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Verizon Wireless and Comcast executives were on the hot seat yesterday, at the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, over the proposed purchase of AWS spectrum in the 1.7/2.1 GHz band owned by cable operators.

Cable operators purchased the 1.7/2.1 GHz spectrum in the FCC’s 2006 AWS spectrum auction as SpectrumCo. Cable operators bought the spectrum for $2.4 billion in 2006 and now hope to sell it to Verizon for $3.6 billion.

Comcast VP David Cohen dismissed suggestions that the MSO warehoused spectrum at the Senate antitrust hearing yesterday. Both Verizon and Comcast executives said that the spectrum sale and marketing agreement, which were announced at the same time, were being reviewed by antitrust and telecommunications regulators separately. “They are not contingent upon one another,” added Verizon Communications General Counsel Randall Milch.

Bidders Net total of high bids
1. T-Mobile $4.2 billion
2. Verizon Wireless $2.8 billion
3. SpectrumCo $2.4 billion
4. MetroPCS $1.4 billion
5. Cingular $1.3 billion
6. Cricket $710 million
7. Denali Spectrum $365 million
8. Barat Wireless $127 million
9. AWS Wireless $116 million
10. Atlantic Wireless $81 million
Click here to find out who is backing these bidders.

In the FCC’s 2006 AWS auction, SpectrumCo, the Cable group, paid $2.4 billion for 137 licenses in cities including New York, Boston, Washington, Detroit and Atlanta. Under their proposed deal with Verizon, cable operators would transfer that spectrum to Verizon Wireless for $3.6 billion. In addition, cable operators would resell Verizon’s mobile service.

Former antitrust enforcers have said that those marketing deals would create allies out of former rivals, to the detriment of consumers. The Justice Department is known to be looking at the agreements. Comcast, Time Warner, Bright House Networks and Cox Communications, collectively cover more than 70 percent of the nation’s cable market. They sell each others’ products in bundled offerings, though specific details aren’t known.

Verizon Communications General Counsel Randall Milch argued that his company had spent billions to better use the spectrum it had but needed more because of the explosive use of spectrum-hogging smartphones, tablets and video and audio streaming.

“We do not believe that we can engineer our way out of the spectrum crunch,” he told the Senate Judiciary Committee’s antitrust subcommittee.

Data use on Verizon’s network has more than doubled each of the last three years, and is expected to continue growing, according to the company.

Consumer rights’ groups and other carriers have appealed to the FCC to press the partners for clarity, reports E-Week.

Leading the hearing, Sen. Herb Kohl (D-Wisc.) said in statement that the deal will give Verizon what is “likely the last swatch of crucial spectrum available for years to come,” keeping it out of the hands of competitors.

“The basic premise of the landmark Telecommunications Act of 1996 was that cable companies and phone companies would enter each other’s markets and compete. And this vision was well on the way to being realized… In addition, recent years have seen a tremendous expansion of cell phone service and wireless devices as a way both to make phone calls and access the Internet. Many now wonder if these agreements that we are examining today will roll back these advances in competition and even amount to a truce between one of the two largest phone companies and over 70% of the cable TV industry.”

Sen. Al Franken (D-Minn.) wondered the same, asking Comcast Executive Vice President David Cohen, “This deal seems to completely abandon the goals of the Telecom Act and seems to signify the promises that Comcast made in 1996 will no longer come to fruition. Do you disagree with me on that?”

“I don’t think we’ve changed the goal [of 1996] I think we’ve changed the tactics to be able to get to the goal,” Cohen answered. He added that Comcast “engaged in discussions with virtually ever wireless carrier in the nation” before striking the deal with Verizon.

Sen. Amy Klobuchar (D-Minn.) wondered whether the bundles could lock consumers into higher rates and result in less competition.

“No one is constrained to buying in bundles… There’s nothing to get from these bundles other than convenience or a discount of sorts that the consumer can choose or not choose,” Randal Milch, Verizon executive vice president and general counsel, assured her.

Steve Berry, the president of the Rural Cellular Association, said Verizon’s cable deals would have an “insidious and disastrous effect on competition.”

“This transaction would transfer at least 20 MHz of prime, unused, and nearly nationwide spectrum into the hands of a carrier that already holds as much as 44 MHz of unused spectrum in many markets,” Berry said in his testimony.

The Verizon-SpectrumCo deal is subject to approval by the FCC and the companies did not give a timetable for when the deal is expected to close. If Verizon does get approval for the deal, the carrier may combine the spectrum with its other AWS holdings for 20 MHz channels, which coupled with LTE-Advanced technology could give it significant throughput gains.

The $3.6 billion Verizon/Cable deal values the spectrum purchased at $0.69 per MHz-POP (the number of people covered by each megahertz). That’s a big jump from the $0.45 per MHz-POP that cable operators paid in 2006.

LTE phone shipments will grow tenfold to reach 67 million units in 2012, making it a breakout year for the 4G technology, according to Strategy Analytics, with some 67 million handsets expected to be sold compared to 6.8 million units sold in 2011. Verizon Wireless, NTT Docomo and SK Telecom will drive growth in the U.S., Japan and South Korea, respectively. About 650 million smartphones will be sold during 2012, Strategy Analytics expects, which means that about 10 percent will have LTE.

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