Verizon Wireless, the largest U.S. mobile-phone carrier, is spending $3.6 billion to buy wireless spectrum from SpectrumCo, a cable joint venture that includes Comcast, Time Warner Cable and Bright House Networks, with each receiving $2.3 billion, $1.1 billion, and $189 million, respectively, to sell their share in the JV to Verizon.
As a result of the deal, the cable operators will resell Verizon Wireless service instead of operating their own wireless brand in SpectrumCo. Or as the New York Times puts it, "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."
Verizon is hungry for more airwaves to accommodate increasing consumer demand from mobile devices to watch video and browse the Internet, and the deal will yield 122 Advanced Wireless Services (AWS) licenses, improving 4G services to its customers. "Spectrum is the raw material on which wireless networks are built, and buying the AWS spectrum now solidifies our network leadership into the future," stated Dan Mead, president and CEO of Verizon Wireless.
Comcast, Time Warner Cable and Bright House will be able to provide wireless service to customers via Verizon’s network and Verizon Wireless is free to sell their products, including pay-TV, in its stores.
It’s also the end of a dream for the three U.S. cable operators to create and manage their own wireless network. "It's really hard for a cable company to expect to compete in a highly competitive wireless market," commented Time Warner Cable spokesman Alex Dudley to the Wall Street Journal. "We got a good price for the spectrum. An arrangement like this makes a lot of sense."
As part of the deal, the cable companies can begin selling Verizon Wireless service under their own brand in four years. Cox Communications had a similar arrangement with Sprint, but earlier this year shut down plans to build out a wireless network; too small to be a contender against the major cellphone brands.
New York-based Verizon Communications Inc. owns 55% of Verizon Wireless and operates a competing cable-TV service, FiOS TV, in certain U.S. markets, and resells satellite TV service from DirecTV.
The cable operators are each receiving a 64% gain on $2.2 billion investments made in 2006 for the spectrum whose footprint covers about 85% percent of the U.S population and was initially deemed adequate to start an independent wireless network.
SpectrumCo had been called out by the National Association of Broadcasters for "hoarding" the unused spectrum in an environment where the FCC and mobile carriers are pressuring television to yield some.
The deal comes on the heels of the FCC’s announcement that the proposed $39 billion acquisition of T-Mobile USA by AT&T is not in the public interest.
Telecom analyst Jeff Kagan told PC World, "This looks like it is the end of the line for the cable television industry trying to be a player in the wireless space using their own networks. The cable television industry has tried to get into wireless in recent years and they have failed," adding that SpectrumCo didn't "think like a wireless company."