Federal regulators have approved a $3.6 billion deal that will allow Verizon Wireless to buy spectrum from a group of cable companies who failed to break into the wireless industry. But the deal is subject to some restrictions.
Essentially, the cable companies, who won the 122 advanced wireless system spectrum licenses in a 2006 auction, and Verizon Wireless's parent company, Verizon Communications had to ensure that they will continue to compete.
The Justice Department was concerned that consumers would lose out on competitive pricing because of a provision in the deal that Verizon and the cable companies could sell each other's products.
In an agreement now being hammered out, Verizon will not sell competitors' products in areas where its FiOS fiber-optic TV service is available, and a joint venture to develop new technologies must be limited in duration. That way Verizon and the rivals -- Comcast Corporation, Time Warner Cable, Cox Communications and Bright House Networks -- won't get too cozy with each other.
The nod paves the way for a contingent deal for Verizon to sell some of the spectrum to T-Mobile.
"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," said Joseph Wayland, Acting Assistant Attorney General in charge of the Department of Justice's Antitrust Division.
According to a DOJ statement, the deal also "forbids any form of collusion and restricts the exchange of competitively sensitive information. Verizon and the cable companies would also be required to provide regular reports to the department to ensure that the collaboration does not harm competition going forward."
Tentative approval of the deal will give Verizon Wireless access to spectrum that covers 239 million Americans.
Get To Work, Spectrum!
"Approval of the substantially modified transaction will promote the public interest and benefit consumers in several ways," said Federal Communications Commission Chairman Julius Genachowski in a statement. "By advancing U.S. leadership in 4G LTE deployment, 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 anti-competitive conduct.
"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."
Aside from the cash windfall, the cable companies benefit from the deal by strengthening their long-term wireless strategy, analyst Neil Shah of Strategy Analytics told us Thursday.
"Verizon has expertise and resources to build and manage a wireless network , the capability which these cable companies lack, and thus now they can become wholesale providers using Verizon's network without bothering about [capital expenditure and operational expenditure] in exchange for the valuable spectrum," he said. "This agreement allows cable companies to bundle [Verizon] wireless service with their "triple play" cable and land-line phone option."
From Verizon's point of view, he added, it gains more spectrum to accommodate the surging data demand on its network and won't have to worry about cable companies gaining an edge by adding their own wireless service to their bundles.