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As we process the FCC’s approval of the deal between Verizon, Comcast, and other cable companies, it’s worth taking a closer look at the actual agreements, based on the details that the Department of Justice (DOJ) recently released in its analysis of the deal. Although the DOJ expressed concerns about the deals it still decided to approve it.
On August 16, 2012 the Department of Justice announced its approval of the Verizon/SpectrumCo Deal, a disappointing outcome for those of us fighting for greater competition in the broadband marketplace. Check out Jodie Griffin’s thorough analysis for a full rundown of Public Knowledge’s concerns with the DOJ approval, including the conditions imposed on Verizon and the cable companies.
The DOJ also released a Competitive Impact Statement that it filed along with its Proposed Final Judgment in the antitrust proceeding. This Statement includes previously confidential details about the deals, which is disappointing to read given the DOJ’s approval and lackluster conditions. Everything the DOJ mentions in this Statement further emphasizes PK’s position that this deal is bad for consumers and potentially crippling for innovation in the broadband and wireless marketplaces.
The commercial agreements allow Verizon Wireless and the cable companies to (1) cross-market each other’s services; (2) create a new company for them to develop new products and services that integrate wireline and wireless services; and (3) create a future option for each of the cable companies to operate a virtual wireless network using Verizon Wireless’s network. The DOJ found these agreements violate provisions of the Sherman Act and unreasonably “restrain trade and commerce.”
Here are some of the DOJ Statement’s observations about the most anticompetitive consequences of the Verizon/Cable deal. The commercial agreements:
- Harm competition in the video, broadband, and wireless markets because they impair the ability and incentives for Verizon and the cable companies to compete aggressively against each other.
- Contractually require Verizon to have a financial incentive to market and sell the cable companies’ products through Verizon Wireless channels in the same local geographic markets where Verizon also sells FiOS.
- Unreasonably diminish competition between Verizon and the cable companies—competition that is critical to maintaining low prices, high quality, and continued innovation.
- Unreasonably diminish future incentives to compete for product and feature development pertaining to the integration of broadband, video, and wireless services.
- Unreasonably restrain the ability of the cable companies to offer wireless services on a resale basis.
- Unreasonably restrain competition due to ambiguities in certain terms regarding what Verizon can and cannot do to compete in the marketplace.
- The aspects of the JOE unreasonably reduce the companies’ incentives and ability to compete on product and feature development, and create an enhanced potential for anticompetitive coordination.
Below are several provisions in the agreements that the DOJ identified as potentially harmful for competition in the broadband, video, and wireless services markets.
Verizon Wireless Selling Cable Companies’ Products Even in Areas where FiOS is Available
Currently, Verizon offers its voice, video and broadband FiOS service in certain parts of the country where one of the cable companies also sells the same services. In these areas there are two separate companies offering the same services and competing for the same customers. Hooray, competition!
However, under the commercial agreements, Verizon Wireless (which is majority-owned by Verizon Communications) would sell its own services AND a cable company’s services in two competing quad-play offerings. There would literally be a situation where Verizon Wireless would sell its wireless service and Comcast quad play services in one corner and would sell Verizon Wireless and Verizon FiOS services in another corner.
Essentially, Verizon would have been joining with a competitor AND competing against itself in a house-divided scenario that even the DOJ defines as an “unusual structure.”
Verizon Wireless Selling Its Services along with Its Competitors’ Services
The commercial agreements include an explicit restraint on Verizon FiOS sales and mandate that Verizon Wireless may not market or sell Verizon FiOS services unless it also offers the cable companies’ services on an “equivalent basis.” According to the DOJ Statement, this “equivalent basis” provision restricts Verizon’s ability to “offer, promote, market, and sell FiOS services in competition with the Cable Defendants’ services through any Verizon Wireless distribution channel.”
In other words, Verizon (A) can’t sell its own products and services unless it also promotes its (former) competitors’ products and services at the same time, and (B) can’t plug its own products over the cable company’s products. Imagine Ford and Chevy joining together in a small town where they’re the only two dealerships around for miles. Now imagine that Ford can’t sell its own cars unless it also promotes Chevys to the same degree. What if those two jointly decide to raise the price of their products? Who would match or beat the other’s lowest offer to provide a competitive alternative? Oh that’s right, no one.
Cable Guys NOT Allowed to Partner with Other Wireless Companies
The commercial agreements include a long-term exclusivity provision that prohibits the cable companies from partnering with any other wireless company. What if T-Mobile wants to join with the cable guys and utilize more of its recently acquired spectrum? Too bad, this deal prohibits it. What if there’s a smaller wireless company like MetroPCS that could benefit from a quad-play arrangement in select markets? Unfortunately, MetroPCS would also be SOL. If there were a new entrant into the wireless marketplace that could benefit from this arrangement, the new entrant would also be locked out of the deal.
After a Period of Four Years, Cable Companies May Resell Wireless Services on Verizon’s Network Under Their Own Name
Cable companies will eventually be able to resell wireless services on the Verizon network after four years under the name of their new joint venture.
Behold, the Joint Operating Entity (the JOE)
Finally, the commercial agreements creates a Joint Operating Entity (the JOE), which is a joint research and development venture to generate and market integrated wireline and wireless technologies, like new ways to stream online video. As long as Verizon Wireless, Comcast, Time Warner Cable, and Bright House Networks remain in the JOE none of them can independently research or develop products or services within the JOE’s exclusive field, even on projects that the JOE declines to pursue.
Members of the JOE have exclusive use of the technology developed within the JOE and that privilege potentially may be extended to other cable companies that also agree to sell Verizon Wireless services. So much for innovative cross-carrier handsets in the wireless marketplace.
We cannot state it any plainer: the Verizon/Cable deal is anticompetitive and bad for consumers. Public Knowledge made the same argument in our Petition to Deny several months ago and has been reiterating ever since. The findings in the DOJ’s Competitive Impact Statement only validate our argument.
The FCC and DOJ seem poised to impose a number of conditions designed to decrease the companies’ anticompetitive incentives and avoid opportunities for collusion. However, as we mentioned in our August 16 press release, the DoJ and the FCC acknowledge the failure of broadband competition policy in the United States. Verizon and the cable companies scored a huge victory last week. Unfortunately, the consumers, competitive pricing, and wireless innovation were the ones they defeated.
Check back with the PK Policy Blog for forthcoming information on the FCC’s decision.