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Keeping Verizon Wireless from being too cozy with cable

Federal authorities should clamp down further if it looks like Verizon and the cable companies are behaving more like partners than rivals.

August 17, 2012|David Lazarus
  • Verizon got approval from the Justice Department for its $3.6-billion purchase of wireless spectrum from the cable industry--with caveats.
Verizon got approval from the Justice Department for its $3.6-billion… (Justin Sullivan, Getty…)

The Department of Justice says Verizon can go ahead with its $3.6-billion purchase of wireless spectrum from the cable industry, but not without some tweaks to help protect consumers from telecom behemoths becoming too cozy.

Specifically, the DOJ said Thursday that it's placing limits on sales of cable services at Verizon Wireless stores — a move that had appeared to relegate Verizon's own TV and Internet offerings to the back burner and make the market less competitive.

I'm not a told-you-so kind of guy, but this is exactly what I warned of in a column last month questioning how this deal worked in consumers' best interest, not to mention how downplaying the company's own services was good for Verizon shareholders.

"That I cannot answer," a Verizon Wireless spokesman, Paul Macchia, told me at the time about the effect on shareholders.

Neither could Uncle Sam, apparently.

The DOJ says Verizon Wireless can't sell any cable products in areas where Verizon's fiber-optic service, FiOS, is available.

Verizon Wireless also won't be permitted to sell cable products in areas where Verizon's DSL Internet service is available as of 2017. This is intended to make Verizon think twice about its decision to stop expanding its FiOS network.

Moreover, the DOJ is limiting the duration of a joint venture between Verizon and cable companies to develop new technologies to integrate their respective systems, and is explicitly giving Verizon permission to also sell services from satellite TV providers.

The deal still requires approval from the Federal Communications Commission. Julius Genachowski, the head of the agency, said that as a result of the DOJ ruling, he'll now call for approval of the transaction.

So will these moves be sufficient to maintain a reasonably competitive marketplace? Consumer advocates aren't so sure.

Gigi Sohn, president of the advocacy group Public Knowledge, gave policymakers credit for "trying to make the best of a bad deal."

"However," she said, "it is not enough for the anti-competitive cross-selling agreement to be limited in time or scope — it should not happen at all."

Sohn said federal authorities should keep close watch on how this deal plays out and not shy away from clamping down further if it looks like Verizon and the cable companies are behaving more like partners than rivals.

Parul Desai, policy counsel for Consumers Union, publisher of Consumer Reports, similarly said the DOJ's requirements are a step in the right direction. But he, too, warned of future consequences of all these telecom heavyweights climbing into bed together.

"Moving forward, it is critical that enforcement of these conditions is vigilant," he said. "Today's deal between two giant industries is still troubling. At best it protects the status quo for consumers.

"It is hard to see how this improves competition or increases consumer choice in a market landscape already dominated by wireless duopolies and cable-Internet monopolies."

With its purchase of the cable industry's wireless spectrum, Verizon will cement its lead over AT&T as the country's biggest wireless service provider. It's also a full retreat by cable from operating its own wireless services.

For Verizon and cable providers to now offer all-in-one bundles of service in many areas, they'll have to team up with one another. Such partnerships seldom result in lower prices or greater innovation.

But that's not how Verizon sees it. William Petersen, general counsel of Verizon Wireless, said good times are ahead for consumers.

"We now believe the consumer benefits of the transaction will be promptly realized, and look forward to the conclusion of the FCC review so that we can move forward with meeting the unprecedented consumer demand" for wireless and broadband services, he said.

Cable providers, of course, are thrilled. They now are a few billion dollars richer and have a new sales channel in Verizon Wireless stores.

Perhaps such blatantly anti-competitive behavior was to be expected. Consolidation has been the norm in the telecom industry for years.

Consumers will likely benefit in the form of greater convenience. It's easier, after all, to pop into a single store and cover your wireless, TV, phone and Internet needs.

But it's clear that the handful of companies that provide the bulk of telecom services to the nation are more interested in playing nice with one another than playing hardball. Aggressive competition can be bad for profits. Cooperation keeps the money flowing in.

Don't worry, some say. The market will work things out. That's capitalism.

The market isn't working things out for consumers — just the opposite. It's protecting its own.

So, yes, perhaps this deal was inevitable. But that doesn't mean policymakers should now look the other way. If anything, they should keep a more watchful eye on these companies than ever before.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @LATlazarus. Send tips or feedback to david.lazarus@latimes.com.

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