Now that the Justice Department has signed off on Verizon’s (VZ) deal to acquire Advanced Wireless Spectrum licenses from several major cable operators, it’s a good time to compare Big Red’s strategy for acquiring more spectrum with rival AT&T. Both carriers have long claimed spectrum poverty despite their vast holdings, but Verizon has typically taken an under-the-radar-approach to making spectrum moves while AT&T (T) has consistently behaved as the proverbial bull in a china shop. Nowhere was this more evident than in AT&T’s horribly botched attempt to acquire T-Mobile.
The problem with AT&T’s approach was that it was, well, a standard AT&T approach to spectrum acquisition: the company acted as though gobbling up one of the remaining few nationwide wireless carriers in the United States was already a foregone conclusion and that it just had to come up with the appropriate concessions to get the pesky government off its back. Indeed, AT&T was so cocky about its chances to acquire T-Mobile that it thought it could butter up regulators by sending them free cupcakes as a gift.
The trouble with this line of thinking was that the wireless industry over the last decade had already seen a massive wave of consolidation that included the AT&T-Cingular merger in 2004, the Sprint-Nextel merger in 2005 and the Verizon-Alltel merger in 2008. The idea of consolidating the market even further by reducing it to three players — while also increasing the risk that Sprint (S) would become a takeover target — left regulators very uneasy, and rightfully so. After all, no one wants to be remembered as the corrupt, lackadaisical sloth who signed off on creating a tyrannical wireless duopoly.
While AT&T was trying to cram yet another massive wireless merger down the country’s throat, Verizon was working quietly behind the scenes to create new way to obtain more spectrum. Instead of scaring off public officials by buying up competitors, Verizon went to cable companies that had strong combined holdings on the AWS band but that weren’t of much use to the cable companies on their own.
Verizon offered the cable companies $3.9 billion for the spectrum licenses in exchange for an agreement to bundle and jointly market their wired and wireline services together as a single package. Did this create concerns over anticompetitive behavior? Of course it did, which is why the Justice Department insisted that the companies limit their joint service bundles in areas where they already compete with one another.
What really sealed the deal from a public relations perspective, however, was Verizon’s decision to complete a spectrum swap deal with T-Mobile help both companies patch up weak areas in their LTE coverage.
Under that agreement, which will now go through in the wake of the cable spectrum deal approval, T-Mobile will gain spectrum that gives it access to 60 million new potential subscribers while Verizon will gain spectrum that gives it access to 22 million new potential subscribers. Suddenly it became much harder to accuse Verizon of engaging in anticompetitive behavior when it was doing something to strengthen one of its competitors.
What lessons should AT&T take from all this? Well there are several, but if I had to boil it down to one pithy sentence it would be this: Just because you’re a giant, powerful wireless carrier doesn’t mean it’s always wise to act like a giant, powerful wireless carrier.