Verizon's deal with cable companies raises big questions

The Department of Justice is looking into contracts between Verizon and other cable companies.

Physical education teachers at progressive elementary schools might prefer the notion of competition to be de-emphasized. For the modern American consumer, on the other hand, competition is a good thing. If you're buying shoes, you want there to be a lot of selection, you want all the shoe companies trying to make the best shoe at the lowest price possible because that way you win.

A recent deal between Verizon and several cable companies now has the Department of Justice investigating to see if the arrangement is anti-competitive. Verizon paid billions of dollars to a coalition of cable companies, led by Comcast and including Time Warner Cable and Cox Communications, for a portion of the broadcast spectrum currently controlled by the cable operators. As part of the deal, the cable companies will market Verizon's wireless services and Verizon will do the same in return.

If the deal gets approved, the cable operators will be selling off their own ability to ever launch wireless services. Not that you can sign up for Comcast voice and data coverage now, but you never will be able to since all the spectrum those cable giants could have used will be controlled by Verizon. The wireless industry is already pretty narrow in terms of choices, really comes down to AT&T or Verizon for most people with Sprint and T-Mobile as options, for the moment anyway, as well.

The cable companies won't get a significant competitive challenge from Verizon for wired Internet in the home. So is this companies concentrating on their key competencies or is an unfair crushing of competition?

"It means for consumers that we'll see higher prices and lower speeds compared to the rest of the world," says Susan Crawford. She teaches at Cardozo School of Law and is a former Special Assistant for Science, Technology, and Innovation Policy to President Obama.

Crawford notes that the deal involves an agreement that Verizon and the cable companies will market each other's services. I mean, it's hard to believe that the cable companies would sell such a $3.6 billion asset to a competitor without an implicit promise that Verizon won't use that to asset to compete. Now that everyone's promised each other, tacitly or not, not to fight with each other for their products, it makes sense to jointly market: let's both do well. You sell my wireless, I'll sell your cable," she says.

Geoffrey Manne of the International Center for Law & Economics says that spectrum was just sitting there unused. He says, "In a sort of perfect world, you hear people say well, the spectrum that the cable companies own that they're not using, smaller competitors should be buying that so they can compete with AT&T and Verizon and others. Well, that's a nice idea, I guess, but the smaller companies aren't buying it and Verizon snapped up that spectrum so that they could continue to provide the level of service that they'd like to."

Will the deal get approved? Hard to say, especially because as deals go it's pretty weird. Potential competitors deciding to be friends and stay out of each other's way. "We don't know what the regulators will say about all this," says Crawford. "We do know the fundamental assumptions on which all our policies have been based the past 10 years,  the idea that there will be heroic competition between wireless and phone and cable -- all these different modalities of getting access. It turns out that that assumption just isn't true, and we're going to have to rethink this whole sector."

Also in this program, our video game guy Ben Kuchera took kind of a different approach to playing "Star Wars: The Old Republic." It's an online collaborative game and he attempted to play it solo.

About the author

John Moe is the host of Marketplace Tech Report, where he provides an insightful overview of the latest tech news.

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