The Good, the Bad and the Ugly in the Verizon-Cable Pact

Congress and the FCC need to confront the looming monopoly environment most consumers now face for broadband service. If they don't reverse course and start dealing with the reality they've created, even the best conditions will be meaningless.
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Thursday, the Federal Communications Commission voted 5-0 to approve Verizon's purchase of a valuable slice of the public airwaves in exchange for a partnership with a cartel of cable companies. While both the FCC and the Department of Justice -- which signed off on the swap last week -- placed conditions on the deal, it signals dark days ahead for consumers.

At Free Press, we believe vigorous competition is the best way to compel companies to lower prices, invest in higher quality offerings, and pay close attention to customer satisfaction. Unfortunately, the market for high-speed mobile and at-home broadband service looks nothing like that.

Where there was once a glimmer of hope for competition between cable and phone companies, we now see Verizon and the cable companies dividing up the market. Where once Verizon's FiOS service was going head-to-head Comcast Xfinity, we now have former rivals signing up their own customers for their competitors. Consumers would be far better off if this union had never been proposed.

The good news is that the FCC and the DoJ agreed with many of the concerns raised by Free Press and its allies. And those agencies attempted to address some of the worst of the consumer harms created by this transaction.

The DoJ prohibited Verizon from marketing and selling the cable companies' services in any of its wireless stores in areas where Verizon also offers its at-home FiOS broadband service. However, both Verizon and the cable companies can still heavily advertise their joint-offerings in markets where they used to compete as part of nation-wide advertising campaigns.

Even better is a four-year cap placed by the DoJ on the "joint operating entity," the agreement among Verizon, Comcast, TimeWarner and the other cable companies to enter into a joint-intellectual property venture. This "entity" has the potential to become a venue for ongoing collusion, where the VeriziCable companies hatch plans to exclude and punish smaller competitors all throughout the Internet ecosystem - from Netflix to DirectTV. By choosing which applications and programming count toward subscriber data limits and which are free from that meter, or by choosing which apps come pre-installed on devices, these companies could try to subvert consumer choice. With a hard stop at four years and a promise of ongoing DoJ oversight, these harmful outcomes are less likely to occur.

On the wireless side of this deal, Verizon walks away from this transaction with far more of the public airwaves than it needs, or should be permitted to own in a market where most of its rivals are facing very real spectrum constraints. The company has a long history of amassing excess spectrum and squatting on it in order to hamstring its competitors.

However, to get the transaction through the FCC, the company had to spin-off of several spectrum licenses to T-Mobile, which is good news for consumers. Without public and regulatory pressure, Verizon would never have struck a side deal with T-Mobile.

The Commission also placed strong data roaming requirements on Verizon. Requiring Verizon to sell roaming capability to other carriers at fair and reasonable rates will help give other wireless providers access to the spectrum they need to compete.

Importantly, after years of turning a blind eye to problems of spectrum hoarding, in yesterday's order, the FCC finally acknowledged the problems that spectrum consolidation produces in the market for mobile services. Let me be clear. Despite the claims of Verizon and AT&T, there is no "looming spectrum crisis." We do however have a spectrum management crisis. If we want the kind of vigorous competition that helps consumers find lower-priced services, the FCC must pursue a strategy to allow more efficient, fair and open use of the public airwaves.

Unfortunately, the FCC failed to require Verizon to bring their new spectrum online as quickly as possible. Though Verizon consistently argued that its network would collapse within three years if it did not get this new spectrum, the company only agreed to serve 70 percent of the customers within seven years. This build out "requirement" is laughable. Seven years is too long for rural and suburban customers to wait for quality mobile broadband service.

The length of these requirements exposes Verizon's misleading claims about its supposedly dire nationwide spectrum crisis. If the company were truly spectrum-starved, it would be putting this spectrum to use much more quickly than in seven years. The true value Verizon finds in most of these licenses is the ability to prevent use of this spectrum by its competitors.

While these targeted conditions will help, they are just nibbling around the edges. None of these measures addresses the serious structural problems this country faces in the market for broadband service. In the National Broadband Plan, the FCC predicts that soon seventy-five percent of American households will have only one choice for at-home high-speed Internet access: their local cable monopoly. Clearly the market is not providing lower prices and better services.

Amazingly, the FCC issued a report this very week concluding that broadband deployment and adoption is severely lacking in America. Fourteen million Americans lack access to broadband and only sixty-four percent that have access have adopted this important service. This transaction will only make that problem worse.

Congress and the FCC need to confront the looming monopoly environment most consumers now face for broadband service. If they don't reverse course and start dealing with the reality they've created, even the best conditions will be meaningless.

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