Competition, Convergence, and the Verizon-Cable Deal

Verizon’s decision last week to purchase a chunk of 4G spectrum from cable companies is a huge development for both the future of television and wireless. The move frees up spectrum desperately needed for consumers, increases competition in the wireless industry, and emphasizes just how much “anytime, anywhere” is the future of TV and content consumption.

Under the deal, Comcast, Time Warner Cable, and Bright House Networks will sell $3.6 billion worth of spectrum in the 1700 MHz range – ideal for mobile broadband – to Verizon. This brings a notable amount of unused spectrum onto the market, covering over 80 percent of the population (with 259 million POPs).

There is a growing shortage of spectrum in the U.S. as wireless data demand grows by over 250 percent a year. Americans use more data than almost every other nation, yet we are on the verge of capacity constraints that are already felt in dense urban areas. For comparison, British consumers have 3.5 times the available spectrum as Americans, and the Japanese have well over 2 times as much.

The primary fault lies with the Federal Communications Commission and Congress, which are exasperatingly sluggish at bringing new spectrum to market. The last major auction was in 2008. (These licenses being sold to Verizon were acquired in 2006.) The FCC has only 50 MHz in the pipeline for auction, but it has sat on other spectrum it can auction such as the D Block. The Commission stalled the AT&T/T-Mobile merger aimed at more efficiently using spectrum to deal with capacity constraints. They've also slowed AT&T's purchase of Qualcomm spectrum. And they haven’t done much to mediate technical questions surrounding LightSquared’s effort to launch a satellite-based mobile broadband network, which has been in the works since the FCC granted them a license in 2004.

Congress is also to blame for its failure to authorize voluntary incentive auctions for spectrum currently held by broadcasters. This debate partially centers on handing prime spectrum over to public safety instead of putting it in the private market where it’s needed. Yet, on a positive note, the deal between cable and Verizon has rendered moot broadcaster complaints that they could be forced to sell their spectrum, while cable companies have been squatting on equally usable bands.

The deal also brings a new level of convergence and competition to the wireless industry. Comcast, Time Warner Cable, and Bright House Networks will all have the ability to purchase wholesale access to Verizon’s network under their own names as part of the agreement. Consumers can soon expect to see “Comcast Wireless” competing against Verizon, each offering wireless and wired Internet service, along with their own video content. This further blurs the lines between “wireless” and “wired” broadband, despite the fact that our antiquated FCC continues to view, study, and regulate each as separate service.

All of this acknowledges a well-known change in how Americans consume content. The disruption in traditional television that began with “on demand” cable and Internet streaming options is now the norm. Verizon customers can use wireless options to view FiOS content. Cable providers can now bundle in wireless options, without the lack of specialization and enormous cost of building out a new network. Consumer demand for “anytime anywhere” content viewing is driving convergence and the desegregation of business models and services.

The question is whether the FCC or Department of Justice will try to quash or place regulatory conditions on the spectrum sale with a harsh anti-trust review. The convergence of industry has thrown the FCC – which views the market in separate, heavily regulated services – into existential crisis. These new, experimental services and partnerships are driven strongly by consumer demand. They deserve a shot at success, not to be shot down out of a precautionary fear of free, dynamic, and competitive markets.