Verizon’s US$3.9bn spectrum deals with cablecos have come under pressure from Herb Kohl, the chairman of the Senate’s antitrust subcommittee, saying they presented “serious competition concerns”. In a letter to Julius Genachowski, chairman of…
Verizon’s US$3.9bn spectrum deals with cablecos have come under pressure from Herb Kohl, the chairman of the Senate’s antitrust subcommittee, saying they presented “serious competition concerns”.
In a letter to Julius Genachowski, chairman of the Federal Communication Commission, and Eric Holder, the US attorney-general, the democrat senator from Wisconsin urged their agencies to “carefully scrutinise” the transactions.
Kohl argued against AT&T’s merger with T-Mobile USA and his opposition was seen as a factor contributing to the deal collapsing.
Kohl addressed a number of issues in the wide-ranging eight-page letter, taking a particular interest in the marketing agreements Verizon had made with the cable operators, but stops short of asking for the deal to be blocked.
Verizon and the cable companies – Comcast, Time Warner Cable, Bright House and Cox Communications – together have 72% of the US’s cable customers, and have agreed to sell each others services as part of the deal.
Kohl described Verizon and the cablecos as “fierce competitors” but said the deal could transform them into “business partners”. He said it was crucial that the agreements did not incentivise the companies to stand down from their competitive battle.
Kohl said it was clear that at least for Comcast, the biggest cableco in the arrangement, the marketing agreements were clearly a “necessary condition” of it selling spectrum to Verizon. He said it was crucial the agencies examined whether promises about competition were proffered as part of the deal.
The cablecos have the right to launch an MVNO on Verizon’s network four years into the deal. Kohl said that MVNOs are bad for competition as they are at the mercy of larger operators whose networks they are reliant on.
The chairman also urged the FCC and DOJ to examine the timing of the purchase, pointing out that T-Mobile USA alleges the sale was arranged to clash with its failed merger with AT&T, effectively denying it the opportunity to bid. The cablecos deny T-Mobile’s charge. Kohl said it was important the agencies got the bottom of the accusation.
The regulators should also consider the nature of the licences Verizon are seeking to acquire, according to the senator. The advanced wireless spectrum (AWS) the cablecos are selling is high quality and particularly suited to the rollout of 4G networks. With no more spectrum expected to be offered to operators for at least three years, he was sympathetic to Verizon’s smaller competitors’ claims that the acquisition would stop them competing.
Doubts about remedy divestments
Kohl also echoed concerns raised by others about the quality of the 700MHz band Verizon is divesting, citing the interference it suffers in a number of markets with a television channel. He said the 700MHz spectrum was not comparable to the AWS as it only covered certain cities, whereas the AWS is national in scope.
Yesterday it was revealed that Verizon has 36 potential buyers for its lower 700MHz A and B block spectrum licences. Verizon also confirmed any sale is contingent on the regulators approving its AWS purchases.
Kohl also pointed out consumer group worries about a duopoly, with AT&T and Verizon holding the most valuable spectrum.
Kohl referenced spectrum hoarding, the practice whereby companies use spectrum acquisitions as a strategic tool employed by dominant carriers to suppress their competitors. He cited a quote from antitrust telecom expert Professor Wu in his argument: “Every hertz that Verizon gains is a hertz denied a smaller competitor.”
He said the FCC should not let itself be governed by the spectrum screen, a threshold the regulator uses to assess if a company owns too much spectrum. He said the screen was outdated and did not recognise different qualities of spectrum.
The FCC started its review into the US$3.9bn tie-up earlier this year, and at the start of May extended its investigation. A ruling is expected in the summer.
Verizon’s Tom Tauke responded to Kohl’s letter in a statement: “While Mr Kohl’s letter recounts the arguments reviewed at the senate hearing, it is another indication that this transaction is on the road toward approval this summer.”
