Justice Department Sticks to Original Proposed Decision in Verizon-Cable Antitrust Case

In August, the U.S. government and New York brought the complaint in the U.S. District Court for the District of Columbia against Verizon, Comcast, Time Warner Cable, Bright House Networks and Cox, saying they “unreasonably restrain trade and commerce.” Justice attacked an agreement arranged by all the defendant companies, with the exception of Cox, as well as certain commercial agreements. “Innovation and rapid technological change characterize the telecommunications industry, but the agreements failed reasonably to account for such change and instead would have frozen in place relationships that, in certain respects, may have been harmful in the long term,” Justice said (http://1.usa.gov/15N1n7g). “Exclusive sales partnerships and research and development collaborations between rivals which have no end date can blunt the long-term incentives of the Defendants to compete against each other, and others, as the industry develops."

To fix these alleged problems, Justice recommended Verizon Wireless be forbidden from selling the cable companies its wireline telecom services where Verizon offers or may soon offer its FiOS service. The recommendations propose canceling any contractual restrictions on Verizon Wireless’s FiOS sales to keep up its incentives to “compete aggressively” and after December 2016, prevent Verizon Wireless from selling any cable services to companies where Verizon offers DSL, “thereby preserving Verizon’s incentives to expand its FiOS network and otherwise compete using DSL or other technologies,” it said. The proposed decision would also limit the duration of the joint agreement uniting the majority of defendant companies and modify other commercial agreements they share. The proposal suggests that Verizon be able to “sell bundles of services that include Verizon DSL and Verizon Wireless services as well as the video services of a direct broadcast satellite company (i.e., DirecTV or Dish Network)” and that cable companies be able to resell Verizon Wireless services under their brand without waiting four years, according to the filing.

The four comments on this proposal alleged many potential shortcomings. While “the anticompetitive effects identified by the DOJ in the Complaint are accurate and thorough,” the Communications Workers of America said (http://1.usa.gov/10O4a0T), there is “the series of loopholes, exceptions, and qualifiers in the DOJ’s proposed Final Judgment that renders any intended remedy ineffective,” it said. It described various ways the companies would still be able to exchange competitively sensitive information, for instance. “With these loopholes, the proposed Final Judgment opens the door to Defendants’ opportunity for harmful coordinated interaction and reduces Verizon’s incentives and ability to compete vigorously against the Cable Defendants with its FiOS offering.” The CWA filing underscores the degree to which FiOS is a competitive threat to cable: “The disruptive nature of FiOS cannot be overstated.” It asks the court to reject Justice’s proposal or “create prophylactic measures sufficient to prevent the harm.” Boston “is concerned that these transactions are designed to ensure that Verizon and Comcast collaborate and never compete in Boston,” hurting the city, it said in a filing (http://1.usa.gov/13Wnt96). The court should reject the proposed settlement and seek an alternative that prevents Verizon and the cable companies from selling each other service “in any state where Verizon has either a FiOS footprint or a DSL footprint,” Boston said. Montgomery County, Md., expressed similar concerns to the court, stressing conditions it feels should be added to the final judgment to preserve public benefits and calling for mandatory 100 percent buildout requirements of providers (http://1.usa.gov/Znmnxi). RCN Telecom, meanwhile, raised several concerns with the proposed judgment as well, calling Justice’s definition for the FiOS footprint “too narrow” and questioned how effective the decision would be at preserving competition (http://1.usa.gov/WnV3QJ).

But Justice dismissed the concerns, saying “it appears unlikely that Verizon would have expanded FiOS significantly beyond areas with existing franchise agreements for at least the next several years even in the absence of the Commercial Agreements” and doesn’t see any “competitive harm” from its decision as currently proposed. “The proposed Final Judgment ensures that Verizon will retain whatever incentive it has to maintain and expand its FiOS network in areas where such an expansion is plausible.” Multiple commenters pointed to Verizon Wireless’s advertising of cable services, but Justice said that doesn’t undermine its judgment: “The proposed Final Judgment properly addresses the need for Verizon Wireless to purchase advertising on an economically efficient scale, while nonetheless preventing Verizon Wireless from conducting marketing activities specifically targeted to areas where it is prohibited from selling Cable Services.” There will also be no harmful information sharing as alleged, it said.

"The United States continues to believe that the proposed Final Judgment, as drafted, provides an effective and appropriate remedy for the antitrust violations alleged in the Complaint, and is therefore in the public interest,” Justice said this week after reviewing the arguments against its decision. It asked the court to advance the decision.