T-Mobile Emerges as Key Opponent of Verizon Buy of Cable Spectrum

The FCC Wireless Bureau is likely to take a deep dive on the Verizon Wireless/cable deals, industry and agency officials say. Wireless Bureau Chief Rick Kaplan sees the transactions as one of the key issues before the bureau this year, officials said. But there are few signs that the spectrum buys and marketing agreements will face the same kind of grassroots opposition faced by AT&T/T-Mobile, a deal which would have taken a popular competitor out of the market.

Verizon Wireless offered a brief response to the various petitions, which were due at the FCC Tuesday night. “We believe the spectrum purchase is in the public interest, addressing consumer needs, and putting spectrum to work to meet growing demand for 4G services,” a spokesman said. “The transfer is in line with goals in the FCC’s National Broadband Plan, as well as its views on using secondary market transactions such as this one to ensure that existing spectrum is used by providers who can use it efficiently."

Media Access Project Senior Vice President Andrew Schwartzman said the Verizon/cable deals are as much of a threat to competition as AT&T/T-Mobile. “It is much harder to understand,” Schwartzman conceded. “It will be very hard to explain to the public why this is such an important development.” But on some levels, the Verizon marketing agreements with cable are even more “troublesome,” he said. “As our petition shows, especially in the confidential appendix, this transaction will have a dramatic impact on competition in the video as well as in the wireless markets. ... Verizon and the cable companies have decided to make love, not war. That would be nice if this were Middle East policy, but this is domestic telecommunications, where we have supposedly chosen competition in lieu of regulation."

AT&T/T-Mobile “was a frontal assault on traditional antitrust,” while Verizon/SpectrumCo “hits antitrust on its blind side,” said Public Knowledge Legal Director Harold Feld. “It is easy to understand ‘merger to monopoly,’ it’s much harder to get people excited about the competition they never had, and now never will.” AT&T’s name is also iconic, Feld said. “Its dropped calls were the butt of jokes on the ‘Daily Show,'” he said. “T-Mobile customers hated the idea of being absorbed by AT&T, providing a base of millions of T-Mobile customers eager to fight the merger from day one. By contrast, Verizon Wireless gets high customer satisfaction ratings overall, and -- to the extent they even notice this transaction in the first place -- they are told this will make the network better. The fact that it creates long-term competition problems is not easy to explain."

Regulators are more likely to impose conditions than block the deals, said Medley Global Advisors analyst Jeff Silva. “It’s become clear some wireless competitors of Verizon -- large and small -- are troubled by the Verizon-cable spectrum deals, seeing that the No. 1 wireless operator would be able to pad its formidable spectrum inventory and thus be better positioned to distance itself that much more from the pack at a time when the quintessential wireless input, spectrum -- especially in terms of the 4G LTE transition -- is in limited supply,” Silva told us. “But while a number of parties want the FCC to block the transaction and will make persuasive arguments in support of such action in coming months, my sense is the real impact from the opposition will be the degree to which the FCC, and Justice Department, are persuaded to impose meaningful conditions deemed necessary to prevent anticompetitive effects in the wireless, pay TV and broadband sectors."

Paul Gallant, analyst at Guggenheim Securities, said on balance he expects the FCC and Department of Justice to approve Verizon/SpectumCo. “There is no loss of head-to-head competition,” he said in a research note. “Unlike AT&T/T-Mobile, it is more difficult for regulators to challenge the spectrum aspect of this deal simply because Verizon and SpectrumCo do not compete with each other. In addition, the cable companies’ spectrum is currently unused, and putting it into the market -- perhaps on a faster track than Verizon currently plans -- is also a factor favoring regulatory approval."

"Verizon is trying to characterize this as a very sort of routine spectrum transaction,” said an official with one of the carriers opposing the deals. “I don’t think we would characterize anything that swoops in and takes the last tranche of available AWS spectrum, when we're dealing with a very limited spectrum resource, as routine.”

"Verizon Wireless, with its extensive holdings of valuable low-frequency spectrum, already has a significant advantage in the industry migration to LTE as the new wireless broadband standard,” T-Mobile said in its petition to deny. The Verizon buy is really about keeping the AWS licenses out of the hands of competitors, T-Mobile charged. Verizon “already holds other AWS spectrum and has not even put it to use yet,” T-Mobile said. “Rather, the principal impact of the acquisition would be to foreclose the possibility that this spectrum could be acquired by smaller competitors -- such as T-Mobile -- who would use it more quickly, more intensively, and more efficiently than Verizon Wireless.” The transactions are especially relevant to T-Mobile because the company has already invested heavily in AWS spectrum and needs more to move to LTE, the carrier said.

