Verizon Wireless and T-Mobile USA are touting their spectrum swap deal announced Monday as a win-win for both companies. But concern over antitrust issues in Verizon's co-marketing deal with cable companies could threaten the outcome.

On Monday, Verizon Wireless announced a plan to swap Advanced Wireless Services spectrum with T-Mobile USA in a deal that will likely help Verizon win approval from regulators to complete its $3.9 billion acquisition of spectrum from cable operators. Regulators are likely to approve of the plan, since it alleviates concerns that Verizon will have too much spectrum in certain markets, and that competitors such as T-Mobile would be shut out of that spectrum.

But the deal may still fall apart, since it's also tied to a controversial co-marketing agreement that Verizon Wireless has struck with cable operators. Regulators are also examining this portion of the deal to ensure it doesn't violate antitrust laws. Without the co-marketing aspect of the deal, cable operators are likely to pull out. And if that happens, Verizon won't swap spectrum with T-Mobile.

What's in the spectrum swap deal?

Kathleen Ham, vice president of federal regulatory affairs for T-Mobile, said that deal is a win-win for Verizon and T-Mobile. Not only are there obvious benefits to Verizon from closing its cable-spectrum deal , but it will also give Verizon and T-Mobile access to additional spectrum and help the companies make more efficient use of the spectrum they each already own.

The deal itself is complicated and entails the companies exchanging spectrum in 218 markets. In 15 of the top 25 markets, T-Mobile will see an improvement in its LTE spectrum position, Ham said. In cities, such as Philadelphia; Washington, D.C.; Detroit; Minneapolis; and Seattle, T-Mobile will gain additional spectrum. Verizon will gain spectrum from T-Mobile in San Francisco and San Diego.

In markets such as New York, Chicago, Boston, Miami, Atlanta, Tampa, Pittsburgh and Sacramento, T-Mobile and Verizon will be swapping spectrum. In these markets, the carriers will be exchanging one sliver of spectrum for another, so that the block of spectrum they each own works more efficiently. This will help T-Mobile have more contiguous coverage of spectrum in these markets, so that it can have bigger channels. For example, it may be able to devise a 15MHz x 15MHz channel of spectrum in a market, such as New York City, which would give T-Mobile more capacity for data traffic.

Ham said this will result in T-Mobile gaining additional wireless spectrum in five markets, while improving "contiguity of spectrum blocks" in 15 major markets.

These spectrum swaps will go a long way in helping T-Mobile beef up its ability to compete in the 4G LTE market. The carrier, which is the smallest of the four major nationwide wireless operators, has been re-using its existing AWS spectrum it has already deployed for 3G service, in order to build a 4G LTE network. It's also using spectrum and cash it got as part of its merger break-up with AT&T.

In particular, T-Mobile will be able to shore-up its position on the East coast in cities, such as New York. And on the West coast, Verizon will get access to spectrum it needs. When its $39 billion merger with AT&T fell apart last year, T-Mobile acquired some additional AWS spectrum, much of it in the west, in markets where Verizon could use more AWS spectrum.

"I think this is a smart deal for both parties," Ham said in an interview. "Verizon needed spectrum on the West Coast. And we had greater needs in the east. It's a complicated deal, but overall it ends up being a very good package for us both, and it helps us (T-Mobile) strengthen our LTE network in key markets."

Verizon's executives agree that the deal is mutually beneficial. And there's no question that it will help appease FCC regulators in acquiring the 20MHz of spectrum it wants to buy from Spectrum Co. The FCC has not officially offered a statement about the proposed Verizon/T-Mobile spectrum swap, but it's likely that the agency will find it a sufficient solution to its concerns.

There have already been strong indications from the agency that it would require Verizon to divest spectrum in some markets to ensure Verizon didn't control too much spectrum in those market and to allow smaller players an opportunity to acquire some of that spectrum.

But the reality is that this deal between Verizon and T-Mobile is probably a better solution than what the FCC itself could have devised. For one, if the spectrum was re-auctioned by Verizon, it likely would have ended up in the hands of the other dominant player in the market, AT&T. This private deal with T-Mobile ensures that a smaller player gets access to spectrum it desperately needs.

What's more, forced spectrum divestitures often lead to problems for consumers. There are dead zones in coverage and other billing and coverage issues that inconvenience consumers. The government's own data suggests that such forced requirements also haven't stopped the market from becoming more concentrated, according to a story published last year by the Wall Street Journal.

The Verizon/T-Mobile deal brings a market driven solution to the problem, which regulators will likely appreciate.

The Spectrum Co. co-marketing deal

But the spectrum transfer is only one piece of the deal. In exchange for selling their spectrum, the cable companies also negotiated a co-marketing arrangement as part of the deal that would allow the cable companies to resell Verizon Wireless service and also allow Verizon Wireless to sell cable services.

This part of the deal is controversial, because consumer advocates and labor unions argue that it's anticompetitive and will result in fewer broadband and TV choices for consumers as well as a loss of jobs for workers.

"The true danger lies not only in the concentration of spectrum in the hands of the leading wireless provider, but with the cozy, cartel-like arrangements between Verizon, Comcast, and the other MSOs party to the deal," Harold Feld, of Public Knowledge said in a statement.

These groups fear that if Verizon Wireless is re-selling cable services that its parent company Verizon Communications won't aggressively compete with its own broadband and TV services in those markets. At a minimum, they are asking regulators -- namely the Department of Justice, which is taking the lead on antitrust matters -- to put conditions on the deal.

"The threat of job loss and higher consumer prices from the proposed Verizon Wireless-Big Cable deal remains, even if today's announcement resolves some of the FCC's concerns about one piece of the agreement," Debbie Goldman, telecommunications policy director for the Communications Workers of America (CWA), said in a statement. "The CWA-- along with major consumer groups and elected officials-- continues to voice concerns with federal regulators about the monopolistic cross-marketing arrangement and urges regulators to put conditions on this deal to ensure it is in the public interest."

While some Verizon executives have tried to say the spectrum deal and the co-marketing arrangement are actually separate agreements, the truth is that the cable operators have made it clear that without the marketing deal, they won't sell the spectrum. And if the conditions put on the deal regarding the co-marketing arrangement are too stiff, it could unravel the entire deal.

Comcast's head of regulatory affairs, David Cohen, has already testified before Congress that if one aspect of the deal is changed too much, it could jeopardize the entire deal. In a recent conversation with CNET, Cohen reiterated the importance of the marketing piece of the deal.

"There is no secret that our interest is not just in selling spectrum," he said. "This is a strategic asset to enable us to develop a complete wireless strategy. When our Plan A of building our own network didn't work out, we still planned to leverage this valuable asset to help us strategically. That's what the Verizon deal gives us."

At this point it's unclear what, if any, concessions the agency will ask the parties to make in order to win approval. But what is clear is that if the conditions are not acceptable to the cable companies, they could pull out. And if that happens, the Verizon/T-Mobile spectrum swaps will also fall apart.

At least then, the cable spectrum will be put back on the market. And T-Mobile and other wireless providers may have an opportunity to bid for it.