Challenging Verizon’s Ambitions for More Wireless Spectrum

Competitors say VZ’s plan to buy spectrum from cable companies would give it an “excessive concentration” of wireless capacity

Deutsche Telekom (PINK:DTEGY), USA T-Mobile, Sprint (NYSE:S), MetroPCS (NYSE:PCS), and a host of consumer advocacy groups are trying to reign in Verizon’s (NYSE:VZ) plans to buy new spectrum from the nation’s largest cable companies and cross-market their services.

T-Mobile asked the Federal Trade Commission this week to block Verizon’s $3.9 billion deal to buy spectrum from Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), privately held Bright House Networks, and Cox Communications because it would give Verizon an “excessive concentration” of wireless spectrum. The cable companies bought the spectrum from the FCC several years ago with intention of offering their own cell phone services. However, the cable companies ditched those plans when it became apparent that cell phone companies’ market lead and technology advancements were too difficult to surpass.

That opened the door for Verizon to cut a deal last December to buy spectrum, jointly owned by Comcast, Time Warner, and Bright House, for $3.6 billion. Soon after that Verizon reached a similar deal to buy spectrum from Cox for $315 million. Verizon had hoped to close the deals by the middle of this year.

Using bandwidth to entice subscribers

Data-streaming capacity is viewed as critical to wireless carriers’ growth potential, and spectrum is its lifeblood. Verizon, whose current spectrum ownership helped it become the world’s largest wireless company, wants the extra bandwidth to boost its download speeds and attract more customers who want to surf the Web on smartphones and computer tablets.

But T-Mobile is crying foul, essentially using the same argument that Verizon and Sprint used to derail T-Mobile’s proposed $39 billion merger with AT&T (NYSE:T) last year. AT&T’s acquisition of T-Mobile would have taken the low-cost carrier out of the market and likely raised prices for consumers. The centerpiece of Verizon’s deal with the cable companies is the purchase of spectrum, but it also includes an arrangement for Verizon and the cable companies to sell each other’s services in their stores. Verizon and Comcast already have begun marketing each other’s services, and Sprint has asked the FCC in its filing to consider the wider implications of such an arrangement.

Verizon already has the world’s largest network, which it boasts about at every opportunity. So it may be difficult for the company to convince regulators that the deal with the cable companies won’t give it an unfair competitive advantage.

But Verizon’s 4G LTE (long term evolution) network, which offers customers high-speed access to the Internet, hasn’t been reliable lately. Customers using Verizon’s 4G telephones and tablets suffered another temporary outage on Tuesday. It was the fourth network outage in three months and affected customers in Detroit, Phoenix, and Columbus, Ohio, and in parts of northern Virginia and the suburbs of Chicago.

The outrages may not convince federal regulators to let Verizon move ahead with its spectrum purchases. But the frequency of the outages prompted Verizon to adjust its marketing message. The company has backed away from claims that it has the fastest and most reliable network. Instead, Verizon has begun to limit its reliability claim to its 3G network.

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