Verizon learned from AT&T’s mistakes to push spectrum deal with cable operators

In winning approval for a $3.6 billion deal with leading cable companies, Verizon showed that it learned from the mistakes of its chief rival, AT&T.

Whereas AT&T rolled out a splashy public relations campaign last year to try and push through a $39 billion acquisition of T-Mobile, Verizon kept its cable proposal under the radar while offering concessions to regulators.

Verizon's strategy proved more effective. The Justice Department filed a lawsuit claiming AT&T's purchase of T-Mobile would stifle competition, stopping the merger in its tracks. 

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On Thursday, those same regulators gave the Verizon cable deal their seal of approval.

The Federal Communications Commission (FCC) has yet to formally complete its review of Verizon's deal, but Chairman Julius Genachowski said he plans to circulate an order with his fellow commissioners to give it the final go-ahead.

Although there were many differences between the AT&T/T-Mobile merger and Verizon's cable deal, both were primarily about the companies' need for spectrum — the frequencies that all wireless devices need to transmit signals for the apps and games that consumers can’t get enough of.

There is only a limited amount of spectrum available, and demand for wireless data has exploded in recent years.

One of AT&T's driving motivations was to gain access to T-Mobile's spectrum in order to expand the capacity of its own network. Verizon's deal allows it to buy blocks of unused spectrum from Comcast, Time Warner, Cox and Bright House, and includes arrangements for the cable companies and Verizon to sell each other's services.

Verizon announced its deal in December of last year, after it had become clear that AT&T's bid for T-Mobile was headed for failure.

"It seems to me, Verizon paid close attention to how the AT&T/ T-Mobile merger played out," said Jeffrey Silva, a telecom analyst for Medley Global Advisors. "And I think they took notes." 

AT&T's bid for spectrum involved buying out one of its chief competitors, reducing the number of national carriers from four to three. Although the company claimed competition would remain robust, the mammoth merger raised red flags with antitrust regulators, who worried fewer competitors would mean higher prices for consumers.

Silva said Verizon's deal looked modest coming in the immediate wake of AT&T's proposal.

"You put their cable transaction side by side with [AT&T's deal], and it looks brilliant," he said. 

Gigi Sohn, president of consumer advocacy group Public Knowledge, which opposed both deals, said that although she believes Verizon's deal was "in a lot of ways equally bad, if not worse" than AT&T’s, it was "more subtle."

She noted that Verizon's deal would allow it upgrade its network with spectrum that the cable companies weren't using. The AT&T merger, Sohn claimed, was "just a dog" from a public interest perspective.

Verizon's strategy for navigating its deal through the regulatory process was also vastly different.

AT&T assembled an impressive coalition of political supporters. The Communications Workers of America, the industry's largest union, lobbied aggressively for the merger. Leading civil rights groups, including the NAACP and the Gay & Lesbian Alliance Against Defamation, also backed it.

The company had the support of 76 House Democrats, who sent letters to the regulatory agencies urging them to approve the deal.

AT&T also dropped serious cash on K Street, signing up big-names while spending $20.2 million on lobbying in 2011, a 31 percent increase over 2010.

The pro-merger campaign included a costly media blitz, with ads on TV, online and in print claiming the deal would create thousands of jobs — seemingly a strong pitch in a struggling economy.

The goal was to use support from lawmakers and the public to pressure the Justice Department and the FCC to okay the deal.

Silva said AT&T's strategy was smart, but getting the historic merger by antitrust regulators was "just too heavy of a lift." 

The company also failed to offer substantial concessions to entice regulators. Silva said AT&T probably expected that it would have to accept some conditions during final negotiations with regulators—but the process never got that far. AT&T seemed blindsided when the Justice Department filed its lawsuit last August.

Verizon took a different tack.

The company's public relations campaign was barely noticeable, and few lawmakers weighed in on the matter. When it became clear that regulators were taking a hard look at the deal, Verizon proactively offered to put some of its own valuable spectrum up for sale.

The company even won the support of T-Mobile, who had been a vocal critic, by striking a side deal that gave T-Mobile a chunk of the cable companies' spectrum. 

On a conference call with reporters, FCC officials said Verizon’s sale to T-Mobile will help ensure a competitive marketplace, and acknowledged it was critical for winning their support for the cable deal.

Sohn argued another important factor for the difference in outcomes is that AT&T is seen as a Republican company, while Comcast, one of the key players in the Verizon deal, is closer with Democrats.

She noted that David Cohen, Comcast's executive vice president, has donated thousands of dollars in recent years to the Democratic Party.

Silva cautioned not to put too much weight on the importance of political affiliations because the regulatory agencies are supposed to make decisions independent from the political leadership of the administration.

"But I'm not naive enough to suggest that politics don't matter. That's what this city is all about," Silva said.