FCC Chairman Gives Verizon-SpectrumCo Deals Approval, With Restrictions

Verizon_FCC_DoJ_Comcast_SpectrumAfter FCC Chairman Julius Genachowski issued a statement urging the rest of the commissioners to approve Verizon Wireless’ $3.9 billion purchase of nationwide AWS spectrum from the SpectrumCo consortium of cable companies, with significant restrictions and limitations on the potentially anti-competitive cross-marketing deals. It now appears the deals will move forward toward approval by both the FCC and Department of Justice.

As Chairman Genachowksi’s memo circulates around the FCC, Verizon and SpectrumCo, a joint venture of cable companies including Comcast, Time Warner Cable and Bright House Networks, and Cox Communications have come to agreement on a consent decree with the Department of Justice to significantly modify their commercial agreements. The DoJ announced that if the settlement is approved in federal court, it will approve the transactions, including Verizon’s AWS spectrum swap with T-Mobile USA.

Verizon has long claimed that the AWS spectrum purchase from the cable companies, which was announced in December, is tied to a series of strategic marketing and retail deals the companies signed. The side deals drew strong opposition from regulators, small carriers and public interest groups, fearing industry consolidation and collusion that could result in an inefficient market in which smaller companies are unable to compete. Furthermore, many analysts questioned why Verizon Wireless would offload regulated spectrum subject to its ability to successfully acquire unregulated spectrum. 

It appears as if the Justice Department and the FCC carefully listened to critics of the deals. In this final round of negotiations, the DoJ said the proposed settlement would forbid Verizon from selling cable company products and services in markets where it offers its own FiOS service. What’s more, the settlement gets rid of the contractual restrictions on Verizon Wireless’s ability to sell FiOS,  which it claims will “ensure that Verizon’s incentives to compete aggressively against the cable companies remain unchanged.” Furthermore, the proposed settlement announced in August puts a time limit on the duration of the companies’ collaboration to December 2016, the DoJ said. Finally, and perhaps most importantly, the settlement limits the duration of the technology joint venture the companies established and other features of the agreements.

The joint technology deals had the potential to destroy competition as Verizon works with the cable companies to develop new technologies that competing wireless providers would be unable to replicate. Yet under the new settlement, after five years, the cable companies will be permitted to sell wireless services of other providers besides Verizon’s, taking away the huge advantage the deal would have left Verizon if the deals were passed unchanged. What’s more, upon dissolution of the technology joint venture after 2016, all members (SpectrumCo and Verizon) will receive a non-exclusive license to all the joint venture’s technology, and they will then be able to choose to sublicense the patented technologies to other competitors. 

Verizon says it will use the nationwide AWS spectrum for added capacity to augment its 700 MHz LTE bands of spectrum. Verizon had agreed to sell its 700 MHz Lower A and B Block spectrum if the higher quality unregulated AWS spectrum deal was approved. According to Verizon spokesperson Ed McFadden, the wireless giant still intends to sell the 700 MHz spectrum but he did not give a timetable for when it will do so. Verizon announced that more 36 companies expressed interest in the 700 MHz spectrum.

In a filing with the FCC, Verizon told the commission it will build out the spectrum it is acquiring from the cable companies to serve 30 percent of the population covered by the spectrum within three years and 70 percent within seven years. Verizon has also promised to offer data roaming on the spectrum to other carriers at reasonable rates, a major concern of interoperability raised by opponents of the deals.

Of course, according to Verizon, “This is subject to technological compatibility, technical feasibility and economic reasonableness, and use by the requesting provider of a generation of wireless technology comparable to the technology on which the requesting provider seeks to roam… This commitment will remain in place for five years following the date of the commission’s order approving the AWS license assignments.”

Verizon has previously sued the FCC in federal court to block similar data roaming rules, which the FCC approved in April 2011. Now, it appears the carrier will have no choice but to abide by them. Verizon said it has already formed agreements with 49 roaming partners with whom it currently has a total of 68 data roaming agreements.

Recent reports suggest the involved companies and the DoJ had disagreed over the nature and scope of the commercial agreements. The DoJ is now pleased with the results. According to a statement by Joseph Wayland, acting assistant attorney general in charge of the Department of Justice’s Antitrust Division, “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…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.”

Much of the opposition from within the wireless industry seemed to fade away in June after Verizon and T-Mobile USA came forward with their proposed AWS spectrum swap, a transaction Veriozon reiterated is contingent on Verizon obtaining approval of its deals with the cable companies. T-Mobile has argued that getting the AWS spectrum from Verizon–which will allow it to cover an additional 60 million people–will enable it to deploy LTE more robustly. 

However, many critics remain suspicious of the manner by which Verizon silenced its competitor, T-Mobile, by offering it less desirable bands of spectrum in exchange for FCC approval of unregulated cable company spectrum. The Rural Cellular Association, MetroPCS and public interest groups have remained skeptical of the deal, proposing that regulators impose strict conditions and ensure Verizon is not warehousing spectrum. What it now comes down to is the extent to which the DoJ and the FCC monitor the deals as they play out in the market. They must keep a watchful eye on Verizon, the Cable Companies, and competition in the broader industry to make sure all parties abide by the settlement. They must also be willing to enforce anti-trust provisions and enact solutions as they arise. 



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