$3.6 Billion Spectrum Deal Hits Senate Interference

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Washington — If last week’s hearing
of the Senate Subcommittee on Antitrust,
Competition Policy and Consumer
Rights is any indication, cable operators
could face an uphill battle in convincing
the government to free up advanced
wireless spectrum for mobile broadband
— at least if that means turning it over to
the nation’s largest wireless carrier, Verizon

SpectrumCo, a consortium owned
by Comcast (63%), Time Warner Cable
(31.2%) and Bright House Networks
(5.3%), purchased the spectrum in the
Federal Communications Commisssion’s
2006 AWS auction in partnership with Sprint Nextel;
the other consortium members bought out Sprint in 2007.
Cox Communications dropped out of SpectrumCo in 2009,
taking its spectrum with it. Verizon is off ering $3.6 billion for
the SpectrumCo holdings and $325 million for Cox’s spectrum,
subject to FCC approval.

There are also associated marketing agreements
through which Verizon and the cable operators will sell
each other’s services, with the cell phone provider able to
offer Comcast’s Xfinity cable-modem service alongside its
mobile broadband service, for instance, and the MSOs allowed
to brand Verizon Wireless service as their own in a
quadruple-play bundle. A separate agreement would create
an R&D tech center to develop ways to integrate wired
and wireless service.

All that cooperation among the three cable operators and
Verizon is a bit too cozy for public-interest groups. The issue
also raised red flags among Senate Democrats last week,
who could not separate the spectrum deal from the associated
marketing agreements, which they said would lead
to a stronger wireless duopoly and monopolistic collusion
among cable operators.

Public-interest groups were pitching it as a return to the
regulated-monopoly telecom days of yore, and suggested
Verizon and the major cable companies were divvying up
the wireless and cable business, with Verizon bailing on its
FiOS TV video platform and cable operators turning over the
wireless business to Verizon.

A pair of labor unions — the Communications Workers
of America and the International Brotherhood of Electrical
Workers — are also now actively lobbying against the deal.
Th ey argue that, if approved, the sale would wind up “killing
thousands of jobs, ending competition, raising prices for consumers, lowering service quality and discontinuing the
development of high-speed Internet infrastructure.”

Comcast executive vice president David Cohen and Verizon
executive vice president and general counsel Randal
Milch pitched the deal as a win for consumers and for the
government. Th e administration has made freeing up more
spectrum for wireless broadband something of a national
mission, and the advanced wireless services spectrum cable
operators want to sell could be put to use immediately by
Verizon to extend and improve mobile broadband service.

Opponents of the deal concede that it is beachfront real
estate for wireless broadband, and is the only such freedup
spectrum that will be available for some time — it will
likely take the FCC close to a decade to free up reclaimed
broadcast spectrum for wireless broadband via its incentive
auctions. But it was the fact that it was going to Verizon
that stuck in craws of the publicinterest
groups and Verizon’s
competitors. Cohen said Comcast
had talked to “virtually”
every competitor about the
spectrum, but concluded Verizon’s
was the best deal for the
company and its customers.

Milch insisted that FiOS
would continue to be sold and
aggressively marketed against
cable, though he conceded it
was also not expanding beyond
its current planned 18 million
household footprint, a decision
Verizon made a couple of years
ago. He pointed out that Verizon
had spent $23 billion of its shareholders’
money to build out the service and that it was in the company’s and their interest
to get a return on that investment. Cohen said that
Comcast and his SpectrumCo partners had tried to figure
out a business plan for building a competitive standalone
wireless service, but had concluded that there wasn’t one.

Cohen also said the marketing agreements would give
Comcast the wireless strategy its spectrum purchase
failed to deliver, allowing it to sell cellular service in competition
to bundles that AT&T and satellite-TV provider
DirecTV off er through their own marketing deal. He noted
that the government historically hasn’t raised concerns
over deals like the AT&T-DirecTV agreement, even encouraging
such arrangements.

The FCC is currently vetting details of the associated
cross-marketing agreements, which were struck at the
same time as the spectrum deal. Cohen said he considered
the marketing arrangements integral to the deal, as
far as Comcast was concerned, though he made the distinction
that, unlike the spectrum deal, the marketing arrangements
do not require FCC approval.

At least three of those marketing deals — in, Seattle,
San Francisco and Portland, Ore. — are up and running.
Comcast suggested they would continue whether or not
the spectrum deal goes through.

Sen. Herb Kohl (D-Wis.), chairman of the Senate antitrust
subcommittee, conceded that his panel had no power
to block the deal. Nonetheless, in comments last week
he linked it to the proposed merger of cell-phone providers
AT&T and T-Mobile, a deal the FCC and Justice Department
put the kibosh on. Following a hearing on that
proposed merger, which was also billed as a spectrum deal, Kohl asked
Justice and the FCC
to block it.

“Having won the
battle for competition
by blocking
last year’s AT&T/TMobile
merger, are
we now in danger
of losing the war?”
he asked in opening
last week’s hearing.

It’s not clear, but
there seems to be a
war brewing over
what Comcast and
Verizon view as a
spectrum deal.