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Verizon-Cable Deal Raises Major Concerns, According to Public Knowledge

Interview: why the deal would be harmful to consumers and competition

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The dispute over Verizon Wireless’s bid to buy spectrum from several cable companies is still going strong even after last week’s hearing that attempted to answer some of the questions about it. As WebProNews previously reported, Verizon Wireless, in December, announced a deal to purchase unused airwaves from Comcast, Time Warner, Bright House Communications, and Cox Communications for nearly $3.6 billion dollars.

Opposition over the deal, however, appears to be growing. Public Knowledge and a number of other public interest groups as well as wireless carriers including Sprint and T-Mobile, have been very vocal in their concerns over the agreement. In February, they even filed a petition to deny the transfer and its additional agreements.

In the petition, the groups wrote:

“It does not take the celebratory plaudits of Wall Street analysts to recognize that these proposed transactions would fundamentally alter the nature of the telecommunications world in a manner utterly contrary to that intended by the 1996 Telecommunications Act. In the first place, Applicants have agreed to transfer more spectrum to the largest wireless operator, aggravating existing anticompetitive problems with spectrum aggregation. In addition, Applicants have agreed to three critical side agreements bearing on each other’s businesses that give rise to serious concern that not only will these providers decline to compete further with one another, they will actively collude with one another.”

Art Brodsky, Communications Director at Public Knowledge These groups fear the deal would give Verizon too much power and thus harm competition and consumers. In a recent interview with Art Brodsky of Public Knowledge, he told us that, during the debate surrounding AT&T’s bid to buy T-Mobile, which, of course, didn’t happen, Verizon had said it didn’t need anymore spectrum for the foreseeable future. Now, the company’s view seems to have changed since it has argued that the deal should go through to avoid a “spectrum crunch.”

“What you have in this deal is some really prime spectrum going to the largest carrier, which already has more than anybody else,” said Brodsky.

Last week’s hearing from the antitrust subcommittee of the Senate Judiciary Committee tried to determine if the consortium of cable companies had reached out to other carriers before Verizon. But, Brodsky told us that the topic was left unanswered.

“The bigger is getting bigger, and the smaller is fading away because they’re not able to have access to the raw material of wireless, which is spectrum,” he said.

In addition to the spectrum aspect, the deal would also include a joint-marketing agreement that, according to Brodsky would have “all sorts of implications for competition, none of which are good.” Specifically, this area would enable Verizon to sell cable’s high-speed Web product, while also allowing the cable companies to sell Verizon’s product.

At last week’s hearing, Senator Herb Kohl, who is the chair of the antitrust subcommittee, asked Verizon and the cable companies if they were calling a “truce” and standing down as rivals. He expressed concern that the deal would undo the progress that had been made in regards to competition over the past several years.

“There’s absolutely no incentive for Verizon, the cable company, to build out or improve its data product because its affiliate is gonna be selling Comcast or Bright House or Time Warner,” said Brodsky.

He went on to say that it would also decrease competition via FiOS. Also, since most places don’t have FiOS, he said that the majority of consumers would either have very slow copper-based DSL or cable options, since Verizon doesn’t plan on further build-out of the platform.

Another point of contention with the deal is the “Joint Operating Agreement,” which has been nicknamed “JOE.” According to Verizon and the cable companies, the agreement is a research project. Those in opposition, however, believe that it could lead to anti-competitive measures.

As Brodsky explained, JOE would allow the companies to create new technology and thus control this new innovation. He, and others, believes that JOE could also give Verizon and the cable companies the power to determine whether or not other players could integrate or adopt them.

“They could keep it to themselves, they could license it at exorbitant fees, [and] they could act in all sorts of anti-competitive ways,” he said.

Since the deal has received a large outcry of opposition, the FCC and the Department of Justice are still investigating the agreements. Brodsky told us that, while he is hopeful that it won’t be approved, he is pessimistic about it given antitrust cases of late.

Incidentally, Rick Rule, who was the lead attorney for Microsoft in the DOJ’s antitrust case against it, testified at last week’s hearing and predicted that it would be approved.

“A transaction that takes assets that are producing zero and is going to put the assets in hands of a company that is going to generate some output from those assets is by definition not a violation of the antitrust laws,” he said.

Do you think the deal will be approved? Could you see it impacting consumers positively or negatively? Let us know.

Verizon-Cable Deal Raises Major Concerns, According to Public Knowledge
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