Verizon's cable deals make headway but regulatory doubts linger

WASHINGTON Mon Jul 9, 2012 5:02pm EDT

A sign of Verizon Wireless is seen at its store in Westminster, Colorado April 26, 2009. REUTERS/Rick Wilking

A sign of Verizon Wireless is seen at its store in Westminster, Colorado April 26, 2009.

Credit: Reuters/Rick Wilking

WASHINGTON (Reuters) - The telecoms regulator is prepared to approve Verizon Wireless' plan to buy airwaves from cable companies, according to people with knowledge of the situation, though the company still has to convince the Justice Department that the deal will not lead to higher prices for consumers.

Verizon Wireless, the biggest U.S. mobile provider, announced in December plans to buy spectrum from a consortium of cable providers, including Comcast and Time Warner Cable, for about for $3.9 billion.

Verizon Wireless is owned by Verizon Communications and Vodafone Group Plc.

The deal is seen as a game changer for the wireless landscape that would give Verizon an edge over rivals as mobile providers struggle to gather more spectrum to meet increased consumer demand for videos and other data-heavy services.

The Federal Communications Commission, which is taking the lead in assessing the spectrum portion of the deal, is prepared to approve it, according to two sources familiar with the matter.

Verizon has been aggressive in trying to win favor for the deal by transferring some airwaves to smaller wireless companies.

Late last month, Verizon and Deutsche Telekom's T-Mobile announced that they would swap some spectrum in a deal that paved the way for T-Mobile to drop its objection to Verizon's deals with the cable companies.

But Verizon is in much tougher talks with the Justice Department in hopes of winning agreement for two other much-criticized portions of the deal.

The Justice Department is skeptical about the marketing deals since they would mean collaboration between Verizon, the largest wireless company, and Comcast, the biggest cable company, according to one of the sources.

The fear is that there will be less head-to-head competition which could mean higher Internet and wireless plan prices.

The hope had been that Verizon would use its FiOS service to more aggressively push into Internet and cable, and that Comcast and other companies would compete more heavily in wireless products.

"They're a problem," said the source, who was not authorized to speak publicly, about the marketing agreements.

The other concerning component, the source said, is the creation of a "joint operating entity" between Verizon and the cable companies.

It is designed to develop new technologies, such as one that would allow consumers to move seamlessly between wired and wireless hookups, but critics say it could create cutting-edge technologies only available to the consortium.

"The Justice Department has big concerns about what mischief could be done in undefined agreements that would lock out competitors," said the source.

Talks are underway between the department and the parties, with no decision expected until August at the earliest.

Neither agency will sign off on the transactions until both are satisfied that any problems have been resolved.

"Obviously discussions remain ongoing, we're addressing concerns as they arise but all indications are that we will be closing on this as expected sometime later this summer," said Verizon spokesman Ed McFadden.

The Justice Department is weighing three options - it could sue to stop the side arrangements to the spectrum buys, it could seek to change them to prevent potential collusion, or it could monitor how the cross-marketing agreements that have already been put in place play out.

A Justice Department spokesman said the antitrust division was reviewing the transaction but declined to go into any detail. The FCC declined to comment.

The regulatory review of Verizon's spectrum deal comes just a few months after the Justice Department and FCC aggressively turned back AT&T's bid to buy rival T-Mobile USA.

AT&T said that $39 billion deal was critical to help it deal with the spectrum crunch in the United States, but regulators found that a merger between the second- and fourth-largest U.S. cellphone companies would hurt competition and raise prices for consumers.

Verizon's spectrum deal is smaller and unlike AT&T, Verizon has been proactive about selling off its less desirable spectrum to smaller rivals, a move welcomed by the FCC.

"Verizon comes out of this with a pretty good set-up for the next couple of years," said Harold Feld, legal director of public interest group Public Knowledge. "A number of other competitors also come out in decent shape." (Reporting by Diane Bartz; Editing by Tim Dobbyn)

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