The US Department of Justice today has approved the $3.9 billion spectrum acquisition by Verizon Communications Inc. (NYSE: VZ) from SpectrumCo LLC, a joint venture of Comcast Corp. (NASDAQ: CMCSA), Time Warner Cable Inc. (NYSE: TWC), BrightHouse Networks, and Cox Communications Inc. The catch is that the cross-marketing agreements between Verizon and the cable companies will have to be modified before the deal is allowed to go through.

The DoJ’s Antitrust division and the New York State Attorney General also filed suit today to prevent the companies from enforcing the commercial agreements that were part of the December 2011 deal:

The proposed settlement forbids Verizon Wireless from selling cable company products in FiOS areas and removes contractual restrictions on Verizon Wireless’s ability to sell FiOS, ensuring that Verizon’s incentives to compete aggressively against the cable companies remain unchanged. In addition, under the proposed settlement, Verizon Wireless’s ability to resell the cable companies’ services to customers in areas where Verizon sells DSL Internet service ends in December of 2016 (subject to potential renewal at the department’s sole discretion), thereby preserving Verizon’s incentives to reconsider its decision to stop building out its FiOS network and otherwise innovate in its DSL territory.

The antitrust suit would be dropped if the companies agree to the proposed settlement that the DoJ also filed with the court.

Verizon and the cable operators had agreed to a bundling of services that would have allowed each to offer a so-called ‘quad-play’ of voice, video, broadband, and wireless services in a single package. The proposed settlement also “forbids any form of collusion and restricts the exchange of competitively sensitive information.”

Regarding the spectrum deal, Verizon will be permitted to acquire the SpectrumCo bandwidth as long as the proposed sale of some of Verizon’s existing spectrum to T-Mobile USA is completed as planned.

Federal Communications Commission chief Julius Genachowski also stated his support for the transaction, although he was never as concerned with the antitrust possibilities of the deal as was the DoJ.

Arguably the commercial cross-marketing agreements were always the central issue in this deal. The spectrum part of the transaction would probably have been approved months ago if the commercial agreements had not been included.

Paul Ausick

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