The Devil's in the Verizon Deal Details

In what may sound like a Faustian bargain, one facet of the big wireless-spectrum deal Verizon (NYSE: VZ  ) signed on Friday with SpectrumCo joint venturers Comcast (Nasdaq: CMCSA  ) , Time Warner Cable (NYSE: TWC  ) , and Bright House Networks gives those cable companies the right to resell Verizon's mobile services forever. Yes, forever.

Or, as more devilishly put by Comcast cable President Neil Smit, those cable companies could be Verizon Wireless resellers into "perpetuity."

That is a long time, and it could mean that never, as in never again, could Clearwire (Nasdaq: CLWR  ) hope to get another wireless deal with Comcast or Time Warner once their current arrangements wind down in six months. Clearwire's wholesale networking partner Sprint Nextel (NYSE: S  ) will see its relationships with those cable companies go away.

Comcast's and Time Warner Cable's calculation here is significant, as together they own 14% of Clearwire. Either they are willing to see that investment go south, or they have faith in the new arrangement that Clearwire and Sprint worked out late last week. Clearwire had threatened to self-immolate by not paying its $237 million interest payment.

Sprint's suicide squeeze play
That new deal was hammered out after Clearwire was talked off the ledge by Sprint, which offered it an extension of the 4G WiMAX network partnership that will go past 2012. As part of the $1.6 billion total package with Clearwire, Sprint announced that it will buy up to $347 million worth of Clearwire's equity in a new offering that will total between $400 million and $700 million.

Yesterday, Clearwire also announced that it is now offering $300 million of new equity, of which Sprint will buy an unrevealed amount. Sprint currently owns a 54% share of Clearwire but has only a 49.6% voting interest.

Changing telecom landscape
New telecom wheelings and dealings have been surfacing almost as quickly as wireless carriers have been introducing new smartphones. But this latest deal between Verizon and the SpectrumCo cable companies has the potential to be the most influential.

Up to now, that crown had been worn by AT&T's (NYSE: T  ) proposed merger with T-Mobile. That deal doesn't have the onus of eternity hanging over it, as does Verizon's. What it does have, however, is a purported $4 billion failure-to-complete fee attached, one that looks more and more likely that AT&T may have to pay.

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Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 06, 2011, at 8:53 PM, conradsands wrote:

    It must be nice to be a deep-pocketed duopolist in this economy. According to the report “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” two of the 25 companies with the largest total tax subsidies were AT&T at #2 ($14.5 billion) and Verizon at #3 ($12.3 billion). Also, there were 30 corporations that paid less than nothing in aggregate federal income taxes over the same period. These 30 companies, whose pretax U.S. profits totaled $160 billion over the three years, included Verizon. The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support.

  • Report this Comment On December 06, 2011, at 8:56 PM, conradsands wrote:

    Partnerships between the cable and wireless players have historically been complete and utter failures. Profit margins will be spread thin because two companies must share them instead of one. Being a reseller of wireless has not gone well for the cable companies. Customer service in these kinds of deals also becomes problematic and complex.

  • Report this Comment On December 06, 2011, at 8:57 PM, conradsands wrote:

    Consumers are finally noticing that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon and AT&T (both in the top 5 for corporate lobbying) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to push the U.S. market into a wireless industry duopoly -- the American consumer. This is how AT&T and Verizon fashion themselves as brilliant … with their political use of money.

  • Report this Comment On December 06, 2011, at 9:01 PM, larrysd1 wrote:

    I hope the underdogs S & clwr come out on top ! And I think they can do it.

  • Report this Comment On December 06, 2011, at 9:03 PM, larrysd1 wrote:

    Motley you need to step up to the plate and give S & CLWR 1 or 2 more stars.And article with and upgrade notice.Thanks-nice office by the way.

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