On August 16, 2012, the Antitrust Division of the Department of Justice (the "DOJ" or the "Division") filed a complaint and entered into a proposed settlement with Verizon Communications Inc. (Verizon), Verizon Wireless, Inc. (Verizon Wireless) and four large cable companies, Comcast Corporation, Timewarner Cable, Inc., Bright House Networks, and Cox Communications (collectively, the "cable companies.").1 Verizon Wireless is a wireless telecommunications provider whose parent Verizon offers voice, video, and internet services over a fiber optic network through its FiOS service that, according to the DOJ, competes with the cable companies in select markets. At issue is a series of agreements (the "Commercial Agreements") under which Verizon Wireless and the cable companies agreed to market and develop bundled "quad play" services that consist of Verizon Wireless' wireless services and the cable companies' wireline voice, video, and internet services. The proposed settlement is notable for a number of reasons. First, the DOJ challenged the conduct even though there were immediate consumer benefits flowing from the venture. Second, it involved a series of both horizontal and vertical issues, providing some additional insight into the DOJ's renewed interest in challenging vertical restraints. Third, no actual consumer harm was alleged. Rather, the Division only alleges that the restrictions eliminated current and existing competition and reduced the incentive and ability of the parties to compete in several ways.

The Division raised several competitive concerns with the Commercial Agreements. First, the Commercial Agreements required Verizon to sell quad play services through the joint venture in markets where Verizon was already offering quad play packages with FiOS. The Commercial Agreements also required Verizon to sell the joint venture quad play offerings on an equivalent basis as the quad play offerings with FiOS and provided Verizon with a commission for sales of the joint venture quad play offerings. According to the DOJ, this reduced the incentive and ability for Verizon to discount FiOS to compete with the cable companies. It also limited the ability to market FiOS using the services of Verizon Wireless, foreclosing an important channel of distribution. Further, the Commercial Agreements allegedly created an opportunity for harmful coordinated interaction between the cable companies and Verizon on pricing and marketing of competing offerings and other services.

Second, the Division concluded that the unlimited wireless exclusivity provision in the agreements unreasonably and unnecessarily restrained competition in the long term because it would eliminate the incentive and ability of the cable companies to provide quad play services with Verizon competitors. The Division also alleged that the unlimited wireless exclusivity provision unreasonably restrained Verizon's ability to provide similar quad play services with companies that provide video, voice, and internet services using satellites. The unlimited duration of the technology joint venture also was alleged to reduce competition. While the venture had the potential to produce innovations that would benefit consumers, the companies' permanent inability to innovate outside of the joint venture would allegedly reduce their ability and incentives to compete on product developments and enhance the potential for coordination. Third, the Division also took issue with a provision in the Commercial Agreement prohibiting the cable companies from re-selling wireless services for four years. The DOJ alleged that the cable companies had in the past been resellers of wireless services in competition with the wireless service companies. The Division posited that the four-year delay before the cable companies could resell their wireless services, plus their reliance on Verizon during those four years, would diminish their ability to bring their wireless services to market after the four years. This would allegedly result in anti-competitive effects because the extensive infrastructure of the cable companies would make them particularly effective competitors against Verizon Wireless.

In response to these concerns, the proposed settlement requires the parties to make these changes to the Commercial Agreements:

  • Prohibit Verizon from selling the quad play offerings through the joint venture in any area where it sells Verizon FiOS.
  • Eliminate the provision that requires Verizon to sell its bundled wireless and FiOS "quad-play" packages on an equivalent basis to "quad-play" packages with the cable companies.
  • Permit Verizon to offer similar "quad-play" bundle services with satellite companies.
  • Permit the cable companies to offer bundle packages with other wireless companies after five years.
  • Remove the four year delay before cable companies can resell wireless services using Verizon's spectrum.
  • Restrict the duration of the joint venture technology agreement to December 2016. The companies may apply for extension of the agreement after December 2016, which the Division can deny if it determines continuation would adversely impact competition.

As required under the Tunney Act, the proposed settlement was published in the Federal Register on August 23, 2012. The 60 day comment period expired on September 22, 2012. As of the date of this publication, the Division has not yet moved for entry of the final proposed final judgment.

Footnotes

1. The proposed settlement terms are included in the proposed final order that was filed by the Division in the District of Columbia on August 16, 2012, in U.S. v. Verizon Communications, et al., 1:12-cv-01354 (D.D.C. 2012). The Division simultaneously filed the complaint, the proposed final judgment, and the competitive impact statement.

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