On August 16, 2012, the United States Department of Justice (“DOJ”) conditionally approved proposed transaction between Verizon and a consortium of four of the nation’s largest cable companies (i.e., Comcast, Time Warner Cable, Bright House Networks and Cox Communications). The proposed transaction is comprised of a series of agreements in which Verizon Wireless agreed to acquire a significant portfolio of unused wireless spectrum licenses from the cable companies and authorizing Verizon and the cable companies to sell each other’s products and create an exclusive technology research joint venture. The proposed transaction also involved a proposed transfer of a significant amount of its new spectrum to T-Mobile USA, the smallest of the four nationwide mobile wireless competitors, and a public process to sell other previously unused spectrum.

In its conditional approval, DOJ alleges that the potentially unlimited duration of the proposed collaboration is unreasonable and could threaten long-term competition. DOJ also alleges that certain restrictions in the agreements unnecessarily hinder the ability of the companies to innovate outside the joint venture. To address these concerns, DOJ established the following notable conditions:

  • Verizon Wireless may not sell cable company products in FiOS areas and is relieved of contractual restrictions on Verizon Wireless’s ability to sell FiOS, ensuring that Verizon’s incentives to compete aggressively against the cable companies remain unchanged.
  • Verizon Wireless’s ability to resell the cable companies’ services to customers in areas where Verizon sells DSL Internet service ends in December of 2016 (subject to potential renewal at the department’s sole discretion), thereby preserving Verizon’s incentives to reconsider its decision to stop building out its FiOS network and otherwise innovate in its DSL territory.
  • The duration of the proposed technology joint venture and other features of the agreements are limited, ensuring that the agreements will not dampen the companies’ incentives to compete against one another going forward.
  • Verizon retains the ability to sell bundles of services that include DSL, Verizon Wireless and the video services of a direct broadcast satellite company (i.e., DirecTV or Dish Network).
  • After five years, the cable companies are no longer barred from selling the wireless services of Verizon Wireless’s competitors, and may partner with other wireless providers.
  • The cable companies can elect to resell Verizon Wireless services using their own brand at any time as provided for under the amended agreements.
  • Upon dissolution of the technology joint venture, all members receive a non-exclusive license to all the joint venture’s technology, and each may then choose to sublicense to other competitors.
  • Any form of collusion is forbidden and the exchange of competitively sensitive information is restricted.
  • Verizon and the cable companies will be required to provide regular reports to DOJ to ensure that the collaboration does not harm competition going forward.

Federal law requires that the proposed DOJ settlement and competitive impact statement be published in the Federal Register. At the conclusion of a 60-day comment period, the U.S. District Court for the District of Columbia may finally approve the proposed settlement upon finding that it is in the public interest. The proposed settlement is also subject to approval by the Federal Communications Commission. On the same day, however, that DOJ issued its proposed settlement, FCC Chairman Genachowski issued a statement expressing his support for the proposed settlement and indicating that a draft order approving the transaction would be circulated. Three of the five FCC Commissioners have now voted to approve the Order granting the applications, so FCC approval is expected to be forthcoming shortly.