Verizon/SpectrumCo: What a Tangled Web It’s Weaved

March 26, 2012 ,

Today, Public Knowledge and some of our friends filed reply
to Verizon Wireless and the cable companies’ opposition to
our petition to deny the proposed spectrum transfer and its accompanying
agreements.  While we believe the
transactions will harm competition and consumer choice, what has emerged
from the debate is how the agency, resale, and joint operating entity (JOE)
agreements fit into the spectrum transfer. 

Verizon and the cable companies argue that the agreements
are distinct and unrelated to the transfer—but in fact, the agreements are inseparably
connected.  The FCC also realizes that
the agreements are related to the potential license transfer, and we
applaud it for using its authority to review the agreements, but we also urge
that the public interest still requires reviewing the agreements as part of the
proposed spectrum transfer.

Verizon and the cable companies want us to believe that the agency,
resale, and JOE agreements are separate from the proposed spectrum

But the above graphic fails to represent the actual
relationship between the agreements and the spectrum transfer.
David Cohen, Executive
Vice President of cable company Comcast, admits that “[t]he transaction is an
integrated transaction.  There was never
any discussion about selling the spectrum without having the commercial

Maybe the joke’s on us?

The truth is that the agreements are intimately entwined
with, and contingent on, SpectrumCo’s proposed license transfer.

Because of this tangled web, the FCC needs to include the
agreements in its review of the proposed license transfer as it considers all
the harms to the public interest that could arise from the transaction, even if
it reviews the agreements in a separate proceeding and even if the DOJ
concurrently reviews the agreements for antitrust violations. 

There are many concerns that the agency, resale, and JOE
 are anticompetitive [LINK] and contrary to the public interest—and Verizon
and the cable companies failed to respond to these concerns in their

One major concern is
that the JOE is an anticompetitive weapon, and not merely a standard research
and development agreement. 
typical R+D agreements, parties cannot agree to restrict the marketing or
distribution of the technology that arises as a result of the agreements.  Yet parties to the JOE will be able to create
new technology and then use it as an anticompetitive weapon that keeps
competitors out of the market.  Even
though the parties agree that licensing the technology would benefit
technological innovation and consumers, they have not promised that they will
license the technology that develops from the JOE. 

Another big concern
is that the agreements allow Verizon and the cable companies to form an
anticompetitive cartel.
  Even under Verizon
Wireless’s own definition of a cartel, “a combination of producers or sellers
that join together to control the production or price of the other’s products,”
Verizon and the cable companies are forming a cartel by being able to control
the entrance of new competitors, products and services into the marketplace of
wireline and wireless services.  The fact
that Verizon Communications, a direct competitor to the cable companies, has
55% controlling interest in Verizon Wireless only increases anticompetitive
behavior.  The agreements will
effectively create industry structures that discourage competition between the parties
to the agreements.

The agreements are entwined in a tangled web with the
potential Verizon/SpectrumCo spectrum license transfer.  Although the FCC is reviewing the agreements
independently in a separate proceeding, it also has authority to, and must,
review the agreements as part of the spectrum transfer to ensure that the
transactions are in the public interest and promote competition.  There’s no better time than the present to
straighten out the future of the communications landscape.