Cable Companies and Verizon Wireless: Best of Enemies

Carl Weinschenk

The deal between Verizon Wireless and three cable companies - Comcast, Time Warner Cable and Bright House Networks - is so interesting that it's almost funny.


The details are available at Bloomberg. Essentially, Verizon paid the first, second and sixth biggest of the traditional cable operators (companies such as EchoStar and Verizon itself have crowded some legacy MSOs out of top 10 spots) for spectrum they held. Collectively, Verizon is paying the cable companies $3.6 billion for the capacity, which will help it keep its head above water as mobile video and other bandwidth-intensive tools expand.

In addition to the money, the cable industry will get its long-sought-after wireless play - which it can label with its own brands after four years. More money will change hands as cable operators and Verizon market each other's services.


Remember all that verbiage about how the cable and wireless industries are enemies? Never mind. The deal marks a turning point. The biggest cable and telephone company dealing with each other at such a deep level certainly softens the competitive landscape. The Bloomberg piece alludes to the deal with the subhead "Frienemies." I prefer "Friends with Privileges," but I supposed it is much the same thing.

It should be noted that this is far from the first time the supposedly competing industries worked closely together. The incredible growth of mobility in general and the fast rollout of LTE 4G in particular have created great demand for cellular backhaul capacity. The cable industry is perfectly positioned for this because its Ethernet-based infrastructure is most heavily in residential neighborhoods, where many of the cell towers are. Thus, the cable industry is selling backhaul capacity, directly or indirectly, to the cellular carriers.

But, of course, the Verizon/cable deal is far more. The importance of the move was laid down in no uncertain terms by an analyst quoted in a story by Cecilia Kang in The Washington Post:

This part of the agreement is "a complete reordering of the competitive universe as we know it today," said Bernstein Research analyst Craig Moffett. It "amounts to a partnership between formerly mortal enemies, not just outside of Verizon's FiOS territories, but even within them."

The piece touched on whether the deal will pass regulatory muster. Clearly, there is a lot to look at. The cable/Verizon Wireless partnering is, of course, very different than the proposed and now all-but-dead AT&T acquisition of T-Mobile. But, at the end of the day, it could have the same potential impact on consumer prices and service that the government says make the acquisition problematic.

While consumers could eventually see their cable television, Internet, home phone and cellphone services on a single monthly bill, some antitrust experts are worried about deal. They are especially concerned that Verizon, in its push to dominate wireless services and its new obligation to promote other cable companies, will lose interest in FiOS altogether. That business has about 14 percent of U.S. households, but it has been expensive to build.

It would be a shame to see the deal squelched - and it probably won't be. It is rare that something so obviously different than what came before it occurs. It will be interesting to see how it plays out - and whether similar cross-industry arrangements emerge.

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