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FCC Unanimously Approves Verizon/SpectrumCo Deal

8/23/2012 4:23 PM Eastern

Two days after it was unanimously adopted -- reportedly as commissioners, some far-flung, finished their statements -- the FCC on Thursday released the order approving Verizon Wireless' purchase of spectrum from cable operators Comcast, Time Warner Cable, Cox and Bright House.

The telco is paying $3.9 billion for advanced wireless spectrum the cable ops decided not to use to build out a competing wireless network. It is also spinning off some of that spectrum to competitors T-Mobile and Leap (Cricket).

The deal includes associated marketing agreements that allow Verizon and the cable ops to sell each other's services, but they have been modified so that Verizon can't sell cable service in competition to Verizon FiOS service in areas where that has been built out. It also limits the agreements to four years, with the FCC reviewing the agreements after that time and the companies able to petition for an extension.

"We are pleased that the Federal Communications Commission has now voted unanimously to approve the spectrum sale and transfer by Comcast and other cable companies to Verizon Wireless," said David Cohen, executive vice president of Comcast, in a blog posting Thursday, also saying he expected the deal to "close shortly."

He went on to outline what Comcast would now be able to do in terms of cross-marketing Verizon produces and services:

"Comcast will be able to market Verizon Wireless products and services across our entire footprint under a renewable agent agreement (for the first five years, we will be exclusive to Verizon Wireless, but Verizon Wireless will not be able to enforce the exclusivity provisions after five years).

"Comcast and Verizon Wireless will be able to work together for at least five years in an R&D partnership to develop innovative technologies that integrate wireless and wireline products and services; after five years, we can continue that partnership with the agreement of the DOJ.

"Comcast has the right to opt into an MVNO (or reseller) agreement with Verizon Wireless at any time after six months' notice.

"Verizon Wireless will be able to market Comcast products and services throughout the vast majority of the Comcast footprint (everywhere outside the FiOS footprint) under a renewable agent agreement; after five years, Verizon Wireless can renew the agreement other than in the DSL footprint where DOJ approval is required."

"This purchase represents a milestone in the industry and we appreciate the FCC's diligent work to review and approve the transaction," said Verizon Wireless president Dan Mead in a statement Thursday. "We will work aggressively to ensure that we put this previously unused spectrum to use quickly to benefit customers."

As first reported in Multichannel News, the vote was 5-0, but with the Republicans concurring in part.

"Approval of the substantially modified transaction will benefit consumers in several ways," said FCC chairman Julius Genachowski, whose said the deal as modified was in the public interest, but as originally proposed would not have been. "By advancing U.S. leadership in 4G LTE deployment, the transaction marks another step in our effort to promote the U.S. innovation economy and make state-of-the-art broadband available to more people in more places. The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct. And vitally, it will put more than 20 megahertz of prime spectrum - spectrum that has gone unused for too long - quickly to work across the country, benefiting consumers and the marketplace. "

Commissioner Mignon Clyburn made it clear that the time limits and other conditions on the cross-marketing agreements, as well as the spectrum spinoff to Leap Wireless, were key to her vote. "As initially proposed, no FCC could have found the transaction to be in the public interest," she said in a statement. But with those conditions, she said, the deal was "ripe for approval."

She also praised what she called the FCC's most robust data roaming transaction condition to date.

Commissioner Jessica Rosenworcel agreed that the deal, as initially proposed, raised serious concerns, and that it had been improved through the conditions. But she said nobody had a crystal ball and that the order was a series of predictive judgments and that the FCC and DOJ would need to circle back in four years, when the cross-marketing agreements terminate, to carefully review any petitions for extension and answer the following questions: "Have these arrangements spurred the deployment of infrastructure? Do joint activities mean innovation? Or do they harm the incentives to compete? Have they led to more job creation? What are the consequences for consumers? Have they benefited from new services with higher quality at lower rates? Have they meant more competitive opportunities for broadband access for everyone, in rural communities, urban centers, and everything in between? The honest answers to these questions are important," Rosenworcel said.

Senior Republican commissioner Robert McDowell called the deal a procompetitive one that will benefit the consumer. But McDowell concurred, rather than approved, two elements of the decision. He said he disagreed with the data roaming obligation, since he says the record does not demonstrate that Verizon has failed to offer roaming, and took issue with the FCC's authority over the marketing agreements. He said that should have been solely the province of Justice.

As expected, commissioner Ajit Pai also took issue with the FCC's assertion of authority over the cross-marketing agreements -- a point on which he also concurred rather than approved. He said the FCC's authority under its merger review charter is "broad" but not "boundless."

"Congress limited the scope of our review to the proposed transfer of spectrum licenses, not to other business agreements that may involve the same parties," he said, adding that, in any case, "the assertion is unnecessary. If DOJ 'conducted its own independent and comprehensive investigation of these agreements,' and if the Consent Decree it negotiated 'address[es] the key potential harms to consumers and competition,' then any pronouncement about our authority is just dicta."

But the FCC asserts the authority anyway -- the commission worked on the marketing agreement conditions in concert with DOJ.

Pai was also not supportive of the roaming condition, which also drew a concurrence rather than approval. "First, such a condition is not voluntary in any meaningful sense of the word, insofar as the parties would not agree to it independently but know that its acceptance is a predicate for regulatory approval of these transactions. Moreover, the Commission's authority to impose such a condition generally is doubtful," he said.

Still, on balance, Pai said the order would "will increase consumer welfare, will mitigate any potential harms to competition, and will signal the speedier resolution of secondary market transactions."

September