Verizon, Cable Deals Threaten Competition, Must be Conditioned Reviewed by Momizat on . Verizon, Cable Deals Threaten Competition, Must be Conditioned By: Steven K. Berry, President & CEO, CCA – The Competitive Carriers Association  The wireles Verizon, Cable Deals Threaten Competition, Must be Conditioned By: Steven K. Berry, President & CEO, CCA – The Competitive Carriers Association  The wireles Rating:
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Verizon, Cable Deals Threaten Competition, Must be Conditioned

Verizon, Cable Deals Threaten Competition, Must be Conditioned

By: Steven K. Berry, President & CEO, CCA – The Competitive Carriers Association

 The wireless industry has recently consolidated at an alarmingly rapid rate and competitive carriers face ever-increasing obstacles to competing with the “Big Two” carriers – Verizon and AT&T.  The market dominance of the Big Two is nearly ubiquitous, including subscriber counts, industry EBITDA, total revenues, and quantity of and value of spectrum.  For example, these two mega-carriers enjoy a near duopoly position in the U.S. wireless industry, sharing a combined 90 percent of industry EBITDA, confirming that the competition has continued to deteriorate.  Verizon recently announced record high EBITDA margins for its wireless business for the 2nd Quarter of 2012, reporting nearly $16 billion in quarterly total service revenue.  And Verizon has expanded 4G LTE to 337 markets, while many competitive carriers struggle to deploy 4G because the 700 MHz spectrum band lacks interoperability. 

Spectrum is the lifeblood of mobile competition.  The wireless industry has passed the tipping point in terms of the national concentration of power, and the traditional market-by-market spectrum screen employed by the Federal Communications Commission (FCC) to analyze concentration of spectrum fails to properly assess the true competitive imbalance.  The FCC must recognize that the dominant Verizon/AT&T duopoly – and their control of most prime broadband spectrum – makes it increasingly difficult for new entrants or competitive carriers to provide effective competition in the industry, and with fewer choices, consumers lose.  Each additional MHz that Verizon and AT&T acquire permits them to exert greater control over the market, making it increasingly difficult for competitive carriers to gain access to necessary spectrum resources and other critical inputs. 

As the Commission recognized in connection with the abandoned AT&T/T-Mobile transaction, the retail market for wireless services has become an imbalanced contest between the Big Two and the rest of the industry.  With this backdrop, Verizon has proposed to acquire 152 Advanced Wireless Services (AWS) spectrum licenses from the SpectrumCo cable companies and Cox, covering approximately 94% of the U.S. population, for $3.9 billion.  Amid scrutiny of the proposed deals, Verizon has offered to swap and sell some spectrum to T-Mobile, further adding to Verizon’s spectrum warehouse.  While competitive carriers struggle to take on the Big Two with limited spectrum, financial resources, and scale and scope, Verizon’s proposed deals could result in numerous anti-competitive harms.  The transactions would assign substantial, additional nationwide spectrum resources to Verizon Wireless, which already maintains a significant warehouse of unused spectrum, a scarce taxpayer-owned resource.  Verizon’s attempt to further stockpile spectrum enhances spectrum aggregation concerns, particularly in light of Verizon’s changing story about how much spectrum it actually needs.

Grant of the proposed transactions would not only lock in Verizon’s dominant spectrum position, but also empower Verizon to foreclose access to other critical inputs for wireless services, including voice and data roaming, access to interoperable devices, and affordable special access and wireless backhaul services.  Even the well-financed cable companies admit that difficulties negotiating roaming arrangements and acquiring devices are significant barriers to entry. Interestingly, the transactions would remove four potential competitors from the wireless marketplace, which would have had the incentives to negotiate roaming on commercially reasonable terms.  Although the cable companies will not enter the wireless market as facilities-based providers, they will indeed be entering the market as agents to, and eventually as mobile virtual network operators of, Verizon Wireless.  This will only exacerbate the dominant control exercised by Verizon Wireless.  For consumers to have any chance at a competitive choice, this must be stopped

The FCC and the Department of Justice (DoJ) must take a hard look at the impact these deals will have on the markets and on consumer choice.   Indeed, the exit of the cable companies from the wireless marketplace removes four separate potential competitors in both the retail and wholesale national wireless marketplaces.  The FCC and DoJ must prevent the industry from descending towards a duopoly, with competitive carriers left to wither on the vine.   CCA has urged approval of the proposed transactions only if the FCC adopts stringent, transaction-specific conditions including spectrum divestitures beyond the divestitures to T-Mobile; an interoperability condition – particularly for 700 MHz and AWS –ensuring that divested spectrum divested is universally-accessible and interoperable within a band; a robust voice and data roaming condition that allows smaller carriers to provide comparable, competitive services as those offered by Verizon; and a condition on access to Verizon’s and the cable companies’ backhaul and offload capacity.

For the wireless industry to continue to innovate, grow, and provide mobile broadband service, competition must be promoted, not stifled.   There is a critical need for increased competition and reasonable access to spectrum, devices, roaming, and backhaul.  The proposed transactions only sharpen that focus and should only be approved only if specific, pro-competitive conditions are in place.

 

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