Eight months after AT&T-Mo, regulators retract their fangs

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 FCC and Justice Department 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 megamerger between Tier 1 operators, but this was no simple transfer. Those joint-marketing 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 subject to 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 spectrum 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 very valuable 4G airwaves for six years. Verizon was offering to take that spectrum off their hands and put it to use. The antitrust aspect is another story altogether. Here you have the 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 Dec. 2016 (five years retroactive to the day the partnerships were announced). Also, any new technology emerging from the collaboration between cable 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. Verizon 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 good will 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 MHz 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 in 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 to so desperately need? 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 telecom deal that comes across their desks. My, how these golden ages pass quickly.

Photo courtesy of Shutterstock user katalinks