You know how politics makes strange bedfellows? Well, apparently, so does telecom. There have been a lot of articles lately about Verizon’s deal with the cable companies for spectrum. On the surface, this may seems like a strange play for Verizon, who has generally fought tooth and nail with the cable companies in their bid to offer television service through the FiOS product. In addition, big telecom deals, like last year’s attepmt by AT&T to purchase T-Mobile, have come under increasing regulatory scrutiny in recent months. However, there is an underlying reason for the deal, and that’s that Verizon’s LTE network is starting to hit a capacity ceiling in some markets and they will be in trouble without the spectrum that the cable companies own. The LTE product is actually a much more efficient user of spectrum than Verizon’s 3G EV-DO product, but they can’t seem to get people off the 3G networks fast enough. Maybe the new iPad HD being announced today, rumored to have a 4G capability, will help the transition.
As background, several cable companies joined together in a consortium call SpectrumCo a few years back and purchased a large swath of spectrum thinking that they would offer their own wireless phone products. That idea never came to fruition and now they are sitting on this fallow spectrum and Verizon has offered to buy it for around $3.9 Billion. There are some other aspects to the deal which are interesting, including the fact that the cable companies will be able to sell Verizon Wireless products to their subscribers, but the principal reason for the deal is Verizon’s need for additional spectrum.