DOJ Releases Confidential Information; Verizon/Cable Deal As Bad As We Thought
DOJ Releases Confidential Information; Verizon/Cable Deal As Bad As We Thought
DOJ Releases Confidential Information; Verizon/Cable Deal As Bad As We Thought

    Get Involved Today

    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.

    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
    for a full rundown of Public Knowledge’s concerns with the DOJ
    approval, including the conditions imposed on Verizon and the cable companies. 

    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

    1. 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.
    2. 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.
    3. Unreasonably diminish
      competition between Verizon and the cable companies—competition that is
      critical to maintaining low prices, high quality, and continued
    4. Unreasonably diminish future
      incentives to compete for product and feature development pertaining to
      the integration of broadband, video, and wireless services.
    5. Unreasonably restrain the
      ability of the cable companies to offer wireless services on a resale
    6. Unreasonably restrain
      competition due to ambiguities in certain terms regarding what Verizon can
      and cannot do to compete in the marketplace.
    7. 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.

    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

    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,

    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.

    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

    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.”

    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

    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

    Check back with
    the PK Policy Blog for forthcoming information on the FCC’s decision.