While everyone was worried over whether AT&T would be acquiring T-Mobile USA or not, Verizon was making some sneaky moves to acquire a truckload of spectrum for their 4G LTE network. On December 2, Verizon Wireless announced its intent to acquire all 122 licenses of the AWS-1 spectrum that SpectrumCo, LLC held.
SpectrumCo is a joint venture company that was created by Comcast, Time Warner Cable, Bright House Networks, Cox Communications, and Sprint-Nextel to bid on AWS spectrum in the FCC auction. Sprint-Nextel and Cox later exited the joint venture, with the latter taking some AWS spectrum with them. Why is this important? It’s important because SpectrumCo’s AWS holdings is one of the very last large blocks of unused wireless spectrum in the United States. Since the joint venture was formed in 2006, that spectrum has never been used for anything. Only when Cox left the joint venture did some of it get used. And that spectrum was what Cox took with them when the left the group.
The acquisition of SpectrumCo’s AWS assets will give Verizon at least 20MHz more spectrum in most parts of the United States. Combining it with the existing assets Verizon already held on AWS, their average amount of spectrum in that band jumps up to around 30MHz. The eastern half of the country would have at least 40MHz of AWS owned by Verizon, while the western half would have at least 20MHz.
So what’s the problem with Verizon owning all that spectrum? By itself, nothing. If spectrum was the only part of the deal, then only T-Mobile USA should really be worried. T-Mobile could have used that spectrum to bolster their AWS holdings and deploy LTE or better versions of HSPA+.
However, that wasn’t the only part of the deal. The press release also states that Verizon Wireless and the owners of SpectrumCo have additionally “entered into several agreements, providing for the sale of various products and services. 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.”
This means that Verizon Wireless will offer multi-play options to their customers that reside in the markets that these cable companies are located in. Basically, the cable companies will become resellers of Verizon Wireless service and eventually be able to sell their own branded wireless service on Verizon’s network. Again, by itself, it isn’t a problem. However, Verizon announced on December 8 that they are halting the build out of FiOS and that they are terminating their agreement to resell DirecTV satellite TV service. Taking these events together, it is easy to see why this could be problematic. Verizon FiOS was supposed to offer faster, more reliable internet access at affordable prices. It was supposed to bring us closer in line with other countries around the world, who get fiber internet at rates that Americans used to pay for narrowband dial-up internet service. This also gives no incentive to the cable companies to try to compete with the big wireless network operators, either.
What about Cox Communications? They still own spectrum and have a wireless network, right? Well, yes and no. On November 15, Cox announced that they are discontinuing the service. Effective March 30, 2012, the network will be turned off completely. Cox will be assisting their customers to migrate to other service providers in the meantime. On December 16, Cox announced they will beselling their AWS spectrum assets to Verizon, too. Like the SpectrumCo announcement, Cox has also entered into similar agreements with Verizon Wireless regarding the selling of products and services to each other’s customers. While Cox will still own some 700MHz spectrum, they no longer have any incentive to use it. As a result, most are expecting Cox to sell off that spectrum to someone else, too.
I’m not the only one who is nervous about these arrangements. The U.S. Department of Justice hasbegun investigating to see if these deals will concentrate too much spectrum in Verizon Wireless’ hands. With the FCC receiving the request to transfer the AWS licenses to Verizon Wireless on December 20, they will begin investigating as well.
These deals will likely happen because AWS licenses have a build-out requirement and the FCC, more than anyone else, wants those requirements fulfilled. Since Verizon and AT&T have been sitting on their AWS assets for years, they are now scrambling to build out on the AWS band or face the loss of their AWS licenses in 2017-2020. Verizon needs more AWS spectrum for it to be useful nationwide, and that’s where SpectrumCo and Cox come in.
AWS licenses were granted on ten-year terms, and if they don’t fulfill the individual build-out requirements set forth in their licenses by the FCC, then they lose the license. As of right now, the only major network operator that is safe is T-Mobile USA. Of the smaller operators, MetroPCS and Leap Wireless are safe as well, since they are fully utilizing their AWS assets. The rest (Verizon Wireless, SpectrumCo, AT&T Mobility, C Spire Wireless, U.S. Cellular, etc.) all have something to worry about, as they haven’t used any of it.
Even though I expect these deals to go through, I fully expect both the FCC and the Department of Justice to impose conditions to help make sure the broadband market in the United States actually becomes competitive to a useful degree.