After Proposed AT&T Deal, Regulators Retract Their Fangs

Mike Haug, a Verizon Communications technician, prepares fiber-optic cables to install to a manhole in New York Photograph by Jin Lee/Bloomberg

When regulators killed AT&T-Mo last year, they didn’t pussyfoot around. They slapped down that $39 billion boondoggle with authority, heading off AT&T’s every attempt to weasel the T-Mobile acquisition through. It seemed like the Federal Communications Commission and the Department of Justice had grown fangs and, as I wrote at the time, they deserved to be lauded for their persistence in resisting a deal that was clearly bad for consumers and competition.

Apparently those fangs have fallen out.

On Thursday the DOJ announced it was rescinding all of its objections to Verizon’s $3.9 billion acquisition of the cable operators’ 4G airwaves—and the joint marketing agreements that accompany them. A spectrum deal isn’t the same thing as a mega-merger between Tier 1 operators, but this was no simple transfer. Those agreements were effectively noncompete deals that divvied up the wireless and residential wireline markets between Verizon and its new cable buddies.

There are basically two parts to this deal: a spectrum transaction subject to approval by the FCC and an antitrust issue facing the oversight of the attorney general. While there has been a huge outcry against both aspects, the spectrum transfer was always going to happen. But there’s no reason why regulators couldn’t approve the transfer while denying the marketing pacts (throwing it back to the companies to see if they still wanted to move forward).

The cable companies have essentially been squatting on valuable 4G airwaves for six years, and Verizon was offering to take that spectrum off their hands and put it to use. The antitrust aspect is another story altogether: phone companies and cable operators—entities that are supposed to be arch competitors in the residential broadband market—suddenly calling a cease-fire and cross-selling one another’s services. If that doesn’t raise antitrust flags, what does?

The DOJ claims it won two key concessions that will keep competition safe for consumers. But let’s take a closer look at those concessions:

• The co-marketing agreements can stand only until December 2016 (five years retroactive to the day the partnerships were announced). Also, any new technology emerging from the collaboration between the cable companies and Verizon must be licensed freely after that deadline. Basically the DOJ is giving Verizon and cable a five-year grace period to sell a single residential broadband service (cable), killing off the already suffering DSL as a competing technology and establishing an irreversible cable monopoly.

• Verizon has agreed not to exercise the co-marketing agreements in its FiOS fiber-to-the-home markets. It always planned to compete with cable in its FiOS territories, because fiber, unlike DSL, actually gives Verizon an advantage over cable. Verizon executives testified to that effect before Congress. For the DOJ to claim this is a concession is like claiming Mick Jagger has “conceded” to strut onstage at all future concerts.

In a previous post, my colleague Stacey Higginbotham summed up the potential implications of the Verizon-cable pact best:

In a pessimistic view, this means that the cable guys would no longer face competition nor a reason to keep pushing their wireline infrastructure. Today that’s not so bad, since most cable companies have deployed the faster DOCSIS 3.0 technology that can deliver up to 100 Mbps down to homes, but it is depressing to consider that five years from now we may still have that same infrastructure and little opportunity to go forward, unless the cable companies want to invest in fiber to the home. And without Verizon or AT&T pushing them forward, why would they? It’s worth noting that Verizon’s FiOS plans helped jump-start the deployment of DOCSIS 3.0 services in areas where Verizon laid fiber.

The DOJ seems to have simply given in to the pressure supplied by communications giants, squandering the goodwill it accrued after taking such an immovable stand against AT&T-Mo.

As for the FCC, it at least succeeded in getting Verizon to agree to sell off a portion of its 700-megahertz airwaves and to swap some of its new 4G spectrum haul with T-Mobile. The commission also got a key concession to rural operators out of Verizon: a commitment to open its LTE network to roaming partners.

But the FCC doesn’t get a complete pass. Chairman Julius Genachowski proposes giving Verizon a baffling seven years to deploy its LTE network over those new airwaves. In its own filings with the commission, Verizon has insisted it would run out of mobile broadband capacity by 2015. If Verizon’s 4G network is set to break in three years, why does it need a seven-year window to use those frequencies it claims it so desperately needs? The FCC should have held Big Red to its word.

Eight months after becoming consumer champions, regulators now seem to be returning to their old habits of approving any and every telecommunications deal that comes across their desks. My, how these golden ages pass quickly.

Also from GigaOM:

Data, Spectrum and the Race to LTE (subscription required)

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