Bloomberg News

Verizon Wireless Probed by Justice Department Over Cable Deals

December 28, 2011

Dec. 20 (Bloomberg) -- Verizon Wireless’s deals for spectrum with cable companies are under investigation by the U.S. Justice Department for their potential to hurt competition in the wireless and cable industries.

Gina Talamona, a Justice Department spokeswoman, confirmed the antitrust division is examining the transactions, declining to comment further.

Verizon Wireless, the largest U.S. mobile-phone carrier, struck a $3.6 billion alliance earlier this month with cable companies led by Comcast Corp. that will change how customers buy Internet, mobile and pay-TV services.

The Justice Department probe will focus on whether that transaction and a subsequent one with Cox Communications Inc., concentrate too much control of airwaves in one company’s hands and whether the marketing agreements between Verizon and the cable companies violate antitrust laws, said a person familiar with the investigation.

“This agreement is diminishing competition in every way,” said Mark Cooper, director of research at Consumer Federation of America, which opposes the deal. “It means the cable companies are no longer trying to do their own thing in wireless, it concentrates ownership of spectrum and it turns rivals such as Verizon and Comcast into partners.”

Peter Thonis, a spokesman for Verizon Communications Inc. said “we have received no information on which to comment.” Verizon Communications Inc. co-owns Verizon Wireless with Vodafone Group Plc.

Shares Drop

Verizon Communications shares dropped 1.2 percent on the news before climbing 0.7 percent, to $39.32 at 1:08 p.m. in New York trading.

Verizon Wireless is buying up spectrum as it seeks to develop fourth-generation technology known as Long Term Evolution to better compete with AT&T Inc., which is also building out its LTE network. AT&T, which yesterday dropped its bid for T-Mobile USA Inc., had argued it needed the airwaves the T-Mobile purchase would have brought to improve service given spiraling demand for digital data as consumers increasingly use smartphones and other mobile devices.

Verizon Wireless and the cable companies will market and sell each other’s services under the agreement. The Basking Ridge, New Jersey-based mobile carrier will offer cable-TV products in its retail stores and receive a percentage of revenue for every cable customer it signs up, while cable companies will receive fees for each wireless customer they sign up, according to Time Warner Cable Inc. spokesman Alex Dudley.

Cash for Spectrum

Under terms of the Dec. 2 deal, Verizon Wireless agreed to pay the group of cable companies $3.6 billion for wireless spectrum. Comcast Corp., the country’s largest cable provider, will receive $2.3 billion, while Time Warner Cable Inc. gets $1.1 billion and Bright House Networks LLC gets $189 million. On Dec. 16, Verizon announced a $315 million purchase of spectrum from Cox Communications Inc.

Verizon is seeking approval for the transfer of spectrum licenses from the Federal Communications Commission, according to a Dec. 19 filing.

The FCC and Justice Department are likely to approve the deal, though they may require the sale of assets in certain markets, said Jeff Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors LLC in Washington.

“There isn’t any indication that the cable companies were going to become serious wireless competitors in their own right,” Silva said. “They had that spectrum sitting there and now they’ve found a good use for it. They’re not going to build their own networks to compete.”

--With assistance from Alex Sherman and Scott Moritz in New York and Todd Shields and Jeff Bliss in Washington. Editor: Fred Strasser, Andrew Dunn

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Patrick Oster at poster@bloomberg.net


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