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

Today, Public Knowledge and some of our friends filed reply comments 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 transfer. 

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 agreements.”

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 agreements are anticompetitive [LINK] and contrary to the public interest—and Verizon and the cable companies failed to respond to these concerns in their opposition.

One major concern is that the JOE is an anticompetitive weapon, and not merely a standard research and development agreement.  In 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.  

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