Sprint Nextel said the FCC should examine the marketing agreements and spectrum sales carefully. The marketing agreements cover “wired and wireless technologies, voice, video, and data services: the full complement of 21st century electronic communications services,” Sprint noted (http://xrl.us/bms24b). The agreements “have the potential to touch each consumer and every government, business, healthcare, and educational institution in the United States.” The FCC should also look at the effects on the spectrum market, on the roll out of Wi-Fi hot spots, private line services and data roaming, Sprint said. “The transactions will extend AT&T’s and Verizon’s control of spectrum to 70 percent of all spectrum available for wireless services, and 80 percent of the spectrum held by the four national carriers,” Sprint observed.

The Rural Cellular Association and the Rural Telecommunications Group each filed oppositions. RCA said the deal should be denied, or approved only with conditions. “While competitive carriers struggle to take on the Twin Bell duopoly with limited spectrum, financial resources, and scale and scope, Verizon is seeking to cement its position at the top by denying critical inputs to its competitors, such as by hoarding additional spectrum in its already well-stocked warehouse, leaving smaller spectrum-starved carriers to wither on the vine,” RCA said (http://xrl.us/bms3bk).

"The purported public interest benefits advocated by the Applicants are suspect at best and the likely public interest harms that will result from approval of the deals are significant,” RTG said (http://xrl.us/bms3oc). “The concentration of additional Advanced Wireless Services licenses in the hands of Verizon Wireless will also make it harder for rural carriers to properly compete as the industry settles into a world of 4G services with no new FCC auctions on the horizon."

Public Interest Groups Opposed

Public interest groups led by Public Knowledge and the Media Access Project also asked the FCC to block the Verizon/cable deals. “Alarm bells should ring,” especially since the companies refuse to file unredacted copies of the marketing agreements, they said (http://xrl.us/bms47e). “It does not take the celebratory plaudits of Wall Street analysts to recognize that these proposed transactions would fundamentally alter the nature of the telecommunications world in a manner utterly contrary to that intended by the 1996 Telecommunications Act. The public interest groups found a proposed joint operating entity that will “develop innovative technology and intellectual property” integrating “wired video, voice and high-speed Internet with wireless technologies” to be especially troubling. “In other words, the parties will come together to jointly develop foundational patents and standards across the very areas where they should compete with one another,” the petition said. The New America Foundation’s Open Technology Initiative, the Benton Foundation, Access Humboldt, the Center for Rural Strategies, the Future of Music Coalition, the National Consumer Law and Writers Guild of America, West, also signed the petition.

Free Press also filed a petition to deny. “This transfer will result in Verizon controlling well more than a third of all mobile broadband spectrum measured by value, and will give Verizon and AT&T a combined 60 percent value share of this critical input for mobile competition,” Free Press charged (http://xrl.us/bms5bi). “Not only will these transactions doom the wireless market to permanent duopoly status, but their associated joint cartelization agreements will further tilt the wireline market towards a cable monopoly, forever ending any hope of wireless-wireline or cable-telco competition."

The FCC should approve the deals but only with conditions, the Communications Workers of America said. Verizon should be required to “continue to offer FiOS broadband Internet access service, expand its in-region deployment to cover at least 95 percent of residences and, following the merger, continue to deploy a set percentage of broadband to rural and low income areas, with timetables, data reporting and penalties for non-compliance,” CWA said. “Second, the joint marketing arrangements should not be permitted to put other marketers of Verizon Wireless service at a disadvantage. Comparable conditions and terms for the marketing of Verizon Wireless service should be available to all wireline competitors in a market. This will even the playing field among competitors."

But Free State Foundation President Randolph May filed comments saying the Verizon/cable deals may not create the competitive harms seen by competitors and public interest groups (http://xrl.us/bms5po). “Existing competition and the economic efficiencies created by network expansion and capacity upgrades are both factors weighing in favor of both the Verizon/SpectrumCo and Verizon/Cox transactions,” May said. “Significantly, neither transaction reduces the number of existing marketplace competitors. Meanwhile, Verizon/Cox would not exceed the current spectrum screen triggers in any cellular market area (CMA) and Verizon/SpectrumCo triggers spectrum screen analysis in only a handful, by small amounts, and where other wireless providers offer competing services."

The transactions show that secondary spectrum markets work, said Technology Policy Institute Vice President Scott Wallsten, in comments filed at the FCC. “By quickly moving spectrum currently lying fallow to an entity that plans to use it, this transaction epitomizes the importance of secondary markets. When secondary transactions are not possible, spectrum can languish for years while arrangements are made to auction it,” Wallsten said (http://xrl.us/bms56c).