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Verizon’s Deal With Cable May Be Truce of Rivals, Kohl Says

Verizon Wireless’s deals to buy airwaves from cable companies and cooperate with them may amount to a “truce” among rivals at the expense of consumers, a lawmaker examining the transactions said.

U.S. Senator Herb Kohl, speaking at a hearing today, urged regulators to ensure the arrangements don’t “reverse the historic gains in competition between phone and cable companies” over the past 15 years.

Verizon, the largest mobile provider in the U.S., in December announced a deal to pay $3.6 billion for unused airwaves from a group including Comcast Corp. (CMCSA), the largest U.S. cable provider, and No. 2 Time Warner Cable Inc. (TWC) The companies also agreed to market one another’s services.

The transactions would solve a critical need for more airwaves without reducing competition, Randal Milch, general counsel of the wireless company’s parent, Verizon Communications Inc. (VZ), said in testimony submitted to the antitrust panel yesterday.

Opponents have said the accords would result in less competition and higher prices.

“The fundamental question we must answer is whether these deals will bring beneficial new choices to consumers, or amount to previously fierce rivals standing down from competition,” Kohl, a Wisconsin Democrat and chairman of the subcommittee, said.

Randal Milch, executive vice president and general counsel with Verizon Communications Inc., testifies during a Senate Judiciary Committee hearing in Washington, on March 21. Photo: Andrew Harrer/Bloomberg Close

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Randal Milch, executive vice president and general counsel with Verizon Communications Inc., testifies during a Senate Judiciary Committee hearing in Washington, on March 21. Photo: Andrew Harrer/Bloomberg

‘Encourage Innovation’

Senator Mike Lee of Utah, the subcommittee’s top Republican, said the marketing agreements “may likely be seen as pro-competitive deals that encourage innovation” unless contrary evidence emerges.

“Regulators must take care to make good use of spectrum and not penalize private enterprise,” Lee said.

The Justice Department and Federal Communications Commission are examining the proposal, and a similar $315 million agreement between Verizon Wireless and Cox Communications Inc. (COX) Both agencies must approve the transactions before they can close.

Today’s session carried the title, “The Verizon/Cable Deals: Harmless Collaboration or a Threat to Competition and Consumers?” It was held by the Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights.

Influence Over Agencies

Senators don’t vote on mergers. They do have influence over the agencies that decide whether deals can go ahead. Kohl last year urged regulators to block AT&T Inc. (T) from buying T-Mobile USA Inc. (166783Q), and AT&T abandoned the deal after the Justice Department sued to block it.

Verizon Wireless wants airwaves to help meet demand that’s soaring as consumers buy more smartphones and data-hungry tablet computers such as Apple Inc.’s iPad. Basking Ridge, New Jersey- based Verizon Wireless is 55 percent-owned by Verizon and 45 percent-owned by Vodafone Group Plc (VOD), based in Newbury, U.K.

The deal would create an “unchecked monopoly by the nation’s largest cable and wireless companies,” the Communications Workers of America and the International Brotherhood of Electrical Workers said yesterday in a statement.

Verizon Communications will retain “every incentive” to compete against cable companies with its FiOS high-speed wired service, Milch said in his testimony. More than 85 percent of households served by the cable companies aren’t in areas reached by FiOS, he said.

‘Compete Vigorously’

“No one is constrained,” Milch told senators today. “FiOS will be selling through its channels and I assume Comcast will continue to compete vigorously as well.”

The cable companies decided not to build wireless networks before the agreements, and Verizon decided not to expand FiOS before the deal, Comcast Executive Vice President David Cohen said in written testimony.

Comcast talked with “virtually every other wireless provider” before agreeing to sell airwaves to Verizon, Cohen said today. Discussions with T-Mobile stopped before the fourth- largest U.S. mobile carrier agreed in March 2011 to its ill- fated merger with No. 2 AT&T, Cohen said.

The airwaves and marketing accords “aren’t contingent upon one another,” Milch said and Cohen agreed that there’s no legal connection between them.

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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