Cable companies to resell Verizon Wireless service

NEW YORK -December 2, 2011 The companies said Friday that they have agreed to sell their wireless licenses - which they haven't been using - to Verizon Wireless for $3.6 billion.

The deal "amounts to a partnership between formerly mortal enemies," said analyst Craig Moffett at Sanford Bernstein. The cable companies compete with Verizon Communications Inc., Verizon Wireless' parent company, for phone and cable-TV customers. Now, Verizon Wireless stores will be selling cable service.

Cable companies have long had ambitions to open a second front against AT&T Inc. and Verizon by setting up their own wireless networks. In the meantime, some of them have partnered with Sprint Nextel Corp. and Clearwire Corp. to offer wireless service.

Lately, there had been speculation that the cable companies would try for a deeper beachhead in wireless by investing in ailing No. 3 and 4 carriers Sprint or T-Mobile USA. That talk had gained currency as it's become clear that AT&T's deal to buy T-Mobile USA is firmly opposed by regulators.

The link-up with No. 1 carrier Verizon Wireless and the sale of the spectrum appears to preclude a deal between a cable consortium and one of the weaker players in wireless. Instead, the biggest cellphone company will strengthen its hand, if the spectrum sale is approved by regulators.

"Pity poor T-Mobile. Verizon just ran off with the last pretty girl in the bar," Moffett said.

U.S.-listed shares of Deutsche Telekom AG, the parent of T-Mobile USA, were down 53 cents, or 4.2 percent, at $12.25 in midday trading. Sprint shares were down 3 cents, or 1.1 percent, at $2.67.

"It's really hard for a cable company to expect to compete in a highly competitive wireless market," said Time Warner Cable spokesman Alex Dudley. He pointed to Cox Communications, another cable company, which this year shut down its plans to build out a wireless network.

"We got a good price for the spectrum," Dudley said. "An arrangement like this makes a lot of sense."

The cable companies paid $2.2 billion for the spectrum in 2006, so they're getting a 64 percent gain on a five-year investment. The spectrum covers about 85 percent of the country's population, and would have been sufficient to start up an independent wireless network.

Shares of Philadelphia-based Comcast rose 97 cents, or 4.3 percent, to $23.53. New York-based Time Warner Cable shares rose $1.90, or 3.1 percent, to $62.82. Orlando, Fla.-based Bright House Networks is privately held.

Time Warner Cable currently resells access to Clearwire's wireless data network as "4G" service. Dudley said it could continue to provide service to existing subscribers, but the arrangement with Verizon Wireless is exclusive, so it will stop selling to new subscribers.

Neil Smit, the head of Comcast's cable operations, said its Clearwire service, marketed as "Xfinity 2Go," will be shut down within six months. It has about 30,000 customers.

Clearwire shares were unchanged at $2.03.

Comcast, the country's largest cable company, owned the majority of the spectrum holding company, and will get $2.3 billion from the sale. Time Warner Cable, the second-largest cable company, will get $1.1 billion. Bright House, the sixth-largest, will get $189 million.

Verizon Wireless CEO Dan Mead said the company will combine the spectrum with some of its own unused holdings and launch service using the latest wireless data technology, dubbed LTE for Long-Term Evolution. The acquisition roughly doubles the number of airwaves Verizon Wireless would have available for LTE.

Mead said he expected the deal to close in the middle of next year, but didn't say when the spectrum would be put to use.

Moffett, the analyst, said the Federal Communications Commission would probably rather see the spectrum go to T-Mobile USA. One of the reasons its German parent company wants to sell it to AT&T is that T-Mobile USA doesn't have a lot of room on the airwaves, and can't keep up with Verizon and AT&T when it comes to expanding wireless data capacity.

But Deutsche Telekom is unwilling to plow more money into the U.S., so an outright purchase of the cable-company spectrum has not been in the cards.

The sale to Verizon does solve one problem for the FCC, Moffett said: that the cable spectrum holdings have not been put to use yet.

Under the agreement, the cable companies and Verizon Wireless will market each others' services. Billing will be separate, but the cable companies have the option to start selling Verizon Wireless service under their own brand in four years. Cox had a similar arrangement with Sprint, but gave it up last month, saying it was too small to compete with the big cellphone companies.

Verizon Communications, the New York-based phone company that owns 55 percent of Verizon Wireless, runs its own, competing cable-TV service called FiOS in some areas. In the rest of its local-phone territory, it resells satellite TV service from DirecTV Group Inc. based in El Segundo, Calif.

Copyright © 2023 WPVI-TV. All Rights Reserved.