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Verizon Wireless to buy cable airwaves for $3.6-billion

Comcast and Time Warner give up on ambitions to compete in the cellphone arena with sale of wireless spectrum that will better position Verizon to compete with rival AT&T.

December 02, 2011|By Joe Flint, Los Angeles Times
  • Verizon Wireless is buying a shared chunk of wireless airwaves from a consortium of cable operators for $3.6 billion. The wireless spectrum covers 80% of the country and reaches approximately 259 million people.
Verizon Wireless is buying a shared chunk of wireless airwaves from a consortium… (Justin Sullivan, Getty…)

A joint venture including the nation's two largest cable companies took the biggest step yet to pull the industry out of its once ambitious plans to build a wireless network and compete with mobile carriers for cellphone customers.

The venture, which consists mainly of Comcast Corp. and Time Warner Cable Inc., said Friday that it agreed to sell all of its licenses for broadband airwaves to Verizon Wireless for $3.6 billion.

The deal, which must be approved by federal regulators, will better position Verizon to compete with rival AT&T, which is trying to salvage its $39-billion bid to buy T-Mobile USA. The Justice Department has filed an antitrust suit to block the AT&T deal.

"This is a strategic masterstroke for Verizon," said Sanford C. Bernstein analyst Craig Moffett. "Verizon just ran off with the last pretty girl in the bar."

The transaction gives Verizon, the nation's largest mobile phone company, advanced wireless spectrum that covers 80% of the country and reaches about 259 million people. It gives the cable companies a gain of more than $1.3 billion on airwave licenses it bought at a 2006 government auction.

Wireless carriers like the advanced wireless spectrum because it will allow them to provide customers with faster and more sophisticated services, including high-definition video, social networking and location-based services. And AT&T and Verizon have long worried about limits they could hit as the amount of available wireless spectrum runs low.

In late October, the Federal Communications Commission warned that a potential "spectrum crunch" could lead to slower wireless service and higher mobile prices for consumers.

The terms of the deal also call on the cable firms — Comcast, Time Warner and Bright House Networks — and Verizon to sell each others' services.

In Southern California, Time Warner Cable will start offering its subscribers Verizon Wireless service along with its own cable and broadband packages. Verizon will offer broadband and video services to its customers.

Sanford C. Bernstein's Moffett called it a "partnership between formerly mortal enemies."

Public Knowledge, a media watchdog group, gave a partial thumbs up to the sale. But the companies' plan to market each others' products raised a red flag with the group.

"If this deal becomes a way for the companies to coordinate their product offerings to avoid competition … that would obviously be a bad outcome," said Public Knowledge Legal Director Harold Feld.

For the cable industry, the sale is a recognition that its own entry into the wireless communications business was a misguided strategy. The concept was that the cable companies could offer bundles of services: pay television, broadband Internet, landline phone and wireless.

Although the cable industry has had success tying video and broadband, wireless has proved to be a hard sell. Time Warner Cable and Comcast have fewer than 60,000 wireless customers combined. Last month, Cox Communications said it was exiting the wireless service early next year.

"With this deal, the cable industry tacitly acknowledges that they cannot do wireless on their own," said Miller Tabak & Co. analyst David C. Joyce.

Comcast, which was the biggest stakeholder in Spectrum Co., will take in $2.3 billion in the sale while Time Warner Cable will get $1.1 billion and Bright House will receive $189 million.

Time Warner Cable executives were "excited" about offering Verizon mobile service and "pleased" with the price it got for the spectrum, said Rob Marcus, its president.

Comcast President Neil Smit said the agreement enables the company to offer a "comprehensive, long-term wireless strategy and expand our focus on providing mobility...."

Verizon and Bright House executives also praised the deal, which will be submitted for the FCC's approval.

Times staff writer David Sarno contributed to this report.

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