When Verizon Wireless made its initial $3.6 billion offer to acquire wireless spectrum from SpectrumCo LLC, most observers didn’t think the deal would run into any opposition. Which only goes to show that most observers might not always be the right observers.
Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NASDAQ: VOD), wanted the additional spectrum to accommodate future growth. That was no particular show-stopper as other wireless companies have been allowed to accumulate spectrum against prospective future needs. SpectrumCo, jointly owned by Comcast Corp. (NASDAQ: CMCSA) and Time Warner Inc. (NYSE: TWX) among others, and Verizon Wireless had also agreed to a cross-licensing deal where the two cable providers would be able to bundle Verizon Wireless’ service and the wireless carrier would be able to sell the cable companies’ content in a bundle.
Smaller rival wireless providers like MetroPCS Communications Inc. (NYSE: PCS), Sprint Nextel Corp. (NYSE: S), Deutsche Telekom AG’s (OTC: DTEGY.PK) T-Mobile USA division, and Leap Wireless International Inc. (NASDAQ: LEAP) complained about the hoarding of spectrum. As a result, the Federal Communications Commission (FCC) is considering requiring Verizon Wireless to divest some of its current spectrum before the deal is approved. A report at Bloomberg News cites “people familiar with the matter” for the information.
The FCC and the US Department of Justice, which must also approve the deal, want to maintain competition in the wireless and cable markets to protect consumer choice and prevent monopolistic pricing. But depending on how much spectrum Verizon Wireless must shed, there may be only one potential buyer — big rival AT&T Inc. (NYSE: T), which has stayed out of the fray so far, probably because it has equally big plans now that its $39 billion deal for T-Mobile has been killed.
The cross-licensing deals are also being investigated by the DoJ to determine if they threaten competition. The threat to competition and monopolistic pricing for consumers may be greater here than in the actual spectrum purchase. The nationwide reach of wireless networks and consumer demand for mobile resources opens up a whole new profit potential for Comcast and Time Warner. At the same time Verizon gets to offer programming that makes the company’s network a more attractive option, particularly if it can undercut competitive pricing.
The nuts and bolts of this acquisition and its fallout are nearly impossibly arcane. But the government’s decision will touch nearly everyone in the US. And that’s why the deal is so important.