Verizon Wireless Spectrum Buy Said to Raise U.S. Concerns

Verizon Wireless’s $3.6 billion plan to buy airwaves from cable providers has raised concerns with U.S. regulators that the purchase may harm competition in the wireless market, three people familiar with the matter said.

The U.S. Federal Communications Commission and Justice Department are examining whether the acquisition would make it harder for Verizon’s rivals to expand wireless networks, said Steven K. Berry, chief executive officer of the Rural Cellular Association, a critic of the deal, and two other people who weren’t authorized to discuss the matter publicly.

The government concerns may prolong reviews of a purchase that analysts initially predicted would be approved easily, said Paul Gallant, a Washington-based analyst with Guggenheim Partners. Verizon, the largest U.S. mobile provider, may have to sell off airwaves to satisfy the government, he said.

“The deal is more likely than not to get approved with some additional concessions,” he said in an interview.

Both the FCC and the Justice Department’s antitrust division must approve the airwaves agreement. Regulators say they are trying to make sure the market remains competitive to preserve consumer choice and prevent a monopoly that could lead to higher prices.

Neil Grace, an FCC spokesman, declined to comment, as did Gina Talamona, a Justice Department spokeswoman.

Benefit to Consumers

Ed McFadden, a Verizon spokesman, declined to comment on specific issues under consideration by regulators. The company is cooperating with the agencies’ reviews and provided written comments to the FCC explaining why the deal won’t hurt competition, McFadden said in an e-mail.

Verizon has said consumers will benefit from its purchase of spectrum because the company will be able to provide improved wireless service. Verizon expects the purchase to be approved by the FCC and Justice Department by “mid-summer,” McFadden said.

The agencies’ concerns have been discussed by staff during meetings over the deal, said Berry, whose Washington-based group represents more than 100 rural and regional wireless companies. The agencies are examining the impact of the deal on Verizon rivals T-Mobile USA Inc., MetroPCS Communications Inc. (PCS) and other competitors, he said. Berry’s group has said the deal shouldn’t be approved without divestiture of airwaves.

Joint Agreements

Also under Justice Department antitrust review are joint marketing agreements between Verizon and cable companies that were announced the same day as the airwaves sale. The review is examining whether the agreements between Verizon and Comcast Corp. (CMCSA), Time Warner Inc. (TWX) and other sellers of the airwaves may harm competition, according to Berry and one of the people who spoke on condition of anonymity.

The regulators are examining whether competition will be hurt by Verizon acquiring airwaves that it doesn’t plan to immediately use, said Berry and the two people who spoke on condition of anonymity.

In a May 2 filing with the FCC, Verizon rejected the concerns, which also were raised by T-Mobile, a Deutsche Telekom AG (DTE) unit based in Bellevue, Washington.

Verizon’s airwave purchase will lead to a reduction in high-speed “capacity available overall and reduced competition,” according to a petition T-Mobile filed with the FCC in February opposing the purchase.

T-Mobile has said that it couldn’t submit a bid to the cable providers because it was in the process of being acquired by Dallas-based AT&T Inc.

Meeting Demand

In a statement filed with the FCC, Verizon said it has enough capacity “to meet increased demands in many areas until 2015.” In the May 2 filing, Verizon said the agency has never required a company to show it would use acquired airwaves immediately.

Yesterday, FCC Chairman Julius Genachowski said the agency has discouraged the holding of unused spectrum, in a speech in New Orleans, without mentioning the Verizon transaction.

Executives of Consumers Union told Genachowski during a May 3 visit to the advocacy group’s headquarters in Yonkers, New York, that they oppose the deal because it may increase prices and diminish competition for wireless, video and high-speed Internet service.

High-Speed Service

Wireless providers are seeking to add airwaves to accommodate high-speed service for smartphones and other mobile devices, using fourth-generation technology called long-term evolution, or LTE.

Earlier this month, the FCC added 21 days to an informal time limit for considering the bid by Verizon Wireless, saying the companies involved were slow to provide documents.

This is the second time in as many years the agencies have questioned a major deal in the wireless phone market. The Justice Department, with the FCC’s backing, last year successfully blocked AT&T (T)’s $39 billion bid to buy T-Mobile, arguing that the acquisition would hand control of the market to Verizon and AT&T Inc., the No. 1 and No. 2 U.S. mobile providers.

If Verizon sells other airwaves to win government approval, the most likely buyer would be AT&T, further extending the gap between the industry’s top two providers and their rivals, said Harold Feld, legal director of Public Knowledge, a Washington- based consumer group that opposes the deal.

The marketing agreements under Justice Department review say the cable companies and Verizon will sell each other’s products. Over time, the cable providers will have the option to sell Verizon service on a wholesale basis.

Verizon Wireless, based in Basking Ridge, New Jersey, is 55 percent-owned by Verizon Communications Inc. (VZ) and 45 percent- owned by Vodafone Group Plc (VOD), based in Newbury, England.

To contact the reporters on this story: Jeff Bliss in Washington at jbliss@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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