Comcast, Verizon part of $3.6 billion wireless deal

Comcast Corp., in a sweeping move that aligns it with what one analyst called "its mortal enemy," joined two other cable companies to sell wireless spectrum to Verizon Wireless for $3.6 billion.

The deal announced Friday includes an agreement by the parties to cross-sell bundles of wireless, phone, cable-TV and Internet products. Comcast, in turn, will gain access to Verizon's national wireless network.

Verizon Wireless, which has 91 million wireless customers, will use the additional spectrum to boost capacity of its network for phones and tablets. Comcast will receive $2.3 billion if the federal agencies approve the deal. The cable company bought the spectrum, previously used by government agencies, in 2006 for $1.29 billion.

Time Warner Cable and Bright House Networks, the other cable company partners, will split the remaining proceeds.

Verizon Wireless will seek approvals from the Justice Department, which will evaluate the sale of spectrum for antitrust concerns, and the Federal Communications Commission. Those approvals could take six months to a year.

Beyond the financials, the deals have broad implications for the telecommunications industry. Foremost among them is closer ties between two giant competitors, Verizon Communications Inc., the majority owner of Verizon Wireless, and cable operator Comcast.

Verizon competes with Comcast for cable-TV, residential Internet and landline phone subscribers in parts of the country, including Philadelphia, through its legacy phone business. Verizon Wireless is 55 percent owned by Verizon Communications and 45 percent by England's Vodafone Group.

Verizon Wireless and Comcast executives said Friday the agreements would not diminish competition between Verizon's FiOS and Comcast's Xfinity offerings.

"Competition will not be disrupted," vowed Dan Mead, president and chief executive officer of Verizon Wireless, in an interview.

But a leading consumer advocate, Mark Cooper, director of research for the Consumer Federation of America, said the deal was troubling: "Comcast and Verizon were supposed to be the big head-to-head competitors in the digital communications space of the 21st century, and now that's done. This lays that idea to rest. They have a joint venture."

As a practical matter for consumers, Verizon Wireless will offer to sell Comcast's Xfinity services in its retail stores, many of them located in malls, and Comcast will sell Verizon Wireless services through its mailings, online and call centers. Verizon Wireless has about 900 retail stores, with about 700 of them in areas where Verizon doesn't offer FiOS.

This joint selling of telecommunications products will begin in four areas around the nation in early 2012. The companies wouldn't identify those locales on Friday. The cross-selling will expand nationwide through the year.

Significantly for stockholders, the deal shows that Comcast doesn't plan to build its own national wireless network and will instead piggyback on Verizon Wireless.

David Joyce, managing director at Miller Tabak + Co. L.L.C., said in a note it's "a great financial and strategic deal for Comcast and its cable peers, assuming regulators let it through. Comcast is getting a great financial return on an asset they've done nothing with."

Vijay Jayant, cable analyst with ISI Group, an equity research firm in New York, estimated that the cable companies could have spent more than $10 billion to build their own wireless network and that Comcast's share could have been $5 billion.

Instead, "here you become partners with your mortal enemy," he said. "I could see the sale of spectrum, but I was surprised by the cooperative promotion agreements."

Comcast's stock soared 3.5 percent, or 79 cents, to close at $23.36 on a flat trading day on Wall Street. Some believed that Comcast's shares had traded lower in recent weeks on rumors that it could purchase the struggling wireless network operator Sprint Nextel Corp., whose shares fell 3.7 percent, or 10 cents a share, to close at $2.60.

The deals also call for a 50-50 research and development joint venture between the cable companies and Verizon Wireless, which could initially be based in Philadelphia. Executives said a final decision on the location of the research center had not been decided. The center will develop new products that integrate wireless and video.

While the benefits to Comcast seem clear - the cable company earns a profit on the spectrum and solves its gaping wireless problem - Verizon Wireless adds wireless capacity and gains access to Comcast's customers. Mead, of Verizon Wireless, said the new spectrum would allow Verizon Wireless to stay ahead of the "demand curve" driven by the popularity and expanding use of mobile phones and tablets.

Neil Smit, the president of Comcast's cable division, said, "I am thrilled about this. . . . We felt this was the most efficient way of getting our products to market."

In a statement, Smit noted: "These agreements, together with our WiFi plans, enable us to execute a comprehensive, long-term wireless strategy and expand our focus on providing mobility to our Xfinity services."

Comcast's earnings have held up strongly but analysts have said for some time that it would have to find a wireless product offering because consumers increasingly would like to access the Internet and TV programs outside of their homes.

 


Contact Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.