Verizon Wireless nabs cable's wireless spectrum for $3.6B

Verizon Wireless will acquire a swath of spectrum that cable providers have been sitting on, bolstering its own position even as its competitors scramble for more of the limited resource.

In a joint announcement today, Verizon said it would pay $3.6 billion to Comcast, Time Warner Cable, and Bright House Networks--collectively known as SpectrumCo--to get what's known as AWS (Advanced Wireless Services) spectrum. The deal also includes the option for Verizon to sell cable service in its stores and for the cable companies to get access to the wireless network on a wholesale basis.

The deal underscores the growing need for spectrum, which is often considered the "lifeblood of the wireless industry," because the airwaves are necessary for carrying traffic across the cellular network. All of the wireless players have expressed a need for more spectrum and have pushed the government to free up little-used spectrum owned by broadcasters. The need for spectrum is one of the primary reasons why AT&T has pursued a $39 billion takeover of T-Mobile USA.

"Spectrum is the raw material on which wireless networks are built, and buying the AWS spectrum now solidifies our network leadership into the future, and will enable us to bring even better 4G LTE products and services to our customers," Verizon Wireless CEO Dan Mead said in a statement.

It's a surprising move for Verizon, which has been relatively quiet on the acquisition front and has made little noise amid the barrage of news on the AT&T/T-Mobile deal. Verizon previously hadn't expressed any urgent need for additional spectrum.

The deal also includes a cross-resale agreement, in which the cable companies can resell Verizon-branded service, and Verizon Wireless stores can sell cable service. In four years, the cable companies will be able to launch wireless service under their own brands in a more traditional wholesale agreement. In addition, the companies will also create a joint innovation initiative to better integrate wireless and cable services.

The deal should provide Verizon with additional resources as it continues with the rapid deployment of its 4G LTE network. Verizon, like all of the carriers, is dealing with the explosive growth in data traffic, which has necessitated more cellular equipment and more spectrum. The spectrum, however, isn't an exact match for the current spectrum it uses for its 4G LTE network.

Under the deal, Comcast gets $2.3 billion, Time Warner Cable gets $1.1 billion, and Bright House Networks get $189 million.

It was always unclear what the cable companies intended to do with the spectrum, which they purchased for $2.37 billion during the AWS auction in 2006. The cable companies had no plans to build their own wireless network, although Cox Communications attempted to and recently killed the service.

This deal provides the cable companies with access to Verizon's 4G LTE network, providing them with an alternative wholesale partner to Sprint Nextel and Clearwire. The cable companies had been selling their own version of Clearwire's 4G WiMax service in their own territories as part of their bundle of home Internet, phone, and television services.

The new partnership serves as a blow to Sprint and Clearwire, which count the cable companies as major partners. Sprint, interestingly, was part of SpectrumCo but pulled out of the venture in 2007.

For T-Mobile, the cable companies had offered a potential alternate partner if the AT&T deal falls through.

For Verizon, it represents a cleaner way of obtaining more spectrum; it's less likely to face the regulatory scrutiny of rival AT&T.

The deal is expected to take 6 to 12 months to get through regulatory approval, according to someone familiar with the deal.

Updated at 6:49 a.m. and 7:41 a.m. PT: to include additional details on SpectrumCo and the agreement.