DOJ approves Verizon spectrum deal, but will require changes

The government is worried the deal will lead to less competition and higher prices

A U.S. Department of Justice investigation has concluded that a multifaceted US$3.9 billion agreement between Verizon Wireless and four of the largest cable TV network operators in the country could substantially harm competition and lead to higher prices in the wireless communications market.

The deal, which was announced last December, included the acquisition of wireless spectrum by Verizon from the four companies, Comcast, Time Warner Cable, Bright House Networks and Cox Communications. At the same time, Verizon and the cable companies agreed to resell each other's services and work together on research of future technologies.

On Thursday, the DOJ said it would allow the spectrum portion of the deal to go ahead, but won't let the resale and research part go forward without changes.

The spectrum deal involves Verizon purchasing unused wireless space held by the four cable companies. Verizon will use some of the spectrum for its own services, sell some to T-Mobile under a June 2012 agreement, and auction the remaining spectrum.

This wireless space, a finite resource, is vitally important for Verizon and T-Mobile because it directly affects the speed, reach and strength of wireless service that can be offered to consumers. The cable companies bought the spectrum in 2006 as part of a high-profile public auction, but most of it went unused.

On the second part of the deal, the Justice Department found the deal would harm competition because Verizon's FiOS fiber-to-the-home Internet service competes with the cable companies in many markets.

"Most notably, the agreements, as originally structured, would have required Verizon Wireless to sell the cable companies' services on an "equivalent basis" with FiOS where FiOS is available, thereby reducing Verizon's ability and incentive to sell its own services aggressively," the DOJ said in a statement.

The DOJ's antitrust division filed a civil antitrust lawsuit today in the U.S. District Court for the District of Columbia to prevent the deal from going ahead. As part of that filing, the DOJ laid out a settlement worked out with Verizon and the cable companies that, if approved, would allow the deal to proceed.

"Approval of the substantially modified transaction will promote the public interest and benefit consumers in several ways," Federal Communications Commission Chairman Julius Genachowski, said in a statement. "The transaction will preserve incentives for deployment and spur innovation while guarding against anti-competitive conduct. And vitally, it will put approximately 20 megahertz of prime spectrum -- spectrum that has gone unused for too long -- quickly to work across the country, benefiting consumers and the marketplace."

The settlement forbids Verizon from reselling cable company products in areas covered by FiOS and removes contractual restrictions on Verizon Wireless' ability to sell FiOS. In areas where Verizon offers only DSL service, it will be allowed to resell cable company services until the end of 2016. This latter rule is intended to ensure incentives on competition remain.

The settlement will also allow Verizon to continue selling bundled of services that include DSL, wireless and satellite TV; allow cable companies to sell wireless services from Verizon competitors after five years; allow cable companies to resell Verizon Wireless services using their own brand; and that all partners in the research work receive a nonexclusive license to the technology developed.

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Martyn Williams

IDG News Service
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