As part of its bid to acquire the assets of T-Mobile, AT&T made the case earlier this year that consolidation through mergers were the only way for nationwide carriers to inexpensively (the euphemism here being “horizontally”) piece together a 4G network.
Today, Verizon Wireless demonstrated that is clearly not the case, in a deal which enables it to manage the block of spectrum that was the subject of the best-placed bid in the big FCC 700 MHz auction of 2008, even though VZW was already the clear winner of that auction already.
Under the terms of the deal, SpectrumCo – a group of three of the U.S.’ leading cable providers: Comcast, Time Warner Cable, and Bright House Networks – will sell a block of licenses in the 700 MHz band to Verizon Wireless for $3.6 billion. The cable group, in a joint purchase with Cox Communications, purchased that block for $2.4 billion three years ago, in a deal which economic analysts calculated at the time to have been the single lowest-priced bid of any in the auction for unit of bandwidth. Arlington Economics had concluded that SpectrumCo had effectively paid just 45¢ per megahertz-pop (per 1 MHz of bandwidth reaching one customer), while VZW spent an estimated 63¢ per megahertz-pop.
It was widely expected that the four cable companies involved in the deal would pool together resources to sell telephone service to their cable customers, at a time when “triple-play” and “quadruple-play” deals seemed to be economically feasible and most palatable to customers. Since that time, major carriers like VZW and AT&T cut into those baseball-sounding deals with inexpensive ways for landline customers to switch to wireless.
Under the terms of this deal, according to Comcast, SpectrumCo members will be enabled beginning in 2016 to resell Verizon-branded wireless services on their networks, as so-called mobile virtual network operators (MVNOs). So while cable companies will continue to offer triple-play services, before too long, their customers will find themselves Verizon Wireless subscribers.
Just two weeks ago, Cox announced it was pulling out of the wireless business altogether. Last June, Cox had been the subject of speculation that it could sell its 700 MHz licenses to Sprint, in a deal that would have looked very much like the one SpectrumCo reached today with VZW. Now Cox is expected to follow suit, with VZW being the likely buyer.
