Verizon Cable Deals Could Be in Trouble in Aftermath of NTIA Report

"The NTIA report puts more pressure on the FCC in its review of Verizon/SpectrumCo because, short of incentive auctions, which is going to take some time … what other spectrum is there?” an official said.

"It does seem like a major setback,” another agency official said of the NTIA report, relative to the goals of the FCC’s National Broadband Plan. “If the executive branch can’t come up with more spectrum to auction, is the Obama administration in essence saying that nobody gets more spectrum and more consumers must suffer through slow speeds on their wireless devices?” Some of the cost estimates -- for example, $5 billion to move government video surveillance systems from the 1755-1850 MHz band -- seem unrealistically high, the official said. “What it probably means is there are agencies inflating their numbers so they don’t have to give up their spectrum or move elsewhere."

"The transaction will be reviewed on its own merits,” said an FCC source familiar with the review. Verizon Wireless agreed in December to pay about $3.6 billion for 122 advanced wireless services licenses from the SpectrumCo venture of Bright House Networks, Comcast and Time Warner Cable and to pay another $315 million for another 30 AWS licenses from Cox Communications. That company remains fully committed to the approval process, a spokesman said. Spokespeople for the three other cable operators had no comment.

"It’s difficult to understand how the government’s broadly supported actions to make more spectrum available for mobile services would interfere with the timely approval of the sale to Verizon Wireless of privately held spectrum that is not being used,” said a spokesman for the carrier. Let’s look at what’s happening. President [Barack] Obama just signed legislation enacted by Congress to make broadcast spectrum available for mobile use. The FCC is proposing to allow 40 MHz of satellite spectrum to be used for terrestrial broadband. The NTIA report is an important step toward making an additional 95 MHz of spectrum available by stages over the next decade. There’s a concerted effort by the federal government to achieve the National Broadband Plan’s objective of making 500 MHz of additional spectrum available to better meet the needs of wireless consumers.”

"My initial reaction is nothing in this NTIA report was overly surprising,” said Jennifer Fritzsche, analyst at Wells Fargo. “How long had we all been waiting for this report to come?” Verizon has the most customers in the U.S. of any wireless carrier and 70 percent of the devices it sells are data driven, so the company needs more spectrum, Fritzsche said. “I almost thought the opposite, that the fact that nothing is coming from the government anytime soon strengthens Verizon’s need to go to the secondary market and for AT&T to act that way as well."

But Sanford Bernstein’s Craig Moffett said the deal does appear to face a tough fight at the FCC. “The FCC is between a rock and a hard place,” he said. “Ideological consistency alone dictates that, after rejecting the AT&T acquisition, it will be hard to approve the SpectrumCo deal. The NTIA’s relatively bearish take on new spectrum availability ups the ante. On the other hand, political realities matter too, and there’s a risk that the FCC would be branded as simply obstructionist if they were to reject the SpectrumCo deal.” Verizon has one big advantage, he said. “Verizon’s argument that this deal represents the most expedient way to get this unused spectrum to be utilized … happens to be true."

"The NTIA report should be ringing alarm bells at the commission,” said Andrew Schwartzman, senior vice president of the Media Access Project and an opponent of the deal. “Under the 1996 Communications Act, we count on competition to keep prices down, and the report raises considerable doubt about whether there will be adequate competition if this spectrum goes to Verizon.” The NTIA report “should also make the commission take a hard look at how efficiently all of the carriers are using their existing spectrum assets,” he said. “While Verizon deserves credit for doing a better job than AT&T, Verizon can redirect some of the purchase price to creating more cells and taking other steps to increase spectrum efficiency."

The NTIA report should prompt the FCC to take another look at the Verizon/cable deals, agreed Steve Berry, president of the Rural Cellular Association. “The NTIA report makes it clear that there are no short cuts to allocating or repurposing spectrum, and we must make sure that all spectrum available for mobile broadband is being efficiently used,” he said. “In that light, it is even more critical for the FCC to consider significant spectrum divestiture when reviewing this anticompetitive deal. Every competitive carrier must have access to usable spectrum. Verizon has spectrum it can already use while others in the industry remain spectrum starved. Verizon should not be allowed to add to its spectrum warehouse.”

Public Knowledge Legal Director Harold Feld has long viewed the effect on competition as an area of real concern for the FCC on the Verizon/cable deals, he said. “Frankly, had Verizon and AT&T been willing to enter into roaming agreements voluntarily, the FCC would have been a lot less concerned,” he said. “But with no new spectrum on the horizon, the data roaming rules under challenge in court, and Verizon and AT&T making it clear they won’t make roaming deals with Sprint and [T-Mobile] unless the law requires it, what is the FCC supposed to do? Verizon and AT&T can’t argue about how urgent the spectrum crunch is on the one hand, then argue that T-Mo and Sprint don’t need roaming."'

"In the SpectrumCo deal, the FCC shouldn’t pick winners or losers, but it must also avoid anointing kings,” said Free Press Policy Adviser Joel Kelsey. “If the agency is serious about its mandate to promote competition, it ought to block this deal because it puts a disproportionate amount of the country’s most valuable spectrum in the hands of one company."

Free State Foundation President Randolph May defended the deal. “Only by using twisted logic could you argue that, because it may take longer than predicted, or longer than it should, for government spectrum to be repurposed, the Verizon/SpectrumCo deal should be adversely affected,” May said. “If the Verizon/SpectrumCo deal were to be scuttled, it would just mean that spectrum that is now lying fallow would continue to lie fallow. I can’t understand how bandwidth-hungry consumers are benefitted by that result. The FCC ought to be more single minded in getting spectrum repurposed and leaving it to the antitrust authorities to take the lead in addressing competition concerns."

"The formidable challenges of repurposing federal government spectrum for commercial mobile broadband cited in the NTIA report, combined with other factors, may create some added head winds for the Verizon cable deals,” said Jeff Silva, analyst at Medley Global Advisors. “But even while the transactions may be hard to swallow for FCC and Justice Department officials, in light of real-world obstacles mightily conspiring against the administration’s goal of freeing up 500 MHz over the next decade, antitrust law may ultimately dictate clearance of the deals in some form.”