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Posted at 07:00 AM ET, 03/21/2012

Senate lawmakers inspect Verizon deal with cable, opposition mounts


A pedestrian walks by a Verizon Wireless store on Jan. 24, 2012 (Justin Sullivan - GETTY IMAGES)

Lawmakers on Wednesday afternoon will scrutinize a controversial deal between Verizon Wireless and cable companies that critics fear will lead to less competition among Internet service providers and could harm consumers.

The Senate Judiciary subcommittee on antitrust, competition policy and consumer rights will hold its hearing of Verizon Wireless’s $3.6 billion bid for unused spectrum owned by cable giants. But that portion of the deal is drawing less opposition than a unique cross-marketing agreement among once-rivals to sell bundles of wireless, regular phone, Internet and video services.

The Justice Department is investigating if that portion of the deal could lead Verizon Communications, which owns half of Verizon Wireless, to neglect its FiOs Internet and television service that competes with cable offerings by deal partners Comcast, Time Warner Cable, Cox and others.

That would leave consumers in some markets with few choices, maybe only one choice, for providers of those services to their homes, analysts say.

Ahead of the hearing, labor unions on Tuesday lobbied the offices of lawmakers, protesting the deal that they say will lead to too much consolidation among the top two wireless providers. They fear the power of AT&T and Verizon Wireless in the wireless market will lead to losses in communications industry jobs.

Along with public interest groups they said consumers benefited from the competition between FiOs, which covers about 14 million U.S. homes, and cable firms.

“The cutthroat competitive environment that pushes innovation forward and forces companies to continually invest in rolling out better products and services is born from companies doing everything they can to steal away their competitors’ customers, not by offering to sign up your own customers for rivals’ services,” Joel Kelsey, policy adviser at public interest group Free Press, said in his written testimony ahead of the hearing.

Verizon Wireless’s general counsel will argue on Wednesday that consumers benefit from the marketing agreement because cable firms cover areas they don’t serve with their FiOs service. Through the sales partnership, Verizon Wireless subscribers will be able to get bundled packages that aren’t available to most Americans, the firm says.

“To justify the investment to create innovative converged wireless and wireline products and to offer convenient bundles of services to customers across the United States who want them, Verizon Wireless needed to find wireline partners with footprints that cover the rest of the country,” Randal Milch, Verizon Wireless’s general counsel, said in a written testimony.

Comcast executive vice president David Cohen will testify that other firms, including AT&T and DirectTV are involved in similar cross-marketing agreements.

“The harms that have been alleged are hypothetical and speculative, and opponents of the transactions – several of which are competitors that simply fear increased competition – ignore the benefits the transactions will bring to consumers,” Cohen said in written testimony before the hearing.

Analysts say the hearing, the first by Congress on a major telecom merger after the failed $39 billion bid that AT&T made for T-Mobile late last year, will be closely watched for any signs of protest by lawmakers.

Sen. Herb Kohl (D-Wis.) opposed AT&T and T-Mobile’s deal and telegraphed his concerns early in hearings where he expressed concern about the deal and asked tough questions.

Observers say they will watch for questions on how Verizon and cable firms plan to price bundles of services and if they offer better prices compared to those with FiOs. They will also see if lawmakers express concerns that Verizon Wireless could give better quality of service to videos offered by cable firms — an action that could disadvantage FiOs .

“I’ll be looking for how tough the questions will be and if anything is revealed about an otherwise opaque plan for the marketing portion of the deal,” said David Kaut, an analyst at Stifel Nicolaus research.

By  |  07:00 AM ET, 03/21/2012

 
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