Kohl Outlines Verizon–SpectrumCo Deal Concerns

Calls for close scrutiny, divestitures, but stops short of opposing the deal outright
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Senate Antitrust Subcommittee Chairman Herb Kohl (D-Wis.)
outlined his many concerns about the Verizon purchase of advanced wireless
spectrum from cable in a letter to the FCC and Justice Thursday, but stopped
short of asking them to block the deal, as he had with the AT&T-T-Mobile
merger.

Kohl said that the spectrum deals -- there are actually two,
the other being with Cox, a former SpectrumCo member - raise "serious
competition concerns" that warrant close examination. But he said he had not
reached any final conclusion on their legality.

Among his concerns are that the spectrum acquisition could
be a strategic play by a dominant carrier to "entrench its market position" and
"suppress competition," and that associated marketing agreements that
allow the cable companies to launch wireless service using Verizon spectrum and
facilities would be "plainly a shadow" of the competition they could
provide being a facilities-based competitor.

Cox and SpectrumCo operators -- Comcast, Time Warner Cable,
and Bright House -- have said they are selling the spectrum because there was
not a business case for launching a stand-alone facility-based competitor.

Kohl asked Justice to think carefully about whether it needs
to take action under antitrust law to prevent a dominant company from gaining
access to "essential inputs." He also wants the FCC not to be
"unduly limited" by a spectrum screen approach to whether the deal
should be approved. That is a test for spectrum concentration in various
markets.

He also says the FCC and Justice should look at the timing
of the deal "just days" before the "abandonment" of the
AT&T-T-Mobile merger, which Justice and the FCC blocked. T-Mobile has
argued that the timing was to prevent it from bidding on the spectrum.

Kohl also wants Justice to require divestitures if the deal
is approved, and not to just areas where the spectrum screen might suggest
undue concentration. The screen is a guide rather than a bright-line gauge.

He also has "serious concerns" about the
associated marketing agreements through which Verizon and the cable operators
will sell each other's services, Verizon's ability to bundle Xfinity video
service, and the cable ops' branding Verizon wireless service as their own in a
quadruple play bundle. He says that could turn Verizon and its cable rivals
from competitors to partners, and decrease Verizon's commitment to its
competitive video service, FiOS. Kohl says they should think seriously about
prohibiting the marketing agreements in markets where FiOS is deployed. While
Verizon has said it has no plans to build out FiOS beyond its current
footprint, Kohl asks whether the marketing agreements would prevent it from
changing its mind.

"The issues raised by Senator Kohl are being thoroughly
examined in the reviews by the Department of Justice and the Federal
Communications Commission," said Tom Tauke, Verizon executive VP of public
affairs, policy and communications. "Because these transactions present
unique issues that will deliver major consumer benefits, it is appropriate for
Senator Kohl to carefully examine the issues that are also being studied by the
appropriate agencies. While Senator Kohl's letter recounts the arguments
reviewed at the Senate hearing, it is another indication that this transaction
is on the road toward approval this summer."

Kohl held a hearing on the deal back in March
at which he suggested blocking the AT&T deal had been a victory for
competition, and pondered whether allowing this deal would reclaim some of
those gains.

The FCC is currently in day 105 of its information 180-day
shot clock. FCC Chairman Julius Genachowski would not comment Thursday on
whether the FCC would meet that 180-day deadline. The FCC and Justice
traditionally coordinate the timing of their respective decisions.

"Senate Antitrust Subcommittee Chairman Kohl hit all the
right points in the letter he sent this morning to the Justice Department and
the Federal Communications Commission," said Gigi Sohn, president of
Public Knowledge, which has been critical of the deal. "He correctly perceives
the dangers of large companies accumulating spectrum resources to strengthen
their own market position and hurt competition, and that even Verizon's offer
to sell spectrum would not improve the competitive situation in a concentrated
wireless market."

"The Chairman's letter is an expected recitation of the various cats-and-dogs issues raised at the Senate March 21st hearing on the transaction," said Scott Cleland, chairman of NetCompetition.org " None of these issues alone or together should thwart approval of the transaction by the DOJ and FCC."

Berin Szoka, president of TechFreedom, was equally unimpressed with the sentor's laundry list of issues. "It's groundhog day in antitrust-land," he said. "Sen. Kohl's letter urges the DOJ and FCC to do what they are already doing: scrutinizing Verizon's purchase of spectrum the cable companies aren't using, along with related joint marketing agreements."

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