August 16, 2012

Special Report: Inside The Beltway 08/16/12

FCC Chairman Julius Genenchowski released a statement saying Verizon Wireless and SpectrumCo had made the changes necessary in their spectrum agreement to make their swap deal more palatable to the industry, and that it would be in the public interest to move forward. Two more commissioner votes are needed, and the FCC's order will go on circulation later today.

“A rigorous review by the Federal Communications Commission and Department of Justice staffs revealed that the deal as proposed by Verizon Wireless and the cable company owners of SpectrumCo posed serious concerns, including in the wired and wireless broadband and video marketplaces.  In response to the agencies’ objections, the parties have made a number of binding pro-competitive commitments and will also make fundamental changes to their agreements,” he said. “Because of these substantial undertakings and in light of the Consent Decree the companies executed with the Justice Department today, I believe the commission should now approve this transaction, and I will be circulating a draft order to my colleagues that would do so.”
 
He continued, “Specifically, Verizon Wireless has undertaken an unprecedented divestiture of spectrum to one of its competitors, T-Mobile, and has committed to accelerate the build-out of its new spectrum and enhance its roaming obligations. In addition, the companies’ commercial agreements will be modified to, among other things, preserve Verizon's incentives to build out FiOS, increase wireless competition, and ensure that the proposed IP venture is pro-consumer and that its products cannot be used in anti-competitive ways.”
 
He concluded, “Approval of the substantially modified transaction will promote the public interest and benefit consumers in several ways.  By advancing U.S. leadership in 4G LTE deployment, the transaction marks another step in our effort to promote the U.S. innovation economy and make state-of-the-art broadband available to more people in more places. The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct. And vitally, it will put approximately 20 megahertz of prime spectrum—spectrum that has gone unused for too long—quickly to work across the country, benefiting consumers and the marketplace.”

During a press call-in, FCC officials noted "our coordination with the U.S. Department of Justice (DoJ) has been incredible, and we hope they think the same about us. This was a good piece of government work." The officials also could not be specific about FCC adoption of provisions of the deal.

The DoJ Stance

Concurrently, the DoJ says it will require Verizon and SpectrumCo (made up of Comcast, Time Warner Cable, Bright House Networks and Cox Communications) to make changes to a series of agreements concerning both the sale of bundled wireless and wireline services; it also is requiring the formation of a technology research joint venture.  The department said that, if left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers.
 
The DoJ will allow both Verizon’s proposed acquisitions of spectrum from the cable companies and T-Mobile USA’s contingent purchase of a significant portion of that spectrum from Verizon to go forward. It also said that the spectrum transactions facilitate active use of an important national resource and thereby promise substantial benefit to wireless consumers.
 
“By limiting the scope and duration of the commercial agreements among Verizon and the cable companies while at the same time allowing Verizon and T-Mobile to proceed with their spectrum acquisitions, the department has provided the right remedy for competition and consumers,” said Joseph Wayland, acting assistant Attorney General in charge of the DoJ's Antitrust Division. “The Antitrust Division’s enforcement action ensures that robust competition between Verizon and the cable companies continues now and in the future as technological change alters the telecommunications landscape.”
 
The department’s Antitrust Division, joined by the New York State Attorney General’s Office, filed a civil antitrust lawsuit today in the U.S. District Court for the District of Columbia to prevent Verizon, Comcast, Time Warner Cable, Bright House Networks and Cox Communications from enforcing a series of commercial agreements.  At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the concerns alleged in the lawsuit. The proposed settlement protects competition and consumers by removing provisions that would lessen the companies’ incentives to compete aggressively in the areas where Verizon’s FiOS services offer a critical competitive alternative to the cable companies’ video and broadband products. It also limits the duration of the companies’ collaboration to December 2016 in important respects, ensuring that they retain incentives to compete against one another.

Sister publication CableFAX reports Comcast Executive Vice President David Cohen said the MSO is pleased that the consent decree negotiated with DoJ “preserves the most important goals of the agreements, including Comcast's ability to market Verizon Wireless services throughout our footprint in order to offer our customers a wireless option, Verizon Wireless' ability to market our products in virtually all of our footprint, our ability to opt into an MVNO relationship with Verizon Wireless, and the essential structure of the innovation R&D technology joint venture."