2:15 p.m. | Updated Verizon Wireless said Friday that it had agreed to acquire wireless spectrum from three cable companies — Comcast, Time Warner Cable and Bright House Networks — at a cost of $3.6 billion.
The spectrum transfer, if approved by the government, will allow Verizon to further grow its wireless data networks, an important advantage against its main competitor, ATT.
Crucially, Verizon also agreed to market the cable companies’ services and vice versa, foreshadowing the possibility of cable television, broadband, home phone, and cellphone service someday appearing on a single monthly bill.
The spectrum sale is part of a “complete reordering of the competitive universe as we know it today,” the cable analyst Craig Moffett of Sanford Bernstein Co. wrote in an analyst report. The marketing agreements between Verizon and cable, he wrote, amount to “a partnership between formerly mortal enemies.”
In an e-mail message from an airport runway in Germany, as he was about to take off for the U.S., Mr. Moffett reiterated, “This is a REALLY big deal. Maybe the most significant deal the industry has ever seen. And that’s a pretty amazing thing to say for a deal where less than $4 billion changes hands.”
The spectrum transfer part of the deal will require approval by the Federal Communications Commission and an antitrust review by the Justice Department. The agencies have strongly objected to ATT’s proposed acquisition of T-Mobile. Verizon said it is seeking approval of the spectrum transfer by the middle of 2012.
The agreements announced Friday reflect the cable industry’s recognition that it must have a hand in the wireless marketplace, but also a recognition of how impractical it would be to build out its own networks and provide phones to customers.
Last month, the first big cable company that had acquired spectrum and sold its own wireless service, Cox, abandoned the venture, citing in a statement “the lack of wireless scale necessary to compete in the marketplace” among other factors.
Instead of creating its own wireless services, Comcast, Time Warner Cable and Bright House will market Verizon’s service, and in turn Verizon will market the cable companies in their respective local markets.
“We’ll be joined at the hip going after new customers,” a Comcast executive said Friday in describing the deal. The executive spoke on condition of anonymity in deference to the company’s president of cable, Neal Smit, who wrote a blog post Friday about the significance of the deal.
“Mobility is an important part of the experience that we deliver to our customers today and will be an increasingly important part of Comcast’s future product road map,” Mr. Smit wrote in his blog post.
The marketing arrangements will occur first in four test markets, then be expanded to other markets. In four years, the cable companies will have the right to start reselling Verizon Wireless service under their own brand names.
The spectrum licenses that Verizon is seeking to acquire were picked up by the three cable companies as well as Cox and Sprint Nextel at auction in 2006 for a total of $2.37 billion. Comcast, the biggest cable company by far, held most of the licenses; the rest were split among the three others.
The license transfer, if approved, will be a financial windfall for the cable companies. Comcast will receive $2.3 billion for its portion, a gain of more than $1 billion over what it paid in 2006.
Verizon, meanwhile, will gain a substantial amount of new spectrum at a time when it and its smaller competitors, like ATT, are striving to keep up with growing demand.
Daniel S. Mead, the president and chief executive of Verizon Wireless, said in an interview that the $3.6 billion of spectrum would be a “critical mechanism” for delivering wireless service in the future.
Verizon and the cable companies, led by Comcast, will also form a joint venture for what they call “innovation technology.” Under the venture, the companies will devise new products that integrate cable technology and wireless technology.
Theoretically, the products could make it possible for home devices like a TV set, and mobile devices like an iPhone, to talk to each other digitally. If a customer of both Comcast and Verizon were watching a football game on a bus, say, via a cellphone, that game could seamlessly show up on a TV screen when the customer arrived home.
But those connections won’t be available right away. Initially, if a new customer walks into a Verizon Wireless store and orders both mobile phone service and Time Warner Cable television service, they will still receive two separate bills.
The cable companies’ right to sell their own branded wireless service — thereby having it on a single bill and in a single-price bundle — only takes effect four years after the initial deal is formally signed.
Time Warner Cable and Bright House already resell another wireless data service, Clearwire, to a limited number of customers. But they are likely to stop doing so, possibly to the detriment of Clearwire, which is already struggling financially, and its backer, Sprint Nextel.
Mr. Moffett said that the agreements would also increase pressure on Deutsche Telekom, which controls T-Mobile, “to find a way to close a deal with ATT,” because it all but rules out a joint venture between T-Mobile and the cable industry.
The analysts Vijay Jayant of Judah Rifkin, of ISI Group, wrote Friday, “For Verizon, this appears to be a victory.”
It is unclear what the agreements will mean for Verizon FiOS, the fiber-optic television service. FiOS has been responsible for some of the subscriber losses reported in recent years by the cable companies, but all told it has about four million subscribers, far fewer than Comcast or Time Warner Cable.
FiOS has stopped building out beyond the areas in which it already is available. Verizon and another fiber-optic television service company, ATT U-verse, already sell a bundle, colloquially called a quad-play, of television, Internet, home and mobile phone service.
On Friday, Mr. Smit said that Comcast and Verizon Wireless hope to be able to sell the same bundle, with one single bill, “over time.”
Mr. Mead concurred, though he cautioned, “We have got to crawl before we run here.”
Article source: http://mediadecoder.blogs.nytimes.com/2011/12/02/with-verizons-3-6-billion-spectrum-deal-cable-and-wireless-inch-closer/?partner=rss&emc=rss
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