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Regulators should view Verizon’s(s vz)(s vod) planned pact with the cable operators as a merger, not as a joint venture, argues the Consumer Federation of America. Seen in that light, the CFA said in a new study, the Federal Communications Commission and the U.S. Department of Justice will have little choice but to reject Verizon’s $3.9 billion acquisition of cable’s 4G spectrum and quash their subsequent plan to divvy up the wireline and wireless markets.
Of course, Verizon’s deals with Comcast(s cmsca), Time Warner Cable(s twc), Bright House and Cox Communications are partnerships, not acquisitions, but the CFA said that the end results would be the same: Verizon would essentially cede the residential broadband market to cable, and the cable operators would give Verizon free reign in wireless. What’s more, the companies would market and sell each other’s services – in fact, already are – creating the same anti-competitive conditions as a full-bore merger, CFO Research Director Mark Cooper wrote in his analysis (pdf):
If Verizon had proposed to merge with Comcast in its service territory, or spin off all of its wireless businesses to the dominant cable operators across the country, we believe that the antitrust authorities would have been in full throated opposition. In those service areas where Verizon and the acquiring cable companies overlap in wireline service, the antitrust authorities would have seen it as a merger of the number one and number two firms in a highly concentrated market for major services. In service territories where the wireline assets do not overlap, it would be seen as a merger of two of the top three firms.
The parties to the transaction will insist that it is just a joint venture, not a merger and therefore should not be evaluated within this perspective. We disagree. Both the antitrust laws and the Communications Act recognize that joint ventures can have many of the anticompetitive effects of mergers. The analysis must take the nature of the collaborative agreement into account, but the fundamental premises and approach are the same. Because the markets affected are so highly concentrated and the services supplied so vital to the growth of the digital economy a collaborative agreement can alter the incentives to compete sufficiently to result in a significant increase in market power and harm to competition. Under these circumstances, a joint venture may be a clever way to get around the careful antitrust scrutiny and the obvious public policy implications that such scrutiny would arrive at.
The CFA is making its case in comments submitted to the FCC (pdf) and DOJ, laying out what it calls 12-point “roadmap” for rejecting the Verizon-cable deal based on guidelines laid out in the 1996 Telecommunications Act and U.S. antitrust law.
The Federation joins a growing chorus opposing the Verizon-cable deal. Organizations ranging from Communications Workers of America to public policy groups such as Free Press and Public Knowledge have attacked the deal from all sides, claiming it would only lead to collusion between already powerful telecom companies.
Verizon has dismissed those arguments, claiming the spectrum sale and its marketing joint venture are separate deals that, if pursued independently, would never raise such close scrutiny. Many carriers were also opposed to the deal originally, but Verizon has been luring some of those operators to its side by offering them some of its spectrum haul. One of the deal’s biggest critics T-Mobile switched sides last month, after it brokered a deal with Verizon to buy up some of its extra AWS airwaves.
Photo courtesy of Shutterstock user Charles B. Ming Onn