Opposition Mounts to Verizon Spectrum Acquisition (VZ, VOD, CMCSA, TWC, S, PCS, DTV, DTEGY)

The $3.6 billion acquisition by Verizon Wireless of advanced wireless services licenses from SpectrumCo LLC is generating some stiff opposition from Verizon’s competitors. Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD), announced the acquisition last December. SpectrumCo is a joint venture of Comcast Corp. (NASDAQ: CMCSA), Time Warner Cable Inc. (NYSE: TWC), and privately-held Bright House Networks and Cox Communications Inc. Sprint Nextel Corp. (NYSE: S) was a partner in SpectrumCo but withdrew from the group in 2007.

Thus far, the Federal Communications Commission (FCC) has received comments from MetroPCS Communications Inc. (NYSE: PCS), DirecTV Inc. (NASDAQ: DTV), Sprint, and T-Mobile USA, the US mobile carrier of Deutsche Telekom AG (OTC: DTEGY).

Besides access to an additional 259 million customers in the US, the proposed acquistion includes cross-selling agreements between the buyer and the sellers. The competitors have been asking the FCC to require fuller disclosure of these agreements because they are an integral part of the deal for the spectrum licenses. All are worried about Verizon’s ability to wield unbeatable market power in virtually every market.

Through these agreements, the cable companies, on the one hand, and Verizon Wireless, on the other, will become agents to sell one another’s products and, over time, the cable companies will have the option of selling Verizon Wireless’ service on a wholesale basis. Additionally, the cable companies and Verizon Wireless have formed an innovation technology joint venture for the development of technology to better integrate wireline and wireless products and services.

The cross-selling agreements are a nice bonus for the cable operators, who now will be able to bundle wireless service with their existing phone, broadband, and cable TV services. The sale has the the added benefit of getting the cable guys out of the low-margin, high-cost wireless business.

For Verizon Wireless, the purchase gives them a larger population to cast their net over and an opportunity to bundle the cable operators’ services into a package of their own. But the added spectrum is what the deal’s all about for Verizon Wireless. The new capacity will be a significant aid to the build-out of the company’s 4G LTE network.

Comcast will realize about $2.3 billion from the sale and Time Warner Cable will get about $1.1 billion. That’s about double their investments in the original spectrum license purchases in 2006.

Paul Ausick