approved four separate deals that will transfer wireless spectrum to Verizon Wireless, including the $3.9 billion deal between Verizon and a group of cable operators.

The approved deals will allow Verizon to get nearly 20 megahertz of Advanced Wireless Service spectrum from SpectrumCo, a joint venture that includes cable operators Comcast, Time Warner Cable, and BrightHouse, as well as AWS spectrum from cable operator Cox Communications.

The agency also gave the green light to transfer spectrum licenses from prepaid provider Leap Wireless. In addition, it OK'd the transfer of wireless spectrum licenses between Verizon and competitor T-Mobile USA.

But the FCC has put some conditions on the approval of the license transfers, including roaming requirements on all AWS spectrum involved in the transfer as well as a requirement to report to the FCC the state of DSL broadband competition.

The FCC's thumbs-up for these deals was all but certain after the Department of Justice last week approved Verizon's $3.9 billion bid to buy SpectrumCo wireless spectrum. The deal was seen as controversial from an antitrust standpoint because it also includes several commercial arrangements, such as provisions that will allow Verizon and cable companies to resell each others' services. In its approval of the deal, the DOJ also included some restrictions.

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 plans 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 technology development deal with the cable companies.

See also:
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• Wireless spectrum: What it is, and why you should care

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 20 megahertz of AWS spectrum, would get its hands on an additional 20 megahertz 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 Justice Department was most concerned with the commercial agreements between Verizon and the cable operators. The agency said 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 ultimately to have satisfied the regulators.

In an effort to appease the FCC when it came to the spectrum concerns, Verizon struck a separate deal with T-Mobile USA earlier this summer. As part of this deal, Verizon agreed to sell some of its AWS spectrum to a competitor. The FCC applauded the approach.

The deal with T-Mobile was key to winning the FCC's approval. And in its order, the FCC is requiring Verizon to close its spectrum transfer with T-Mobile within 45 days of its closing of transactions with SpectrumCo, Cox, and Leap.

The FCC also accelerated the build-out requirement on the spectrum licenses Verizon will get as part of these deals. Within three years, Verizon Wireless will need to offer service to 30 percent of the people covered by its new AWS licenses. And it will need to cover 70 percent of the population with services from this spectrum within seven years.

Verizon also agreed to continue offering roaming agreements with other carriers in any areas it offers service using the newly acquired AWS spectrum. This was a somewhat controversial condition, given that Verizon is currently fighting the FCC in court over a rule that requires all carriers to provide data roaming at reasonable rates to any carrier on any wireless spectrum.

And finally, Verizon has agreed to provide semi-annual reports concerning DSL subscribers after the commercial agreements are put into place. For the most part, the FCC allowed the DOJ to evaluate the commercial agreements. And in the deal that the DOJ struck with Verizon and the cable operators, these companies are not allowed to resell each other's services in areas where Verizon sells Fios service.

But the DOJ did allow the companies to resell each other's broadband services in places where Verizon sells only DSL. The Justice Department said it will re-evaluate the commercial agreement in five years. And now the FCC is requiring that Verizon file reports regarding DSL service and competition.

The entire order was supported by the three Democratic FCC commissioners. And the two Republican commissioners supported most of the order but disagreed with the additional restrictions regarding required roaming and reporting DSL market conditions.

"Two of my colleagues disagree with important elements of the commission's order," Chairman Genachowski said in a statement. "Although a large number of businesses and public interest groups raised strong concerns and urged commission action, my colleagues would not have adopted conditions relating to broadband roaming, they would not have reviewed or worked to revise the commercial agreements, and it is unclear whether they would have sought any spectrum divestitures. But protecting competition and incentives to build out wired and wireless broadband is core to the FCC's statutory responsibilities."

Verizon Wireless CEO Dan Mead said the transaction approval represents a significant milestone in the industry. And he assured the public that the company would put the spectrum to good use.

"We will work aggressively to ensure that we put this previously unused spectrum to use quickly to benefit customers," he said.

He went on to say that Verizon will now move forward with its previously announced plans to sell its 700MHz lower A and B block spectrum licenses.

Mead added, "We expect a very robust sales process as more than 65 parties have requested and received information about the spectrum we are selling. Selling the A and B licenses will allow this spectrum to be used to the benefit of other carriers and their customers."

But some groups that had opposed the deal when it was first announced say they're still dissatisfied with the concessions outlined by the DOJ and the FCC.

"The FCC's decision allowing Big Cable to virtually monopolize wireline and video connections to millions of homes will lead to job loss and hit consumers with higher prices," the labor union Communications Workers of America said in a statement. "It will slam the door on our country's high-speed future because it has destroyed any incentive for Verizon to continue the build out its high-speed Fios network. It is clearly an example of the FCC, just as the Department of Justice did last week, acting on behalf of corporate interests, not the public interest and clearly not jobs."

But FCC chairman Genachowski disagreed.

"By advancing U.S. leadership in 4G LTE deployment," he said in a statement, "the transaction marks another step in our effort to promote the U.S. innovation economy and make state-of-the-art broadband available to more people in more places. The transaction will preserve incentives for deployment and spur innovation while guarding against anticompetitive conduct. And vitally, it will put more than 20 megahertz of prime spectrum -- spectrum that has gone unused for too long -- quickly to work across the country, benefiting consumers and the marketplace."

Update, 1:42 p.m. PT: Adds information and comments from the FCC, Verizon Wireless, and opponents of the deal.