Federal regulators taking a hard look at $3.6 billion Verizon cable deal

Verizon's $3.6 billion deal with a coalition of cable companies is raising eyebrows in Washington and could come under intense regulatory scrutiny.

Verizon agreed in December to buy wireless airwave licenses, or spectrum, from a group of cable companies, including Comcast and Time Warner. Under a separate deal announced simultaneously, Verizon and the cable companies agreed to cross-sell each other's services.

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Sen. Herb Kohl (D-Wis.), chairman of the Senate Judiciary subcommittee on Antitrust, Competition Policy and Consumer Rights, announced on Wednesday he plans to hold a hearing to examine how the deals will affect consumers.

The Justice Department has acknowledged it is conducting its own probe of the agreements, and the Federal Communications Commission (FCC) is gathering evidence to decide if it should block the transfer of the airwave licenses.

"This issue is going to attract a lot of review," Harold Feld, legal director for consumer group Public Knowledge, said.

He worried that the deal will allow Verizon, which is the largest wireless carrier, to consolidate its control of the airwaves.

"All of the spectrum seems to be running to the biggest provider," Feld said.

Spectrum is a valuable public resource, which the cable companies had no immediate plans to use. But that spectrum will help Verizon meet the growing data demands of smartphones and tablet computers.

Feld said the side agreements raise bigger concerns than the spectrum sale. He worried that the arrangement between Verizon and the cable companies will reduce competition and lead to higher prices for consumers.

Verizon has its own Internet and cable business called FiOS, which is available in about 14 percent of the country.

The companies have already launched pilot programs in Seattle and Portland, allowing consumers to buy the cable companies' services in Verizon Wireless stores and allowing the cable companies to sell Verizon contracts as part of their packages.

Verizon plans to eventually expand the program nationwide, including to areas where it already offers FiOS.

Feld said it seems Verizon and the cable companies are  "shrugging their shoulders and saying, 'competition is just really hard.'"

"It's a disturbing thing to see," he said.

Ankur Kapoor, an antitrust lawyer with the firm Constantine Cannon who does not represent any of the companies involved in the deal, said that Verizon and the cable companies are fiercely competing in areas where FiOS is available.

"As a consumer, this competition is fantastic," he said. "If the agencies find that [competition] will be reduced substantially or will end, they will have some serious concerns."

He said selling cable service in areas where FiOS is unavailable creates a disincentive for the company to expand FiOS to that area.

But even more serious legal issues arise when Verizon begins selling the cable service in areas where it already offers FiOS, he said.

"Will they sell the services at the same price?" Kapoor asked, noting that such an arrangement would suggest price-fixing.

"We remain strongly committed to FiOS," a Verizon spokesman said. "We are just finishing our deployment, and it's an important part of our wireline business. We are committed to competing against all the other cable companies because we believe we have the best product."

The spokesman said the company never said it would expand FiOS beyond its current footprint of about 18 million homes. He said the arrangement gives Verizon a "new opportunity to seek wireless customers."

Feld expressed particular concern about a provision in the agreement that will create a joint venture between the cable companies and Verizon to research and develop new technologies.

He said the arrangement may lay "the groundwork for the future cartel for the landline and wireless companies."

He said the venture creates a basis for the companies to meet and "talk about where the industry is going and what products they're going to develop."

Kapoor said it would be difficult to prove any legal harm from the research venture because the "actual consumer effects are so far ahead in the future."

He said regulators would likely examine any arrangement to share new technologies but would not try to block the creation of a joint research project.

The Verizon spokesman said the joint venture is about gaining the scale necessary to make expensive investments in developing new technologies.

Feld said "it's a little early to say what the solution is" to his concerns about the deals, but he hopes regulators will take a close look.

Kapoor noted that even if regulators do not block the spectrum sale or the cross-selling arrangement, they could impose conditions on the deals.

For example, regulators could prohibit the companies from selling each other's services in areas with FiOS, Kapoor said.


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