Kohl Outlines Verizon/SpectrumCo Deal Concerns


Senate Antitrust Subcommittee chairman Herb Kohl (D-Wis.) outlined his many concerns about the Verizon purchase of advanced wireless spectrum from cable in a letter to the Federal Communications Commission and Justice Thursday, but stopped short of asking them to block the deal, as he had with the AT&T/T-Mobile merger.

Kohl wrote that the spectrum deals--there are actually two, the other being with Cox, a former SpectrumCo. member--raise "serious competition concerns" that warrant close examination. But he said he had not reached any final conclusion on their legality.

Among his concerns are that the spectrum acquisition could be a strategic play by a dominant carrier to "entrench its market position" and "suppress competition"; that associated marketing agreements that allow the cable companies to launch wireless service using Verizon spectrum and facilities would be "plainly a shadow" of the competition they could provide being a facilities-based competitor.

Cox and SpectrumCo operators -- Comcast, Time Warner Cable, and Bright House -- have said they are selling the spectrum because there was not a business case for launching a stand-alone facilities based competitor.
Kohl asked Justice to think carefully about whether it needs to take action under antitrust law to prevent a dominant company from gaining access to "essential inputs."

He also wants the FCC not to be "unduly limited" by a spectrum screen approach to whether the deal should be approved. That is a test for spectrum concentration in various markets.
He also said the FCC and Justice should look at the timing of the deal "just days" before the "abandonment" of the AT&T/T-Mobile merger, which Justice and the FCC blocked. T-Mobile has argued that the timing was to prevent it from bidding on the spectrum.
Kohl also wants Justice to require divestitures if the deal is approved, and not to just areas where the spectrum screen might suggest undue concentration. The screen is a guide rather than a bright-line gauge.
He also expressed "serious concerns" about the associated marketing agreements through which Verizon and the cable operators will sell each other's services, Verizon able to bundle Xfinity video service, and the Cable ops branding Verizon wireless service as their own in a quadruple play bundle. He said that could turn Verizon and its cable rivals from competitors to partners, and decrease Verizon's commitment to its competitive video service, FiOS. Kohl maintains they should think seriously about prohibiting the marketing agreements in markets where FiOS is deployed. While Verizon has said it has no plans to build out FiOS beyond its current footprint, Kohl asks whether the marketing agreements would prevent it from changing its mind.
"The issues raised by Senator Kohl are being thoroughly examined in the reviews by the Department of Justice and the Federal Communications Commission," said Tom Tauke, Verizon executive vice president, public affairs, policy and communications. "Because these transactions present unique issues that will deliver major consumer benefits, it is appropriate for Senator Kohl to carefully examine the issues that are also being studied by the appropriate agencies. While Senator 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."
Kohl held a hearing on the deal back in March at which he suggested blocking the AT&T deal had been a victory for competition, and pondered whether allowing this deal would reclaim some of those gains.
The FCC is currently in day 105 of its information 180-day shot clock. FCC chairman Julius Genachowski would not comment Thursday on whether the FCC would meet that 180-day deadline. The FCC and Justice traditionally coordinate the timing of their respective decisions.
"Senate Antitrust Subcommittee chairman Kohl hit all the right points in the letter he sent this morning to the Justice Department and the Federal Communications Commission," said Gigi Sohn president of Public Knowledge which has been critical of the deal. "He correctly perceives the dangers of large companies accumulating spectrum resources to strengthen their own market position and hurt competition, and that even Verizon's offer to sell spectrum would not improve the competitive situation in a concentrated wireless market."

"The Chairman's letter is an expected recitation of the various cats-and-dogs issues raised at the Senate March 21st hearing on the transaction," said Scott Cleland, chairman of NetCompetition.org " None of these issues alone or together should thwart approval of the transaction by the DOJ and FCC."

Berin Szoka, president of TechFreedom, was equally unimpressed with the sentor's laundry list of issues. "It's groundhog day in antitrust-land," he said. "Sen. Kohl's letter urges the DOJ and FCC to do what they are already doing: scrutinizing Verizon's purchase of spectrum the cable companies aren't using, along with related joint marketing agreements."