DoJ Gives Verizon Spectrum Deal a Yes, But …

The United States Department of Justice approved Verizon’s US$3.6 billion bid for additional spectrum, albeit with changes mandated by antitrust regulators to ensure the deal won’t lead to diminished competition, lower-quality products or higher consumer costs.

Verizon Wireless will be allowed to pay Time Warner Cable, Comcast, Cox Communications and Bright House Networks for a chunk of airwaves it will use to expand its 4G LTE network. The company originally agreed to buy the spectrum at an auction in 2006, but most of it has since gone unused, awaiting federal approval.

At the time of the deal, the cable companies agreed to resell each other’s services and collaborate on further technological research. The DoJ approved the sale, but it said further resales and research must meet separate approval. As part of the agreement, Verizon will also sell some spectrum to T-Mobile.

Additionally, Verizon is forbidden from reselling cable company products in areas covered by FiOS, although it can resell cable company services until the end of 2016 in areas where Verizon only offers DSL services. The company must also continue its ability to bundle its DSL Internet services with satellite TV providers.

The deal also allows cable companies to resell Verizon Wireless services under their own brand in Verizon retail stores.

The concessions are the FCC’s and DoJ’s way of acknowledging that changes must be made to the current spectrum situation while still making sure that these major deals are at least being done on their terms, said Jeff Kagan, tech analyst and consultant.

“The FCC and the DoJ did not like this merger as proposed, either,” he told the E-Commerce Times. “I think they did what they had to do in order to make it more palatable. The spectrum crunch has many concerned.”

Working Together

The deal still needs to meet approval from the Federal Communications Commission. Julius Genachowski, chairman of the FCC, believes the commission should approve the transaction.

Verizon is not the only company wrangling for more spectrum, as the demand for speedy, nationwide Internet service grows rapidly with the number of smartphone and tablet users.

However, the DoJ and the FCC have blocked such initiatives in the past, as in the case of the proposed merger between AT&T and T-Mobile. The federal agencies nixed the deal, to the delight of other telecom giants such as Sprint, on the grounds that it would have stifled competition and hurt consumers. An agreement between the two companies would have created the nation’s largest wireless provider, but AT&T maintained throughout the approval process that it needed the merger for T-Mobile’s spectrum rather than to create a duopoly.

This time around, though, the stakes were smaller and regulators are beginning to take notice of the serious nationwide spectrum crunch, said Dan Olds, principal analyst at Gabriel Consulting Group.

“The FCC is realizing that these companies and consumers really need more spectrum,” Olds told the E-Commerce Times. “They’re also cognizant to the fact that sometimes they’re perceived as being anti-business, especially in regards to deals like this. In the face of a nationwide recession, that’s not exactly a reputation you want.”

That need for spectrum is so pressing that it’s not so much surprising that the deal passed, but that the newly allotted spectrum won’t roll out to consumers sooner, said Charles Golvin, principal analyst at Forrester.

“What is a surprise is the relatively modest pace at which Verizon Wireless has stated it plans to deploy in the AWS spectrum,” Golvin told the E-Commerce Times. “If the government wants more people covered more quickly with this spectrum, I would have expected a more expedited timetable.”