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Cable Technology Feature Article

December 05, 2011

Verizon Acquires $3.6 Billion Worth of Spectrum, Joins Forces with Cable Providers on Reseller Deal

By Beecher Tuttle, TMCnet Contributor

In a move with far-reaching ramifications, Verizon (News - Alert) on Friday acquired $3.6 billion worth of wireless spectrum from a joint venture between Comcast (News - Alert), Time Warner and Bright House Networks.

The acquisition will not only give Verizon the spectrum it needs to add capacity to its network; it will also narrow the already thin line between cable companies and mobile carriers by enabling them to resell each other's products and services. In addition, the deal will force the cable companies to end their relationships with Sprint Nextel and partner Clearwire Corp., which will undoubtedly give an additional boost to Verizon.

In return for its spectrum licenses, Comcast – which owns 63.6 percent of the joint venture SpectrumCo – will receive approximately $2.3 billion. Time Warner and Bright House Networks – which combine to own the other 36.4 percent – will receive $1.1 billion and $189 million, respectively. Each company will receive a significant premium on top of their original purchase price.

While the spectrum purchase is the biggest piece in the deal, it is far from the only headline maker. Under the terms of the agreement, the cable companies will be allowed to sell Verizon services in bundle packages and price them as they see fit.

This means that consumers can couple together their wireless, cable, home phone and Internet services in a single bill and assumedly receive discounted pricing. Comcast and Time Warner retail outlets are expected to sell hot items like the iPhone (News - Alert) in the coming months, according to Bloomberg.

In addition, each cable company will have the option of selling Verizon services and products under their own brands on the wholesale market after just four years. This will allow the cable companies to generate some revenue from wireless services but will also dissuade them from building and managing their own networks – something I'm sure Verizon is OK with.

On the other end of the deal, Verizon can begin offering cable products and services through their own channels, earning a commission on each subscriber added.

“This is a strategic masterstroke for Verizon,” Craig Moffett, an analyst at Sanford C. Bernstein & Co., said in a note obtained by Bloomberg. It will result in “a complete reordering of the competitive universe as we know it today.”

Possibly the most interesting part of the deal is fate of Verizon Fios, which Verizon Wireless CEO Dan Mead said will continue to battle with the cable companies over TV subscribers. However, it seems clear that Verizon is betting much bigger on its more profitable wireless business than its cable alternative, which probably helped motivate Comcast and Time Warner to jump onboard.

The losers in the deal are clearly Sprint and Clearwire, which will see their relationships with Verizon end in the coming months.

Comcast said that it will begin marketing Verizon products early in 2012, while Time Warner will start selling bundle packages almost immediately, according to Reuters. The transfer of spectrum is subject to FCC (News - Alert) approval, but it looks like the partnerships are good to go.

With its recent public condemnation of the AT&T (News - Alert)/T-Mobile deal, it will be interesting to see if the FCC has an opinion on Verizon expanding its wireless footprint.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Jennifer Russell