By Brendan Sasso - 08/16/12 03:09 PM EDT
Federal regulators agreed Thursday to allow Verizon to complete a $3.6 billion deal with a group of cable companies after extracting a series of concessions from the companies.
The Justice Department filed a proposed settlement in federal court, and Federal Communications Commission (FCC) Chairman Julius Genachowski said he would circulate an order with the other commissioners to approve the deal.
Verizon agreed in December to buy licenses for cellular frequencies from Comcast, Time Warner, Cox and Bright House. The spectrum will allow Verizon to expand the capacity of its wireless network to meet the growing data demands of smartphones and tablet computers.
The arrangement will allow customers to buy the cable companies' services from Verizon Wireless stores and allow the cable companies to sell Verizon contracts as part of their packages.
The companies also agreed to launch a joint venture to research and develop new technologies together.
But consumer advocacy groups and some Democratic lawmakers expressed concern that the spectrum deal would allow Verizon, already the nation's largest wireless service provider, to consolidate its control over the airwaves. Critics also worried that the cross-marketing arrangements would restrict competition for Internet service.
The Justice Department's settlement forbids Verizon from selling the cable companies' products in areas where it offers its own Internet and cable service, FiOS. Government officials said the condition would ensure that Verizon and the cable companies would continue to compete aggressively against each other.
The settlement amends the deal to allow the cable companies to sell the wireless services of Verizon's competitors in five years. The companies will also be allowed to resell Verizon's service under their own brands at any time.
The settlement requires that in four years, the companies will have to get permission from the government to continue their joint research venture.
The Justice Department's approval is also conditional on the completion of a separate deal that Verizon announced with T-Mobile in June. When it became clear that regulators were taking a close look at its spectrum deal with the cable companies, Verizon agreed to sell-off some if its spectrum to T-Mobile, the smallest of the four national wireless carriers.
“By limiting the scope and duration of the commercial agreements among Verizon and the cable companies while at the same time allowing Verizon and T-Mobile to proceed with their spectrum acquisitions, the department has provided the right remedy for competition and consumers,” said Joseph Wayland, acting chief of DOJ's Antitrust Division. “The Antitrust Division’s enforcement action ensures that robust competition between Verizon and the cable companies continues now and in the future as technological change alters the telecommunications landscape.”
William Petersen, Verizon's general counsel, said the settlement shows that Verizon addressed the Justice Department's concerns.
"We now believe the consumer benefits of the transaction will be promptly realized, and look forward to the conclusion of the FCC review so that we can move forward with meeting the unprecedented consumer demand for innovative 4G LTE mobile and data driven products and services," Petersen said.
David Cohen, vice president of Comcast, said the company is pleased the settlement preserves the "most important goals" of the agreements. He added that he hopes the FCC will approve the spectrum sale quickly.
To win over the FCC, Verizon committed to build-out its newly acquired spectrum to 30 percent of the covered population within 3 years and 70 percent of the population within seven years. The company also promised to follow the FCC's rules on data roaming for five years regardless of the outcome of a lawsuit it has filed against the rules.
FCC Chairman Genachowski said the original deal as proposed by Verizon and the cable companies "posed serious concerns." But he said he concluded that approval of the "substantially modified transaction" will promote the public interest and benefit consumers.
"The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct," Genachowski said in a statement. "And vitally, it will put approximately 20 megahertz of prime spectrum — spectrum that has gone unused for too long — quickly to work across the country, benefiting consumers and the marketplace."
On a conference call with reporters, FCC officials said Verizon's commitment to sell spectrum to T-Mobile was critical for winning support from the commission staff for the deal.
The other FCC commissioners must still vote to approve the transaction.
But the conditions were not enough to appease consumer groups, which have vocally criticized the deal.
"The proposed conditions on this transaction attempt to alleviate some of the harms that will arise from a lack of competition, and policymakers deserve credit for trying to make the best of a bad deal," Public Knowledge President Gigi Sohn said in a statement. "However, it is not enough for the anti-competitive cross-selling agreement to be limited in time or scope — it should not happen at all."
Free Press Policy Adviser Joel Kelsey said regulators mitigated some of the most immediate harms but "that's not the end of the story."
"Whatever has been done to address the worst parts of this agreement, it’s clear now that Congress and the FCC still need to confront the monopoly environment most consumers now face when choosing broadband service," he said.
— This story was updated at 12:48 p.m. and at 3:41 p.m.