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Verizon and Big Cable Win – Competition Loses

| Written by Lisa Gonzalez | No Comments | Updated on Aug 30, 2012 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/verizon-and-big-cable-win-competition-loses/

Once again, we are witnessing the federal government allowing a few massive telecommunications companies to collude rather than compete. Verizon is about to ally itself with major cable companies, to the detriment of smaller competitors in both wireless and wireline.

One of the reasons we so strongly support the right of communities to decide locally whether a community network is a smart investment is because the federal government does a terrible job of ensuring communities have fast, affordable, and reliable access to the Internet. By building their own networks, communities can avoid any dependence on the big cable or telephone companies that are more interested in consolidating and boosting shareholder dividends than they are in building the real infrastructure we need.

The Department of Justice released a statement on August 16th, that it will allow the controversial Verizon/SpectrumCo deal to move forward with changes. We have watched this deal, bringing you you detailed review and analysis by experts along with opinions from those affected. One week later, the slightly altered deal was also blessed by the FCC.

Many telecommunications policy and economic experts opposed the deal on the basis that it will further erode the already feeble competition in the market. In addition to a swap of spectrum between Verizon and T-Mobile, the agreement consists of side marketing arrangements wherein Verizon agrees not to impinge in the market now filled with SpectrumCo (Comcast, Time Warner Cable, Cox, and Bright House Communications).

Verizon has been accused of hoarding spectrum it doesn’t need. The marketing arrangements constitute anti-competitive tools that the DOJ has decided need some adjusting. From the announcement:

The department said that, if left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers.

The deal was considered inevitable when FCC Chairman Julian Genachowski released a statement indicating that his agency had no problem following the DOJ. A PDF of the FCC statement can be viewed here.

In scrutinizing the deal, the FCC and DOJ bisected the analysis, which worked in the parties’ favor. Susan Crawford looked at the process:

Bottom line: The companies involved in the transaction can credibly claim that the deal itself is not going to change the facts on the ground for most Americans. Without “merger-specific harms,” and with an impressive display of bureaucratic sleight-of-hand – FCC got the spectrum part of the deal but DOJ got the joint marketing arrangements, and the two agencies have different statutory authority and DNA, leading to lots of finger-pointing and careful behavior – the companies will avoid being interfered with unduly by the feds.

FCC Logo

Harold Feld, another strong critic of the deal, recently commented on the issue of FCC authority in this particular review. Feld notes that challenging FCC authority is a growing trend, and not good for telecommunications policy. Those who challenge it are diluting at what many consider an already tepid application. In essence, the “repeat loudly and often and eventually they will believe you” phenomena is creeping in and even FCC Commissioners are buying it. From Feld:

Given all this, it is rather difficult to understand why both Commissioner McDowell and Commissioner Pai likewise question the FCC’s authority to engage in ongoing monitoring in the wake of the agreements.  Given that this transfer involved spectrum, cable, broadband, and even broadcasters (shout out to my NBC peeps! What it is O & Os!), the only way this could implicate more FCC jurisdictions would be if one of the parties owned a maritime radio service.

Given that there is no question that the FCC has authority to entertain complaints going forward, and certainly has authority to monitor how the markets under its jurisdiction are developing, it is hard to understand the jurisdictional argument even as the worship of empty formalism.

I would think that “we’ll keep an eye on things, anyone with complaints can file over here” would be applauded as the lightest touch possible rather than condemned as regulatory overreach.

Feld goes on:

Which requires me to point out one of the more unfortunate problems in telecom policy (and regulatory policy) these days. There is a huge difference between “it’s bad policy, don’t do it” and “you don’t have authority.” It is unfortunate that those who agree with the FCC on matters of policy increasingly seek to cast their arguments as arguments of regulatory authority. I get that if you don’t like the policy, you would prefer the FCC not have authority to implement it. But just as real lawyers read the footnotes, real lawyers (and non-lawyers) ought to be honest about the difference between policy and authority. Certainly there are times when authority is genuinely contestable, and I will never blame a litigant for making the traditional Hail Mary pass at jurisdiction. But where, as here, the authority of the FCC over reseller agreements is well established, attacks on authority can only be the interpreted as careless or disingenuous.

The FCC and the DOJ may have tried to lighten the negative impact this deal will have on competition by making slight adjustments. Their efforts amount to putting a band aid on a bullet wound. The decision to allow this deal to move forward was telecommunications business as usual.

Crawford, like many others, sums up this deal for what it is:

“…the SpectrumCo transaction is an outcome, not a cause, of the primitive approach to communications that characterizes this country.”