Justice Department Requires Changes to Verizon-Cable Company Transactions to Protect Consumers, Allows Procompetitive Spectrum Acquisitions to Go Forward

The Department of Justice announced today that it will require Verizon and four of the nation’s largest cable companies—Comcast, Time Warner Cable, Bright House Networks and Cox Communications—to make changes to a series of agreements concerning both the sale of bundled wireless and wireline services, and the formation of a technology research joint venture. The department said that, if left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers.

The announcement came after a closely coordinated investigation with the Federal Communications Commission (FCC), with additional assistance provided by the New York State Attorney General’s Office. The department also said that it would allow both Verizon’s proposed acquisitions of spectrum from the cable companies and T-Mobile USA’s contingent purchase of a significant portion of that spectrum from Verizon to go forward. The department said that the spectrum transactions facilitate active use of an important national resource and thereby promise substantial benefit to wireless consumers. The transactions remain subject to review by the FCC, which is expected to release a separate statement regarding the status of its review of the transactions.

The proposed settlement forbids Verizon Wireless from selling cable company products in FiOS areas and removes contractual restrictions on Verizon Wireless’s ability to sell FiOS, ensuring that Verizon’s incentives to compete aggressively against the cable companies remain unchanged. In addition, under the proposed settlement, Verizon Wireless’s ability to resell the cable companies’ services to customers in areas where Verizon sells DSL Internet service ends in December of 2016 (subject to potential renewal at the department’s sole discretion), thereby preserving Verizon’s incentives to reconsider its decision to stop building out its FiOS network and otherwise innovate in its DSL territory. Finally, the proposed settlement limits the duration of the technology joint venture and other features of the agreements, ensuring that the agreements will not dampen the companies’ incentives to compete against one another going forward.

The proposed settlement also requires the commercial agreements to be amended so that:

• Verizon retains the ability to sell bundles of services that include DSL, Verizon Wireless and the video services of a direct broadcast satellite company (i.e., DirecTV or Dish Network);
• After five years, the cable companies are no longer barred from selling the wireless services of Verizon Wireless’s competitors, and may partner with other wireless providers;
• The cable companies can elect to resell Verizon Wireless services using their own brand at any time as provided for under the amended agreements; and
• Upon dissolution of the technology joint venture, all members receive a non-exclusive license to all the joint venture’s technology, and each may then choose to sublicense to other competitors.

The settlement also forbids any form of collusion and restricts the exchange of competitively sensitive information. Verizon and the cable companies would also be required to provide regular reports to the department to ensure that the collaboration does not harm competition going forward.