Concessions clear way for Verizon-Comcast deal

The controversial deal involving Verizon, Comcast and other cable companies - under which Verizon and Comcast plan to market each other's services - won approval today from the Justice Department, albeit with conditions aimed at minimizing the damage to competition. Julius Genachowski, chairman of the Federal Communications Commission, quickly signaled that his agency would likely go along.

The approval drew quick and sharp criticism from consumer groups such as Public Knowledge (see below).

Both government agencies said an earlier spectrum swap between Verizon Wireless and fourth-place carrier T-Mobile was crucial to making the deal work to benefit the public interest - a standard the FCC says it must meet to approve any spectrum transaction. The DOJ said:

The Department of Justice announced today that it will require Verizon and four of the nation’s largest cable companies—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, and 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 announcement came after a closely coordinated investigation with the Federal Communications Commission (FCC), with additional assistance provided by the New York State Attorney General’s Office.

The department also said that it would 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. The department said that the spectrum transactions facilitate active use of an important national resource and thereby promise substantial benefit to wireless consumers. The transactions remain subject to review by the FCC, which is expected to release a separate statement regarding the status of its review of the transactions.

In an emailed statement, Genachowski hailed the parties' "binding pro-competitive commitments," and said:

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.

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.

Comcast, among others, praised the deal - including the option for the Philadelphia company to become a "mobile virtual network operator" (MVNO) - essentially, a provider without a network - for wireless services. Executive vice president David L. Cohen said in the Comcast blog that the deal "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."

Not everyone is convinced.  In an emailed statement (and later in a more detailed blog post), Public Knowledge said the deal illustrates how an increasingly dominated market has largely failed consumers. The advocacy group's president, Gigi Sohn, said via email:

By allowing Verizon and the cable companies to sell each other's services, the DoJ and the FCC are acknowledging what has been clear for some time--that broadband competition policy in the United States has failed. For years, policymakers have hoped that "facilities-based" competition between wired broadband providers would protect consumers, drive down prices, and encourage new deployment. It is clear that this promise has not been fulfilled.

Instead, Verizon has stopped deploying fiber, and will be marketing cable broadband instead of its own services in non-fiber markets. Nationwide, cable has opened up an unsurpassable lead over DSL. Meanwhile, the wireless broadband market has become a near-duopoly, as AT&T and Verizon acquire more and more spectrum, leaving all other competitors behind.

The proposed conditions on this transaction attempt to alleviate some of the harms that will arise from a lack of competition, and policymakers deserve credit for trying to make the best of a bad deal. However, it is not enough for the anti-competitive cross-selling agreement to be limited in time or scope--it should not happen at all. Similarly, the proposed conditions that attempt to diminish the anticompetitive impact of Verizon and the cable companies’ Joint Operating Entity do not hide the fact that the JOE is a vehicle that empowers former competitors to suppress new rivals. When and if Verizon and the cable companies seek permission to continue the JOE in four years the FCC and DoJ must seriously examine how the companies have used the JOE to stifle competition.

Policymakers can no longer pretend that the broadband market is competitive. Congress and the FCC should pursue new policies to stimulate competition in wire line Internet.