Consumer Groups: Verizon’s Cozy Deal With Cable Would Create a Wireless Duopoly

Verizon Wireless and America’s biggest cable companies want to sell you everything in one package: wireless, broadband, cable TV and a telephone landline. This might sound like an easy option, but consumer groups say that the consolidation deals behind these service bundles could crush competition in the market and raise prices for everyone.

Verizon Wireless plans to purchase $3.6 billion worth of unused wireless spectrum from a joint venture representing the big cable providers Comcast, Time Warner and Bright House Networks. Verizon is also buying $315 million worth of spectrum from the Cox cable company. In a separate deal that anti-trust watchdogs brought to the attention of regulators, Verizon and the four cable companies will also market each others’ products under a controversial joint-marketing agreement. Consumers could, for instance, buy a wireless plan from Verizon when purchasing cable Internet from Comcast.

Verizon claims it’s trying to boost 4G coverage, meet the growing demand created by smartphone technology and offer customers some one-stop shopping. Opponents of the deal, however, say Verizon already holds the greatest amount of prime mobile broadband spectrum. If the proposed deal goes through, Verizon and its biggest competitor, AT&T, would hold more wireless spectrum nationally than all other providers combined and essentially become a market duopoly, according to Parul Desai of the Consumer Union, which publishes “Consumer Reports.”

Desai said the whole deal would reduce competition among all the companies involved. Verizon is essentially giving the cable companies control of the landlines and the cable companies are giving Verizon control of the wireless spectrum. Verizon would have little incentive to compete with the cable companies with its FiOS high-speed wired Internet service, and cable companies would have little incentive to compete for wireless service. Time Warner, Cox and Comcast already operate as monopolies in some regions, Desai said, and the deal could leave consumers with little or no choice in landline and broadband providers.

Desai said the cable companies had begun to invest in wireless, which is why the companies have unused spectrum to sell, but once they realized it would be tough to compete with Verizon Wireless and AT&T, they decided to sell out their holdings in exchange for a firmer grip on landlines.

“The wireless side will be dominated by Verizon Wireless, and they’ll get out of the landline game, and cable will get out of the wireless game so they can dominate the landline game,” Desai said. “… So what happens when you sell the spectrum and it continues to go to the top two players? It makes it easier to squeeze out some of the smaller players.”

Two smaller telecommunication firms, Level 3 Communications and MetroPCS, have filed briefs with the Federal Communications Commission (FCC) opposing the deal. Desai said the deal isn’t just bad for smaller firms; it’s also bad for consumers, who will be left with fewer options and could eventually pay higher prices because Verizon and the cable companies will not be competing with one another.

Rural consumers could be especially affected because the companies will have less incentive to expand infrastructure to underserved areas, and by reducing competition, rural consumers could pay higher prices and even lose services, according to Edyael Casaperalta, who works to bring high-speed Internet access to rural areas with the Center for Rural Strategies. Rural residents are often low income, Casaperalta said, and may not be able to afford bundled packages offered under the joint-marketing agreement.

“Knowing that there’s a lack of interest in rural customers, there’s already less competition for rural customers to be able to get better services and better prices, and this type of transaction will create even less competition, if any at all,” Casaperalta said.

The Justice Department and the FCC are currently reviewing the proposed deal, and the FCC must approve the spectrum transfers. In December, just days before Verizon announced its deal with the cable companies, AT&T and T-Mobile abandoned a $39 billion merger and placed the blame on regulators. AT&T canceled the acquisition, which critics feared would also create a wireless duopoly, after resistance in the FCC and legal challenges spooked investors.

Congress is also weighing in on the Verizon deal. On March 21, the Senate Antitrust Committee held a hearing on the deal titled “The Verizon/Cable Deals: Harmless Collaboration or a Threat to Competition and Consumers?” The hearing featured Comcast and Verizon executives butting heads with consumer advocates.

Verizon Executive Vice President Randal Milch told the committee that Verizon needs more spectrum to respond to the growing demand caused by the “explosive” use of smartphones, tablets, and other data-intensive devices.

“We are only buying spectrum not currently in commercial use in order to put it to use serving customers, and no customer will see fewer choices or increased prices as a result of this transaction,” Milch said.

Joel Kelsey of the Free Press, a media policy group, told the committee that it’s always dangerous to consumers when media consolidations reduces competition.

“Allowing for further consolidation in this marketplace will only drive prices higher, reduce consumer choice, and have drastic consequences on the rate of innovation as the companies involved are freed from competition and find diminishing value in investing in better infrastructure,” Kelsey said.

The proposed deal also raised ire among unions, but instead of outright opposing a deal that labor groups see as a potential job killer, two unions have proposed stipulations to the FCC. The Communications Workers of America and the International Brotherhood of Electrical Workers have asked the FCC to only approve the deal if Verizon agrees to continue developing its FiOS Internet service, which they fear could go under if Verizon decides not to compete in the landline market. The unions also asked the FCC to prohibit cross-marketing services in Verizon territory and require that the companies allow customers to buy individual services at bundle prices without buying the whole service bundle.