Senators, critics: Verizon spectrum deals could hurt competition

Critics say Verizon's proposed purchase of spectrum from cable companies could lead to higher prices, less choice

Verizon Wireless' proposed purchase of unused mobile spectrum from four cable companies will reduce the incentive for the companies to compete against each other in the video and broadband markets, critics told U.S. lawmakers Wednesday.

The spectrum deals, announced in December, include agreements that would allow Verizon and the four cable companies to market each others' products, leaving the companies with less incentive to compete against each other on price and services, said Joel Kelsey, policy adviser at Free Press, a digital rights group.

"These agreements simply represent a deal between these companies to stay out of each others' way in perpetuity," he said. "They put former rivals on the path to cooperation, not competition."

The deals, which would allow Verizon to purchase mobile licenses covering more than 280 million U.S. residents, would also kill potential competition in a mobile industry increasingly dominated by Verizon and AT&T, Kelsey said. The U.S. Federal Communications Commission needs to kill the deal to preserve mobile competition, he told the antitrust subcommittee of the U.S. Senate Judiciary Committee.

The two deals, for about US$3.9 billion, would allow Verizon to buy 20MHz of spectrum from SpectrumCo, a joint venture among Comcast, Time Warner Cable and Bright House Networks, and from Cox Communications. The deals will help Verizon offset a predicted spectrum crunch, aid Randal Milch, executive vice president and general counsel at Verizon Communications.

It's "critical" that the cable spectrum be used for mobile services, with smartphone traffic predicted to be more than 25 times higher in 2015 than it is today, Milch said.

Several senators questioned whether the spectrum and joint marketing deals will be good for U.S. consumers. The deal could lead to higher cable TV rates, with less incentive for Verizon Wireless' parent company, Verizon Communications, to aggressively market its Fios video service against Comcast and other cable firms, said Senator Al Franken, a Minnesota Democrat.

"This is really at the heart of why I am skeptical about this deal," Franken said. "It's almost as if your companies got in a room together, and you agreed to throw in the towel and stop competing against each other."

Representatives of Verizon and Comcast said their companies will continue to compete against each other in video and broadband services. The Fios video service is "a superior product that customers like and we are going to push it as hard as we can," Milch said.

After Verizon has spent $23 billion to build its Fios broadband and video network, it doesn't make sense for the company to stop competing, Milch said.

Comcast talked to most mobile carriers before deciding to sell the spectrum to Verizon, said David Cohen, Comcast's executive vice president. The Verizon proposal represented the best deal for Comcast and consumers, he said.

The deal will allow Comcast and the other cable companies to be resellers of Verizon's mobile service. These reseller agreements will be "a slam-dunk win for consumers," he said.

The deals, which also include a joint research agreement, will help customers use all their Internet devices seamlessly with each other, he added.

But the deals would be "disastrous" to competition, particularly in the mobile market, said Steven Berry, president and CEO of the Rural Cellular Association, a trade group representing mobile carriers. If the deal is approved, Verizon and AT&T will control more than 70 percent of the mobile spectrum under 1GHz, the spectrum optimal for mobile broadband service.

If Comcast and the other cable companies couldn't find a way to roll out their own mobile services, as they originally planned, "you should expect very few entrants" into the mobile market in the future, Berry said.

The deals would seem to run counter to the goals of the Telecommunications Act of 1996, a bill that tried to encourage widespread competition between telecom carriers and cable providers, said Senator Herb Kohl, a Wisconsin Democrat and subcommittee chairman. The deals could amount to a "truce between one of the two largest phone companies and over 70 percent of the cable TV industry," he said.

The deals could also hurt mobile competition, giving Verizon "what is likely the last swath of crucial spectrum available for years to come, keeping this vital input for wireless service out of the hands of its competitors," Kohl added.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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Grant Gross

IDG News Service
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