On Monday, Verizon Wireless and T-Mobile announced that the two companies have agreed to a spectrum sale/swap arrangement. Awaiting FCC approval, this deal would enable the vendors to swap portions of their spectrum in the AWS (Advanced Wireless Services) band, while also seeing “an overall net transfer of spectrum from Verizon Wireless to T-Mobile and a cash payment from T-Mobile to Verizon Wireless.” From the outside, this appears to be an attractive deal to all parties:
- T-Mobile gains licenses covering approximately 60 million people (facilitating LTE network build-out).
- The swap/sale of these spectrum licenses may facilitate more efficient spectrum usage, with each vendor increasing its amount of contiguous spectrum.
- Verizon will increase its AWS spectrum holdings, allowing build-out of its LTE network in this spectrum block.
- The deal appears to enhance the level of competition in the wireless market (clearly an FCC concern considering the controversy around AT&T’s failed acquisition of T-Mobile in December 2011), with the nation’s fourth-largest cellular firm attaining network coverage from Verizon Wireless.
And yet, a closer look into this deal tells an entirely different story…
This agreement between Verizon and T-Mobile is merely a piece of a much larger puzzle – one that commenced in early December 2011, when Verizon made a $3.6 billion deal to purchase SpectrumCo (a joint venture between Comcast, Time Warner, and Bright House). This deal also contains:
“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.” (CNET)
This purchase has yet to receive approval from the FCC and DoJ, who must evaluate the impact of this deal on competition in the wireline and wireless network markets. Aside from these government bodies, this prospective purchase by Verizon has drawn considerable criticism from other interested parties – the Alliance for Broadband Competition formed in mid-May 2012 to oppose this purchase. Members of this alliance include Public Knowledge, Rural Cellular Association, Sprint, and T-Mobile. T-Mobile had – until yesterday – been one of the most vocal opponents to this purchase. With this new deal between Verizon and T-Mobile conveniently “contingent” upon the FCC’s approval of Verizon’s SpectrumCo purchase, T-Mobile has withdrawn its objection to this purchase.
This is not the first attempt by Verizon to draw FCC approval of the SpectrumCo deal – in April, Verizon proposed that it would run an “open sale” of many licenses the company holds in the 700MHz A and B blocks. This proposition was, of course, contingent on the close of its deal to acquire spectrum from the cable companies.
While the motives driving this deal between Verizon and T-Mobile are clear to all sides, DoJ and FCC regulators will have to re-consider Verizon’s SpectrumCo purchase in light of these changes, and their impact on the entire wireless market. The Alliance for Broadband Competition (minus T-Mobile) remains fiercely opposed, noting that "While it's nice that Verizon will cede a small portion of its vast spectrum holdings to T-Mobile, that does nothing to mitigate the fact that Verizon and Cable want to stop competing, stop investing, and stop innovating to the great detriment of consumers and the American economy."
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