CFA Competition Analysis Provides a Roadmap for the FCC and the DOJ to Oppose the Verizon-Cable Spectrum Sale and Collaborative Agreements

A “Collaborating Duopoly” in Broadband will Raise Prices, and Slow Innovation

Washington, D.C., (July 9, 2012) –Based on extensive analysis of the Antitrust Guidelines for Collaborations Among Competitors as well as the Horizontal Merger Guidelines published by the Department of Justice (DOJ) and the Federal Trade Commission, the Consumer Federation of America (CFA) has concluded that the pending transactions between Verizon and the nation’s dominant cable companies run afoul of US antitrust law and the Communications Act, because they  will dramatically lessen competition and are against the public interest.  In comments filed today with the Federal Communications Commission (FCC) and submitted to the Department of Justice the CFA identified a dozen reasons that may force federal authorities to oppose the deal

“If this were a merger, it would be a slam dunk court case,” Dr. Mark Cooper, CFA’s Director of Research said. Cooper continued, “These “collaborative” joint ventures are basically dressed up non-competes, which the Antitrust Guidelines make quite clear can be anticompetitive and unacceptable.

A Dozen Reasons Why Antitrust and Communications Law Require the DOJ and the FCC to Oppose the Verizon-Cable TV Spectrum Sale & Collaborative Agreements

General conditions          Characteristics of the Verizon-SpectrumCo agreements

that favor allowing that dictate opposition

Market Factors

1. Market Structure                           Unconcentrated                                      Highly concentrated (wireless), Very highly concentrated

(Cable, Broadband)

2. Collaborator Market Shares                Small                                                  Very large

3. Thresholds: Safety Zone                  Safe Harbors:                                       Far outside safe harbor

Market :20% combined share                Cable 75%,  Broadband 90%, Voice 90%, Wireless 35%

Research: 3 or more not in                   Lack of competitors

collaborative

4.  Entry                                            Easy                                                 Extremely difficult, compounded by sale of spectrum

Collaborative Agreement Details

5. Actual/potential competition              Little                                              Substantial head-to-head competition (video, broadband, between collaborators WiFi, private line)

6. Impact on competition                     Procompetitive                                  Replaces existing 3rd party competition

Strengthens weak competitors    Strengthens dominant firms, concentrates spectrum holdings

7. Assets devoted to venture      Insignificant                                              Cross marketing crown Jewels (wireless, video)

8. Control of assets                            Independent                                    Most Favored Nation clauses

Exclusives, Sharing crown jewel assets

9. Duration                                              Short                                        Very Long

10. Incentives                                        Neutral                                       Reduced competitive intensity

Mutual Retail Price Maintenance diminishes price competition

Cross marketing of highly profitable Products

Other restrictive conditions

Strategic assets favor, collaborators, disadvantages 3rd parties

Back haul, private line, special access, data roaming

11. Facilitation of Collusion         No                                                           Sharing super sensitive information

Potential Mitigating Factors

12. Efficiency gains                             Procompetitive, Cognizable               Anticompetitive, Doubtful

Unique (transaction specific)         Less harmful alternatives available

Variable cost                                              Fixed Cost

A review of antitrust practice and rigorous application of the Guidelines to the publicly available evidence makes it clear that the Verizon-SpectrumCo agreement is a wolf and not a sheep and should be rejected.

“Responding to the FCC’s request for commenter to ‘not repeat arguments already raised, in the docket,” Cooper added, “we scoured the record for a comprehensive competitive analysis and the critical data, like local market shares on which it relies and could find none.”

CFA presented a white paper that In a white paper accompanying CFA’s comments, entitled The End of the End of Competition in Digital Access Service: The Verizon-Cable Spectrum Sale and Collaborative Agreement Mark the Final failure of the 1996 Telecommunications Act to Provide Effective Competition in Local Communications Markets, CFA notes that digital connectivity is both the present – and the future – of communications service.   Local digital connections are the on ramps by which American consumers and businesses reach the national and global telecommunications networks.  In the swaths of the country where Verizon is the incumbent wireline local telephone company, Verizon and the collaborating cable companies are the number one and number two dominant providers of local digital connectivity. And even outside the Verizon wireline footprint, the collaborators are likely to be in the top three providers of digital connectivity, signaling significant market failure and consumer harm.

“The systematic competition analysis based on antitrust guidelines, which the FCC has used in past reviews of joint ventures, makes it that the impact of the proposed transaction would have on consumers and competition serves as a more than adequate foundation on which the FCC review can stand as well,” Cooper added.  “Under the Communications Act, the FCC must ensure that the transaction promotes the public interest, which is much broader than protecting competition under the antitrust laws.  It must promote competition and achieve other social goals like universal service. Because the joint venture has been intertwined with a transfer of spectrum the transaction must be subject to a full public interest review.”

“Local connectivity has unfortunately devolved into a duopoly of cable and the local telephone company. Failure to oppose the “collaborative agreements” between Verizon and the cable industry will further collapse the communications markets, immediately invite AT&T to propose an even more anticompetitive transaction.  This will signal an about-face for thirty years of bi-partisan, pro-competitive federal policy, the reversal of  the Telecommunications Act of 1996, and the innovation, investment and jobs from which this country has immensely benefited – all at a time America can least afford it.” Cooper concluded.

The CFA report, The End of the End of Competition for Digital Access Service, can be found at:

www.consumerfed.org/pdfs/Studies.CFA.VZ-SpectrumCo.7.9.12.pdf

The Comments to the FCC can be found at:

www.consumerfed.org/pdfs/Comments.CFA.VZ.SpectrumCo.FCC.7.9.12.pdf

Contact: Mark Cooper (301) 807-1623


The Consumer Federation of America is an association of nearly 300 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.