Verizon/Cable Settlement with DOJ: A Closer Look
Verizon/Cable Settlement with DOJ: A Closer Look
Verizon/Cable Settlement with DOJ: A Closer Look

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    Today, the Department of Justice (DOJ) announced that it will allow, with conditions, Verizon, Comcast, and other cable companies to cross-market each other’s products and establish a Joint Operating Entity to develop and control new technology. As part of the deal Verizon will also buy a substantial amount of wireless spectrum from the cable companies. Although only the DOJ’s proposed settlement is officially available (pdf), the FCC is also expected to approve the deal next week with similar conditions. On the whole, these conditions fail to adequately address the many harms threatened by the deal,
    and the approval of this deal raises significant questions for the
    future of broadband competition policy going forward.

    The Verizon/Cable Deal and the End of Facilities-Based Competition

    These deals are very complex and the proposed settlement includes many
    individual conditions designed to alleviate specific competitive
    harms, but on a general level the DOJ and FCC seem to be acknowledging
    that the US’s policies for broadband competition have failed. Especially since
    the 1996 Telecommunications Act, Congress and the FCC have hoped that
    direct competition between telephone and cable companies’ wireline
    broadband services would protect consumers, drive down prices, and
    encourage new deployment.

    With the approval of this deal, even with conditions, it is now clear
    that telephone and cable companies have laid down their arms and
    divided the world between them: Verizon with its wireless offerings
    and the cable companies with their wireline services. This deal
    cements that agreement by permitting Verizon and the cable companies
    to sell each other’s services instead of competing, giving Verizon a
    substantial amount of additional spectrum, and establishing a new
    company in which the companies will jointly plan, develop, and control
    the next generation of technologies
    integrating wireline and wireless service.

    Additionally, while Public Knowledge has focused mainly on the commerical agreements, this deal also contributes to the growing ‘spectrum gap’ between Verizon, AT&T, and the rest of the industry. Although some spectrum will be divested to T-Mobile, it’s important to remember than much of the spectrum at issue will go straight to one of the two dominant wireless carriers in the country, further increasing the gap between Verizon and AT&T, and every other wireless carrier in the country.

    Conditions on the Verizon/Cable Deals: An Overview

    The DOJ’s proposed settlement includes many conditions that attempt to
    alleviate some of the harms of this deal. Although the conditions
    still won’t be as effective as blocking the deals in their entirety,
    the DOJ and FCC do deserve credit for trying to fix some of the harms
    from the deal and for rightfully asserting their authority over the
    transactions to begin with.

    Joint Marketing Agreements Allowed in Part

    One of the most blatant examples of how the deals established a truce
    between former competitors was the agreement between Verizon and the
    cable companies to begin marketing each other’s services instead of
    launching and marketing their own competing services.

    The DOJ settlement places significant limitations on these joint
    marketing agreements. Verizon Wireless will not be allowed to market
    for the cable companies (or permit another company to do so) within
    the “FiOS Footprint.” This includes any area where Verizon has built
    out FiOS or is legally bound to do so, where Verizon has a
    non-statewide franchise authorizing Verizon to build out FiOS, or
    where Verizon has delivered notice of an intention to build out FiOS
    under a statewide franchise agreement. Starting in December 2016,
    Verizon Wireless similarly won’t be allowed to market for the cable
    companies within its DSL service territory outside of the FiOS
    footprint, nor will Verizon Wireless be able to prohibit the cable
    companies from selling another wireless service.

    The conditions also ensure that the parties will still be able to
    market certain services despite the joint marketing agreements. For
    example, Verizon Wireless will still be able to sell any Verizon
    Wireless service like Home Fusion or Home Phone Connect, and Verizon
    Wireless is free to sell Verizon Communications services without
    selling the cable companies’ services on an equivalent basis.

    These limitations attempt to preserve Verizon’s incentive to invest in
    its wireline infrastructure and potentially build out fiber to new
    areas in preparation for when the joint marketing ends in DSL areas.
    Nevertheless, the joint marketing agreements still decrease Verizon’s
    incentive to continue competing against the cable companies on
    wireline broadband services, resulting in fewer choices and higher
    prices for consumers.

