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FCC, DOJ to clear Verizon AWS deal

Thu, 08/16/2012 - 3:40pm
Maisie Ramsay, Wireless Week

The FCC and Justice Department are set to clear Verizon Wireless' $3.9 billion purchase of AWS spectrum from a group of cable operators, a transaction that adds to the operator's stockpile of spectrum for its LTE network.

FCC Chairman Julius Genachowski said today he is prepared to approve the transaction and will circulate a draft order to the agency's other commissioners ahead of a final vote. The Justice Department entered into a consent decree with Verizon today, he said.

Verizon has said it could run into capacity constraints in some markets as early as next year without the additional spectrum.

The announcement follows weeks of rumors that the government would condition its approval on cutbacks in Verizon’s marketing arrangements with its cable partners. Those reports have now been partially confirmed.

Verizon and its cable partners have agreed to a number of conditions to address "serious concerns" about the transaction's impact on the wireless and cable markets, Genachowski said. The conditions apply both to the spectrum sale and marketing agreements allowing the five companies to cross-sell each other's products.

"In response to the agencies' objections, the parties have made a number of binding pro-competitive commitments and will also make fundamental changes to their agreements," Genachowski said.

The marketing arrangements came under repeated criticism over the course of the transaction, with a number of parties expressing concern that the cross-selling amounted to a non-compete agreement.

The agreements will be modified to "preserve Verizon's incentives to build out FiOS, increase wireless competition, and ensure that the proposed IP venture is pro-consumer and that its products cannot be used in anti-competitive ways," he said.

As part of the FCC's conditions for the deal, Verizon has agreed to “accelerate” the build-out of its newly acquired spectrum and "enhance" its roaming obligations.

Genachowski did not say Verizon would be required to give up additional spectrum, citing its "unprecedented divestiture of spectrum" to T-Mobile. Verizon moved earlier this summer to divest some of its AWS spectrum to competitor T-Mobile USA and is in the process of selling off its lower 700 MHz A-block and B-block spectrum. The divestitures were designed to convince the government to clear the transaction.

The FCC did not elaborate further on the roaming mandate or list specific deadlines for network construction. The AWS spectrum Verizon purchased at auction four years ago has so far gone largely unused, as have the AWS licenses bought at the same time by its cable partners.

Verizon announced last December it had reached a $3.6 billion deal to purchase 122 AWS licenses from Comcast, Time Warner Cable and Bright House Networks. Two weeks later, it announced a separate deal to buy an additional 30 AWS licenses from Cox Communications for $315 million.

The licenses from Cox Communications, Comcast, Time Warner Cable and Bright House Networks complement Verizon's existing AWS holdings, giving it a nationwide footprint in the band. Verizon plans to use the spectrum to add capacity to its LTE network, which currently runs on the 700 MHz band.

The cable operators had once all been a part of a group called SpectrumCo that purchased the licenses during the FCC's 2008 auction with the intention of entering the wireless market. Cox eventually split from the group to pursue its own wireless plans, which never came to fruition.

The companies also formed a joint venture and a number of side deals, including agreements to sell each other's products. The cable operators were also given the option to sell Verizon's wireless service on a wholesale basis in the future. The arrangements' possible impact on competition in the cable market, which Verizon is a participant in through its parent company's FiOS service, is said to have attracted the attention of federal antitrust regulators.

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