Dept. of Justice Skeptical About Verizon-Cable Marketing Deals, Maybe for Wrong Reasons

Though the Federal Communications Commission has cleared a sale of spectrum by major cable operators to Verizon, the Department of Justice apparently is concerned a related marketing deal between the cable operators and Verizon would be anti-competitive.

That deal has Verizon and several cable operators, including Comcast, Time Warner Cable, Cox Communications and Bright House Networks in marketing deals that allow each of the cable partners to sell Verizon products, while Verizon can sell cable products.

The Justice Department therefore is holding up Verizon Wireless's $3.9 billion deal to acquire cable-company airwaves, according to WSJ.com.

Justice Department officials think the marketing deal would be anti-competitive, amounting to an agreement "not to compete" with each other.

The problem, of course, is that there is no "fact base" that would allow anybody to determine whether that fear is justified, or not. There are some markets, including Boston and Baltimore, where Verizon has not already finishing building its FiOS network.

So the fear that Verizon will somehow "not compete" with local cable operators, when it already has spent the money to build a competitive network, is hard to substantiate, with the notable exceptions of Boston and Baltimore.

Some also fear that the cable operators will henceforth not be competitors to Verizon in wireless. Some might point out that cable operators have been buying spectrum, creating ventures and trying to sell service for decades, and never have been able to create an effective mobile operation.

Not everyone will agree, but there is a sense in which the concern, though possibly justified in some respects, misses the larger point. It is no secret that fixed network business models are becoming troubled. It is not a secret that a telco can make more money, and earn more profit, in the wireless realm.

Beyond that, some of us would argue that it appears the financial return Verizon expected from FiOS has not proven to be as robust as its executives had hoped. The total return from incremental revenue seems to be lower than hoped, while operating cost savings seem also to be less than hoped. In other words, fiber to the home might not have been the best use of capital, after all.

In the abstract, it is fine to hope for robust facilities-based fixed network competition. As a practical matter, it is no longer so easy a decision to defend. European service providers, for example, face investments of perhaps Eur 270 billion to build fiber to home networks.

And it is absolutely no secret that executives question whether there is a financial return to be had, not to mention the higher returns from other uses of that capital.

So the Dept. of Justice might be rightly concerned about competition, but possibly for the wrong reasons. One might make the argument that, in the coming market, it might be imprudent for most service providers to invest heavily in fiber to the home.