Bloomberg News

Verizon, Comcast Airwaves Accord Wins Antitrust Approval

August 16, 2012

Verizon, Comcast Airwaves Accord Wins Antitrust Approval

Randal Milch, executive vice president and general counsel with Verizon Communications Inc., testifies during a Senate Judiciary Committee hearing about its proposed $3.6 billion purchase of airwaves from cable companies. Photographer: Andrew Harrer/Bloomberg

Verizon Wireless won clearance from the U.S. Justice Department to buy unused airwaves from Comcast Corp. (CMCSA:US) and other cable providers with conditions that limit the companies’ agreements to sell each other’s services.

The decision by antitrust regulators leaves final approval of the $3.6 billion deal between the biggest U.S. cable and wireless companies to regulators at the Federal Communications Commission. That agency’s chairman today recommended approval.

“The department has provided the right remedy for competition and consumers,” by limiting the commercial agreements and letting Verizon and T-Mobile USA Inc. acquire more airwaves, Joseph Wayland, the acting head of the department’s antitrust division, said in a statement.

The airwaves sale and cooperation pact that the companies proposed in December, if left unaltered, would have brought higher prices and lower quality for consumers, the department said. The department and the FCC said today’s agreements promote competition. Verizon in June agreed to sell airwaves to T- Mobile, the smallest of the four nationwide wireless providers.

Leading U.S. wireless provider Verizon, based in Basking Ridge, New Jersey, wants to add airwaves as customers increasingly adopt smartphones such as Apple Inc. (AAPL:US)’s iPhone to watch video and browse the Web. Philadelphia-based Comcast, the top U.S. cable company by revenue, and No. 2 Time Warner Cable Inc. (TWC:US), are selling airwaves they’re not using.

Higher Prices

Verizon and cable companies, Comcast, Time Warner, Bright House Networks LLC and Cox Communications Inc. agreed to restrict the scope of cross-marketing agreements and have those deals end in December 2016 unless U.S. officials agree to an extension, the Justice Department said in the statement. The companies also agreed to limit to four years a joint technology venture to produce new products.

Verizon and the cable companies agreed there will be no cross-marketing of each other’s services in areas served by Verizon’s FiOS high-speed Internet, telephone and television service, including in regions where Verizon plans to expand the service.

“We have addressed the Department of Justice’s concerns,” William Petersen, Verizon Wireless’s general counsel, said. “We now believe the consumer benefits of the transaction will be promptly realized, and look forward to the conclusion of the FCC review.”

‘Important Goals’

FCC Chairman Julius Genachowski today proposed approving the deal. The companies have made “a number of binding pro- competitive commitments,” Genachowski said in an e-mailed statement. The deal needs majority approval from the agency that has three Democrats including the chairman and two Republicans.

Comcast Executive Vice President David Cohen said the settlement with the Justice Department “preserves the most important goals of the agreements, including preserving Comcast’s ability to market Verizon Wireless services.”

The conditions won’t do enough to ensure competition in a market characterized by locally exclusive cable companies and a wireless sector dominated by four players, critics said.

“The DOJ and the FCC tried valiantly to put lipstick on the pig, but it’s still a pig,” Gigi Sohn, president of the advocacy group Public Knowledge, which opposed the deal, said in a telephone interview. The conditions aren’t permanent and protect some consumers while leaving others -- such as about 7 million Verizon customers in areas without FiOS -- with only a regional cable monopoly as a source for fast Internet service, Sohn said.

Higher Prices?

Free Press, a Washington-based policy group that also opposed the transaction, said the concessions don’t solve structural problems in the market for high-speed Internet service.

“There is still no meaningful competition -- and that will mean higher prices for everyone,” Joel Kelsey, a policy adviser with the group, said in an e-mailed statement.

“This deal will result in Verizon abandoning further investment in FiOS, its high speed network,” Candice Johnson, a spokeswoman for the Communications Workers of America, said in an e-mailed statement. As a result, there will be no high-speed Internet competition in Baltimore, Boston, Buffalo, cities across upstate New York and most of Pennsylvania, Maryland, Massachusetts, Delaware and Virginia, she said.

Verizon earlier told the FCC it had decided in 2009 it wouldn’t increase its planned deployment of FiOS, according to a company filing at the agency.

Marketplace Competitor

Final approval would give Verizon success where No. 2 mobile carrier AT&T Inc. (T:US) failed last year when regulators barred it from buying T-Mobile USA Inc. because the transaction would have eliminated the smaller carrier and reduced competition.

“Verizon’s deal has some key differences from AT&T-T- Mobile, but it’s not a small feat to get it done in an administration that’s been focused on limiting the power of AT&T and Verizon,” Paul Gallant, a Washington-based analyst with Guggenheim Securities, said.

Buying cable company airwaves won’t remove a competitor from the marketplace, which would have occurred if T-Mobile had been bought by AT&T, Gallant said in a telephone interview.

Verizon’s proposed sale of spectrum to T-Mobile, contingent on winning approval of the cable-airwaves deal, turned the unit of Bonn-based Deutsche Telekom AG (DTE) from an opponent of the transactions into a supporter.

Selling Airwaves

Closely held Bright House Networks contributed some of the airwaves being sold to Verizon by the cable group including Comcast and Time Warner known as SpectrumCo. Separately, Cox Communications agreed to sell airwaves to Verizon for $315 million.

Comcast owns 64 percent of SpectrumCo and is to receive about $2.3 billion from the sale, the companies said in a statement in December. Time Warner Cable owns 31 percent of SpectrumCo and will receive about $1.1 billion. Bright House owns 5 percent of SpectrumCo and will receive about $189 million, the companies said.

Verizon Wireless is 55 percent owned by New York-based Verizon and 45 percent-owned by Vodafone Group Plc (VOD), based in Newbury, England.

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net or Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net.


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