The Department of Justice and the Federal Communications Commission approved the sale of $3.6 billion in spectrum from a group of major cable companies to Verizon on Thursday, after placing limitations on confidential side agreements that were included in the deal. The side agreements would have required Verizon and the cable companies to sell each other's products and create an exclusive joint venture for technology research. Because Verizon's FiOS products competes directly with broadband and pay-TV offerings from cable providers, the proposed settlement bars Verizon from selling cable products in markets it offers FiOS. The agreement would also place a time limit on how long Verizon can sell cable services in areas where it offers DSL Internet service, in hopes of preserving the company's incentive to keep building out its DSL network. In addition, the agreement also allows the cable companies (Comcast, Time Warner Cable, Bright House and Cox Communications) to begin selling other wireless providers' services after five years.
FCC chairman Julius Genachowski released a statement (PDF) arguing the conditions mitigate any harm to the wireless and pay-TV markets, while freeing up valuable spectrum for use by wireless companies. Verizon has already agreed to divest some spectrum to T-Mobile USA as part of the deal, and plans to auction another block of airwaves in the 700 MHz band that could draw interest from AT&T and other carriers. In approving the transaction with fairly limited conditions, the FCC is staying true to form under Genachowski by emphasizing freeing up spectrum for wireless broadband access above all else. The transaction should help alleviate the spectrum crunch that wireless providers have consistently complained about, but it's difficult to see the deal making a positive impact for consumers in the pay-TV and home broadband markets. FiOS was one of the only broadband competitors to the cable companies, and it appears under the deal Verizon will stop expanding the markets it serves. Furthermore, the aftermath of the NBC Universal-Comcast merger has demonstrated the limitations of conditions placed on mergers, particularly given the FCC's slow pace of enforcement.
All in all, a good day for the wireless and cable providers, and potentially a watershed moment for consumers. We'll be watching closely to see what fruit is borne of the Verizon-cable partnership. Stay tuned for full coverage of the merger and consent decree.