Friday, December 2, 2011 at 9:51 am.
While AT&T fights for T-Mobile, Verizon teams up with the cable industry
A huge new alliance in wireless and telecom just happened — this time, without the messiness of a merger: Verizon is getting in bed with the cable industry. (Here’s the official announcement. And here’s Peter Kafka’s smart take: Comcast and Verizon merge without merging.) Meanwhile, AT&T is still trying to figure out a “plan B” as its mega-deal to acquire T-Mobile falls apart.
- Specifically, Verizon Wireless will buy $3.6 billion worth of wireless spectrum from “SpectrumCo”, a joint venture between Comcast, Time Warner Cable, and Bright House, three of the largest U.S. cable companies. (Comcast and Time Warner are nos. 1 and 2, with 34 million TV subscribers between them.) This should allow Verizon to offer more and better wireless service.
- Verizon and the cable providers also reached a deal to sell each other’s products, previously something that Sprint and the cable companies tried to do with each other, with limited success. (Some cable companies, such as Time Warner, also re-sell Clearwire WiMax service, via their investments in the company. But it doesn’t seem to be doing very well.)
- The cable companies will also gain the ability to buy wholesale access to Verizon’s network, which they can re-sell as their own service. Comcast could offer “Xfinity Wireless”, or something like that, to its cable customers. (That’s the “quadruple play” potential — cable TV, broadband, home phone, and mobile, all working together.) This isn’t the best part of the deal for Verizon, as it provides the opportunity for its partners to potentially steal some of its wireless customers. But maybe Verizon thinks that’s a relatively low risk.
- The spectrum is from the “AWS” auction several years ago, when the cable companies teamed up to bid. But they haven’t done anything with it. Verizon, meanwhile, the largest U.S. wireless company, should be able to find a use for it. The spectrum licenses cover 259 million “POPs”, or much of the country.
The obvious winner here is Verizon, and the losers include Sprint and Clearwire, AT&T, and T-Mobile. One potential opportunity for T-Mobile, if its deal with AT&T fell apart, was to sell itself to Comcast or a consortium of cable companies. That looks less likely now.
It’s a good idea to be skeptical about this deal, because the last few deals between Sprint and Big Cable didn’t achieve anything. But it’s also been several years since then. And Sprint had (and continues to have) its own problems. So this seems to be worth a shot.
One question I have is: How does this work with Verizon’s FiOS service, which is designed to take business away from the cable industry?
Perhaps this is a sign that the cable companies don’t see FiOS as that big of a deal. Or perhaps it’s a sign that they see wireless as ultimately more important for the future and can become Verizon’s frenemy. Or maybe they just needed to get rid of the spectrum.
I’m curious to see if and how Verizon ever decides to re-sell cable products through this partnership, or if it just wanted to have the ability to do so.
Either way, this explains one reason why Verizon has been so quiet during AT&T’s effort to take over T-Mobile — which, itself, is largely about acquiring wireless spectrum.
Instead, Verizon just made a potentially huge strategic deal for the next decade or so, without the mess of merging companies. There’s no precedent to suggest this will be a smooth or productive partnership, but it’s worth trying. And no matter what, Verizon gets more spectrum. Smart.