PublishedDecember 21, 2011

DOJ Investigating Verizon Cable Deal

One day after the AT&T’s takeover bid for T-Mobile collapsed, now it’s the other Bell that’s trying to eliminate competition.  Verizon is as aggressively ambitious as AT&T – it’s proposing to work with the cable monopolies to significantly curtail competition in both the wireless and fixed broadband markets.
According to Bloomberg, Verizon’s recent deals to acquire spectrum from cable companies are under investigation by the Department of Justice.
Since early December, Verizon has announced transactions to buy spectrum owned by cable operators.  On December 2 Verizon announced it would pay $3.6 billion to Comcast, Time Warner, and Bright House Networks to acquire the AWS spectrum owned by the cable firms.  And on December 16 Verizon came to an agreement to pay $315 million to acquire 20 MHz of spectrum owned by Cox Communications.
While these deals are good for Verizon, they are likely harmful to consumers, innovation, and competition in both the fixed and wireless broadband markets.  As Bloomberg’s reporting notes, DOJ will focus on whether these deals will lead to Verizon controlling too much spectrum.
CCIA encourages the Department of Justice to fully investigate how much of an anticompetitive impact these transactions will have on the wireless and fixed broadband markets.  While this merger is not an obviously horizontal combination in the same way the failed AT&T/T-Mobile transaction was, these deals should alarm antitrust authorities.

First, DOJ should investigate whether post-transaction Verizon will control such a significant amount of spectrum that it would stifle competition.  As the FCC Staff Report on the AT&T/T-Mobile merger pointed out, an over-concentration of spectrum held by one carrier can be cause for significant competitive concerns.

The second, and potentially more important matter DOJ should investigate is whether these deals are effectively an illegal restraint of trade under Section 1 of the Sherman Act.  Specifically, do these deals mean that cable companies and Verizon have an understanding to not enter the other’s markets?
For years, pro-competition groups like CCIA have lamented the fact that both the wireless and fixed broadband markets are ultra-concentrated.  In the fixed broadband market there are effectively regional monopolies, with most customers only having one cable provider to choose from.  The wireless market is slightly more competitive, but as we’ve noted previously, in both 2010 and 2011 the FCC has failed to conclude that wireless broadband is an effectively competitive market.
However, the AWS spectrum auction in 2007 gave many hope that cable firms would launch wireless networks to compete with AT&T and Verizon.  And as cable companies invested in wireless spectrum, Verizon began to build out its FiOS service to compete with the cable companies on their own turf.  In 2010 Cox entered the marketplace offering wireless services over Sprint’s network.  Finally, in 2011 DISH Network acquired wireless spectrum through acquisitions of DBSD and TerreStar with the intention to offer wireless broadband services.
Things were looking up for broadband competition.  Cable firms would compete in wireless markets and wireless firms would offer fixed broadband services.  We hoped the broadband market would become dynamically competitive, spurring waves of innovation and lowering prices for consumers along the way.
Unfortunately, it never happened.  Cox has discontinued its wireless service, DISH is awaiting an FCC decision to grant it a waiver to begin operating its wireless network, and the cable firms have made the decision to sell out to Verizon.  On the fixed broadband side, Verizon has decided to stop expanding FiOS.
However, the timing of these deals, along with decisions by Cox to exit the wireless market and Verizon to halt its entry into the cable markets is curious.
Antitrust investigators should investigate the potential Section 1 questions that these decisions raise before these deals are approved.  Have cable firms and Verizon colluded to split up the marketplace for broadband services – Verizon taking the wireless market and getting access to sell wireless services to cable customers in return for agreeing to cease and desist its encroachment into monopoly cable markets along with the assurance that cable firms won’t partner with other wireless carriers to deploy competing mobile broadband services?
Competition benefits consumers in many ways and helps spawn the thousands of companies which seek to disseminate their products and services widely and not be vulnerable to a few dominant carriers.  It needs to be preserved!
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