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Verizon's Turn Verizon's Turn

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WIRED IN WASHINGTON

Verizon's Turn

As the nation’s biggest wireless provider bids for more spectrum, competitors and critics air familiar arguments.

The bid by Verizon Wireless to buy spectrum and enter into joint marketing agreements with a group of cable firms was bound to spark concern. After all, Verizon is already the nation’s biggest wireless provider. But, so far, critics have yet to reveal a smoking gun that would prompt federal regulators to block the deal outright. As a result, the agreements are likely to get approved, but the government could add conditions aimed at addressing some of the competitive issues.

The deal raises important questions about how the distribution of spectrum, which wireless companies need to expand their services and reach more customers, will affect competition in the wireless market. If smaller rivals can’t get access to more spectrum, critics say, they will have trouble competing with Verizon and AT&T. At the same time, the marketing agreements highlight concerns about whether consumers will still have access to more than just one provider of wired Internet, video, and phone services.

 

“I’m not so sure there is a solid legal argument for blocking the Verizon-cable deal,” said Jeffrey Silva, a telecommunications, media, and tech analyst with Medley Global Advisors. Silva and others say that although the bid is prompting serious scrutiny from federal regulators, it has yet to spark the kind of antitrust concerns that helped doom AT&T’s move last year to buy T-Mobile USA.

Verizon announced in December that it would buy spectrum from a joint venture made up of Comcast, Time Warner Cable, and Bright House Networks; and, in a separate deal, from Cox Communications. Anticipating eventually offering wireless service directly, cable firms had bought the spectrum but eventually gave up on the idea. Verizon and the wireless companies also agreed to marketing arrangements to sell each other’s services and to launching a joint venture developing technology aimed at better integrating wireline and wireless products and services.

Verizon officials argue that the deal will bring spectrum that the cable companies are not using to market and allow Verizon to continue building out its next-generation 4G LTE wireless network. The cable firms say that the marketing agreements will allow them to offer their customers wireless service along with their cable, Internet, and phone bundles.

 

The Federal Communications Commission must approve the spectrum deal. The Justice Department is examining the marketing agreements.

Rivals such as T-Mobile and Sprint worry about Verizon getting even more valuable spectrum.

“At a time when the mobile-broadband industry is facing a looming ‘spectrum crunch,’ it strains credulity to assert that the public interest would be served by allowing Verizon Wireless to hoard even more spectrum, especially in the [Advance Wireless Services] band where many of its smaller competitors would be able to put this spectrum to use immediately as they roll out 4G LTE services to compete with Verizon Wireless,” T-Mobile wrote in a recent filing urging the FCC to block the spectrum deal.

Public-interest groups and unions worry about the marketing and technology deals, saying that the companies appear to be agreeing not to compete against one another for wired broadband services. They note that Verizon and its FiOS video, Internet, and phone service offers the only alternative to cable in many markets.

 

“By Verizon agreeing to provide the video services of its chief rivals (at least in its DSL territories) and the cable guys reselling the largest wireless provider as their ‘wireless strategy,’ the side agreements amount to a tacit agreement to divide the markets between them and avoid competition,” Harold Feld, legal director at Public Knowledge, blogged in March.

Verizon and the cable firms told senators in March that they will continue to compete aggressively in those markets where they both provide wired broadband services. And Verizon argues that even with the airwaves from the cable firms, its spectrum holdings in most markets won’t violate the guidelines the FCC uses when considering such spectrum deals.

“The assertion that, all of a sudden, Verizon is going to dominate in the spectrum market doesn’t square with the facts,” Verizon Executive Vice President Tom Tauke said in an interview last week.

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Tauke and others, including AT&T officials, argue that if the FCC is serious about wanting to help companies meet their customers’ growing demand for wireless services, it must ensure that wireless firms have access to spectrum through secondary transactions, particularly since the FCC is unlikely to auction spectrum any time soon.

“Having a secondary market to allow for the relatively easy transfer of licenses is really important,” Tauke said. “I think if this got turned down, that would put a real damper on the secondary market.”

Verizon appears to have gotten ahead of critics last month by pledging to sell two of its spectrum licenses if its deals with the cable firms are approved. Analysts, and even some critics, say they still think the FCC will approve the spectrum sale, possibly with conditions.

“The scope and severity of such conditions, including any divestitures, would depend on the extent to which the government is unpersuaded by the companies’ arguments and corroborating information, but we still suspect [Verizon] would gain most the spectrum,” research firm Stifel Nicolaus said in an investment note earlier this month.

The bigger question is whether the Justice Department will find that the marketing and technology agreements raise enough competitive concerns to warrant action.

“The joint marketing agreements are a bit of a wild card because they are not public and the [FCC] has tied them to some degree to the spectrum acquisition,” said Paul Glenchur, a telecommunications analyst with the Potomac Research Group. “But it is not clear there is a strong antitrust case to be made against the deal unless there is something problematic but not transparent in those agreements.”

This article appears in the May 16, 2012 edition of NJ Daily.

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Chock full of usable information on today's issues."

Michael, Executive Director

Concise coverage of everything I wish I had hours to read about."

Chuck, Graduate Student

The day's action in one quick read."

Stacy , Director of Communications

Great way to keep up with Washington"

Ray, Professor of Economics

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