    The Joint Operating Entity Survives, But Limited

    Many of Public Knowledge’s core concerns focused on the JOE as the
    vehicle in which Verizon and the cable companies would get together,
    jointly strategize, and develop and control technology the could
    become the de facto standard for the next generation of
    telecommunications technology. Now the DOJ conditions specify that the
    JOE can continue to exist but the companies must leave the JOE by
    December 2016 unless they receive written advance permission from the
    government. A term limit, while better than an unlimited JOE, still
    gives the companies the ability and incentive to share information and
    stifle competition from third parties.

    Some other conditions try to limit the extent to which the JOE ties
    the hands of its member companies from pursuing innovative new
    projects outside of the JOE. For example, the DOJ’s conditions permit
    Time Warner Cable and Bright House Networks to independently develop
    technology after presenting it to the JOE first, but if the JOE
    decides to pursue the technology TWC and BHN could not also develop it

    Other conditions prohibit Verizon or Verizon Wireless from sharing
    competitively sensitive information about Verizon Communications with
    the cable companies, and vice versa. The conditions also note that no
    Verizon or Verizon Wireless employee can have access to the
    competitively sensitive information of both Verizon and one of the
    cable companies, but the condition does not include information
    sharing allowed under the JOE agreement. This seems to gut the entire
    condition because it is the JOE that raises the strongest concerns
    that the companies will improperly share information, particularly
    between Verizon and the media activities of the cable companies. This
    makes it even more important that the FCC enforce its own attribution
    rules and make the companies certify that they will not use the JOE to
    discuss programming or other media activities between the companies.

    The companies are also not allowed to change most parts of the JOE
    agreement without advance permission. This is important because, given
    the secretive nature of the JOE and the anticompetitive incentives the
    JOE members have, there is the real danger that the JOE’s members
    would manipulate the JOE to engage in behavior that would not pass
    scrutiny at the DOJ or FCC.

    If any JOE member leaves the JOE, that member will get a perpetual,
    irrevocable, royalty-free non-exclusive license to use and sublicense
    the JOE’s intellectual property up to that point. This is important
    because it allows JOE members to leave the JOE and pursue other
    initiatives without having to lose their entire investment in the
    JOE’s technology, although the settlement notes that the license may
    still be subject to conditions like confidentiality, and the departing
    JOE member might lose that license if it brings certain intellectual
    property claims against the JOE or its licensees.

    Finally, the conditions prohibit Verizon and the cable companies from
    entering into any technology joint venture or partnership that
    includes Verizon or Verizon Wireless and one of the cable companies,
    without advance permission from the DOJ. This seems intended to ensure
    that the companies don’t simply create a new duplicate JOE to avoid
    agency oversight.

    Ongoing Monitoring

    The DOJ settlement also requires the companies to keep records of all
    of their communications with each other and submit to the DOJ reports
    detailing how they are complying with the settlement conditions. The
    reports will specifically include information on sales made through
    the joint marketing agreements, Verizon Wireless’s sales of Verizon
    wireline services, Verizon’s FiOS and DSL buildout, and the JOE’s
    activities. Regarding the JOE, Verizon Wireless must detail the JOE’s
    technology and products, pending patent applications, and intellectual
    property agreements entered into by the JOE.

    Monitoring procedures are certainly a key part of the DOJ’s ability to
    actually enforce the conditions listed in this settlement. As the
    industry’s experience with other transactions like the Comcast/NBCU
    merger show, conditions are only useful to the extent that they are

    But on the whole, it is not enough for the joint marketing and JOE
    agreements to be limited in time or scope–the agreements should have
    been blocked outright. When and if Verizon and the cable companies
    seek permission to continue the JOE or JMAs in four years the FCC and
    DoJ must seriously examine how the companies have used their
    agreements to stifle competition and how the agreements have
    diminished the companies’ incentives to compete against each other.

    Looking forward, there is now no way we can pretend that the broadband
    market is competitive. This means that Congress and the FCC should
    pursue new policies to stimulate competition in wireline internet
    access service–or resign themselves to regulating a broadband