Cable companies to resell Verizon Wireless service

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NEW YORK (AP) — Cable companies Comcast Corp., Time
Warner Cable Inc. and Bright House Networks are giving up on their
dreams of creating their own wireless network, opting instead to resell
Verizon Wireless service.
The companies said Friday that they have
agreed to sell their wireless licenses — which they haven’t been using —
to Verizon Wireless for $3.6 billion.
The deal "amounts to a
partnership between formerly mortal enemies," said analyst Craig Moffett
at Sanford Bernstein. The cable companies compete with Verizon
Communications Inc., Verizon Wireless’ parent company, for phone and
cable-TV customers. Now, Verizon Wireless stores will be selling cable
service.
Cable companies have long had ambitions to open a second
front against AT&T Inc. and Verizon by setting up their own wireless
networks. In the meantime, some of them have partnered with Sprint
Nextel Corp. and Clearwire Corp. to offer wireless service.
Lately,
there had been speculation that the cable companies would try for a
deeper beachhead in wireless by investing in ailing No. 3 and 4 carriers
Sprint or T-Mobile USA. That talk had gained currency as it’s become
clear that AT&T’s deal to buy T-Mobile USA is firmly opposed by
regulators.
The link-up with No. 1 carrier Verizon Wireless and
the sale of the spectrum appears to preclude a deal between a cable
consortium and one of the weaker players in wireless. Instead, the
biggest cellphone company will strengthen its hand, if the spectrum sale
is approved by regulators.
"Pity poor T-Mobile. Verizon just ran off with the last pretty girl in the bar," Moffett said.

U.S.-listed
shares of Deutsche Telekom AG, the parent of T-Mobile USA, were down 53
cents, or 4.2 percent, at $12.25 in midday trading. Sprint shares were
down 3 cents, or 1.1 percent, at $2.67.
"It’s really hard for a
cable company to expect to compete in a highly competitive wireless
market," said Time Warner Cable spokesman Alex Dudley. He pointed to Cox
Communications, another cable company, which this year shut down its
plans to build out a wireless network.
"We got a good price for the spectrum," Dudley said. "An arrangement like this makes a lot
of sense."
The
cable companies paid $2.2 billion for the spectrum in 2006, so they’re
getting a 64 percent gain on a five-year investment. The spectrum covers
about 85 percent of the country’s population, and would have been
sufficient to start up an independent wireless network.
Shares of
Philadelphia-based Comcast rose 97 cents, or 4.3 percent, to $23.53. New
York-based Time Warner Cable shares rose $1.90, or 3.1 percent, to
$62.82. Orlando, Fla.-based Bright House Networks is privately held.
Time
Warner Cable currently resells access to Clearwire’s wireless data
network as "4G" service. Dudley said it could continue to provide
service to existing subscribers, but the arrangement with Verizon
Wireless is exclusive, so it will stop selling to new subscribers.
Neil
Smit, the head of Comcast’s cable operations, said its Clearwire
service, marketed as "Xfinity 2Go," will be shut down within six months.
It has about 30,000 customers.
Clearwire shares were unchanged at $2.03.
Comcast,
the country’s largest cable company, owned the majority of the spectrum
holding company, and will get $2.3 billion from the sale. Time Warner
Cable, the second-largest cable company, will get $1.1 billion. Bright
House, the sixth-largest, will get $189 million.
Verizon Wireless
CEO Dan Mead said the company will combine the spectrum with some of its
own unused holdings and launch service using the latest wireless data
technology, dubbed LTE for Long-Term Evolution. The acquisition roughly
doubles the number of airwaves Verizon Wireless would have available for
LTE.
Mead said he expected the deal to close in the middle of next year, but didn’t say when the spectrum
would be put to use.
Moffett,
the analyst, said the Federal Communications Commission would probably
rather see the spectrum go to T-Mobile USA. One of the reasons its
German parent company wants to sell it to AT&T is that T-Mobile USA
doesn’t have a lot of room on the airwaves, and can’t keep up with
Verizon and AT&T when it comes to expanding wireless data capacity.
But
Deutsche Telekom is unwilling to plow more money into the U.S., so an
outright purchase of the cable-company spectrum has not been in the
cards.
The sale to Verizon does solve one problem for the FCC,
Moffett said: that the cable spectrum holdings have not been put to use
yet.
Under the agreement, the cable companies and Verizon Wireless
will market each others’ services. Billing will be separate, but the
cable companies have the option to start selling Verizon Wireless
service under their own brand in four years. Cox had a similar
arrangement with Sprint, but gave it up last month, saying it was too
small to compete with the big cellphone companies.
Verizon
Communications, the New York-based phone company that owns 55 percent of
Verizon Wireless, runs its own, competing cable-TV service called FiOS
in some areas. In the rest of its local-phone territory, it resells
satellite TV service from DirecTV Group Inc. based in El Segundo, Calif.
Copyright 2011 The Associated Press.

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