Verizon Wireless Clears Hurdles in Cable Spectrum Deal

Aug 17, 2012 04:56 AM EDT

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U.S. regulators cleared the way for Verizon Wireless to proceed with its $3.9 billion purchase of airwaves from big cable providers but placed constraints on the companies' marketing agreements.

The U.S. Department of Justice said on Thursday it would approve the spectrum sale, and the head of the Federal Communications Commission said the commission should also give the deal the go-ahead.

The spectrum purchase will give Verizon Wireless additional capacity to help it cope with rising demand for video on mobile devices and data services such as Web surfing.

Analysts said the approvals were a victory for Verizon Wireless and the cable companies. Wells Fargo analyst Jennifer Fritzsche said that the positive regulatory review of the deal with "minor conditions" would be good for the industry and prompt more spectrum deals.

"We expect the approval of this deal to stimulate more spectrum moves (purchases, sales and/or swaps) with other industry players," Fritzsche said.

Reuters had reported on August 2 that regulators were expected to approve the deal with conditions.

Verizon's proposed deal with the cable providers, including Comcast Corp and Time Warner Cable Inc, drew opposition from some rivals and public interest groups, which complained that it would hurt competition.

Verizon Wireless anticipated some regulatory concerns by agreeing in the last few months to sell some spectrum. Among the sales was one it forged with Deutsche Telekom AG unit T-Mobile USA, which was originally the most outspoken opponent of Verizon's deal with the cable companies.

The Justice Department said on Thursday that it wanted changes to Verizon Wireless's commercial agreements with the cable companies under which they planned to market each other's services and form a technology joint venture.

For example, the Justice Department said in a settlement proposal it filed that Verizon Wireless should not be allowed to market cable company products in areas where its parent, Verizon Communications Inc, sells FiOS television and Internet services that compete with those of cable providers.

The department also said that it would limit the duration of the proposed technology venture so that it would not "dampen the companies' incentives to compete against one another."

It also said that the companies should tweak their service resale agreement so that cable companies would be allowed to sell services from Verizon Wireless rivals after five years.

But even with those changes, Barclays analyst James Ratcliffe said that the deal would be positive for all involved as Verizon Wireless needs new spectrum and the cable companies are getting a good price for their assets.

Shortly after the Justice Department announced its conditions on Thursday, FCC Chairman Julius Genachowski urged the commission to approve the deal since Verizon Wireless has made certain promises, including one to sell certain spectrum assets.

Genachowski also said that the company committed to accelerate the build-out out of its network to use the new spectrum and to "enhance its roaming obligations."

A majority of the FCC's commissioners must still vote in favor of the transaction before it can proceed. The conditions the Justice Department placed on the commercial agreements are also subject to a 60-day comment period and require court approval.

Comcast Executive Vice President David Cohen said he was pleased with the settlement the companies had negotiated with the Justice Department and that he was hopeful the FCC would issue a final order on the deal shortly.

Verizon General Counsel William Petersen said in a statement that the company believed the "consumer benefits of the transaction will be promptly realized."

Consumer groups were critical, however. While regulators had mitigated some "consumer harms this deal would have caused," said Free Press policy adviser Joel Kelsey, they had not done enough to prevent Verizon Wireless and its cable partners from becoming too dominant.

"Whatever has been done to address the worst parts of this agreement, it's clear now that Congress and the FCC still need to confront the monopoly environment most consumers now face when choosing broadband service," he said.

In a move that analysts described as procedural, the Justice Department said on Thursday that it had filed a lawsuit barring the companies from going through with their original commercial agreements. It also filed a proposed settlement that would resolve its concerns if the plan gains court approval.

Verizon Wireless is a venture of Verizon Communications and Vodafone Group Plc.