Verizon spectrum deal savaged in Senate hearing

Wall Street versus 'We, the People'

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Critics of Verizon's proposed spectrum-acquisition deal have told a congressional hearing that if the deal is approved, the effect will be disasterous for competition, consumers, rural communities, and of course, today's favorite political football: jobs.

"Verizon, in its filings at the Commission, suggests its gain of spectrum will improve customer service and have no effect on competition. But that, of course, is impossible," said Columbia Law School professor Tim Wu in his testimony at the hearing of the Senate Judiciary Committee Subcommittee on Antitrust, Competition Policy and Consumer Rights.

At question is a large chunk of Advanced Wireless Services (AWS) spectrum that Verizon hopes to acquire from SpectrumCo, a joint venture of Comcast, Time Warner Cable, and Bright House Networks, and from Cox Communications. The $3.6bn deal, announced last December, would also include a complex web of joint marketing and joint operating agreements.

Even before the hearing had begun, two powerful unions weighed in with their opposition. The Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) issued a joint statement referring to the deal as "killing thousands of jobs, ending competition, raising prices for consumers, lowering service quality and discontinuing the development of high-speed internet infrastructure."

At the hearing itself, the president and CEO of the Rural Cellular Association, Steven Berry, focused on the little guy, saying that his 100-plus small wireless providers and their rural users would be left out in the cold if the deal were approved.

Berry told the subcommittee that the joint marketing and operations agreements were anti-competitive. "Through the spectrum transaction, related marketing deals, and joint venture between the companies, Verizon will not compete for wired services with the cable companies," he said, "and the cable companies will not compete for wireless service with Verizon."

He told the Senators hosting the hearing, Patrick Leahy (D-VT) and Herb Kohl (D-WI), that the joint agreements were as much a part of the deal as the spectrum, even though Verizon has beat the spectrum drum by far the loudest in its public statements. He also reminded them that no lesser light than Comcast executive vice president David Cohen had called the deal "an integrated transaction," and had said, "There was never any discussion about selling the spectrum without having the commercial agreements."

The joint agreements make it a sweetheart deal, in Berry's opinion. "If this deal concerned spectrum only, the cable companies could garner a much higher price for the spectrum from spectrum-starved carriers," he said.

'Cartel' crushes competition

Those joint agreements also rankled Joel Kelsey, a policy adviser for the media-reform and advocacy group Free Press, who said that they would stifle customer-benefitting competition by allowing the "cartel of companies that are party to the deal" to "stay out of one another's way, in perpetuity."

Berry also expressed the opinion that the spectrum-acquisition part of the deal would crowd out smaller competitors – such as the members of his association. "This transaction would transfer at least 20MHz of prime, unused, and nearly nationwide spectrum into the hands of a carrier that already holds as much as 44MHz of unused spectrum in many markets," he said. "At the same time, many competitive carriers are approaching exhaustion of their current holdings."

Verizon should not be allowed to hoard spectrum, Berry said. "If the deal is approved as proposed, Verizon will add even more spectrum to its warehouse while competitive, spectrum-starved carriers are left behind."

Verizon general counsel Randal Milch, as would be expected, told a different story about his company's need for more spectrum, and urged swift approval. "We're investing the money to buy this spectrum and put it to work for our customers; any delay in our ability to do so can only harm those customers," he said.

Comcast's Cohen, of course, supported both the joint agreements and the spectrum sale, saying that they "will promote competition, bring more convenience and choice to consumers, increase investment, and drive innovation in next-generation technologies.

Columbia's Wu was no where near as sanguine about the competition-enhancing effects of the deal as Milch and Cohen, saying that while duopoly posed by the failed AT&T/T-Mobile merger created a "challenge to competition [that] was feckless and loud," Verizon's "softer strategy" shouldn't be ignored.

"This transaction (and others like it)," he said, "does not threaten to be the grand coup that ends competition in our time. The danger, rather, is the prospect of a 'creeping duopoly' in wireless."

Wu said that the government shouldn't just let market forces determine the competitive landscape. "Left alone, history suggests the industry will drift toward monopoly or duopoly," he said. "The life in monopoly or duopoly is simply sweeter and more secure, and Wall Street prefers firms that immunize themselves from competitive attack."

But Wall Street doesn't own the spectrum for which Verizon wants to acquire licences. The public does. And so any deal such as this one – joint agreements included – should be structured to benefit the owners of the property being licenced.

As Senator Kohl wrote in his statement to the committee, "We know that both Verizon and Comcast, as well as the other cable companies, believe that they are acting in the best interest of their own businesses and shareholders. Yet, we need to ensure that consumers' best interests will be served in the long run." ®

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