Verizon Wireless has reached an unorthodox deal with three major cable companies that could transform the way we access TV, cellphones and the Internet, setting up a consortium of firms with enormous power over mobile and home entertainment.
The agreement among the former rivals immediately drew concern from regulators, according to a person familiar with the matter. Advocacy groups said the alliance could limit choices for consumers.
Under the deal announced Friday, Verizon will pay $3.6 billion to Comcast, Time Warner and Brightline Cable to use cellphone airwaves that the cable giants own but do not use. That would cement Verizon’s status as the dominant wireless carrier and give it access to valuable spectrum while its primary rival, AT&T, is struggling to expand its network through a controversial proposed merger with T-Mobile.
But perhaps the most extraordinary aspect of the deal is its cooperative marketing arrangement that calls for the cable companies and Verizon to “become agents to sell one another’s products.”
That would allow, for example, a consumer to walk into a Comcast store and get a Verizon Wireless plan tacked on to their television, Internet and land-line phone service. Eventually, Verizon’s name may not appear on those bundled plans, the firms said.
The cable companies would essentially kill plans to move into the cellular industry. Meanwhile, Verizon would promote the cable companies even where it offers its fledgling cable and home Internet service known as FiOS.
This part of the agreement is “a complete reordering of the competitive universe as we know it today,” said Bernstein Research analyst Craig Moffett. It “amounts to a partnership between formerly mortal enemies, not just outside of Verizon’s FiOS territories, but even within them.”
While consumers could eventually see their cable television, Internet, home phone and cellphone services on a single monthly bill, some antitrust experts are worried about deal. They are especially concerned that Verizon, in its push to dominate wireless services and its new obligation to promote other cable companies, will lose interest in FiOS altogether. That business has about 14 percent of U.S. households, but it has been expensive to build.
Verizon said it remains committed to its FiOS service.
The deal will go before regulators at the Justice Department and the Federal Communications Commission for review.
“A flag is raised when two rival networks move to start selling each other’s services,” said a person familiar with the concerns of federal antitrust officials. “They lose their desire, impetus, to compete. That is a big antitrust flag.”
These companies and their direct rivals are all competing in the same space: providing high-speed Internet in the home and on the go. At the same time, a host of other giants including Google, Apple, Netflix and Facebook are eating away at their core services, allowing users to place phone calls, send text messages and watch streaming videos at low cost or for free.
Verizon’s Internet and video business is separate from its wireless business, which is jointly owned with Britain’s Vodafone, said Peter Thonis, a spokesman for Verizon Communications.
“FiOS will continue to compete fiercely with cable, and we are committed to it for our customers,” Thonis said in an email.
Added Comcast spokeswoman Sena Fitzmaurice: “Through this deal, there is no reduction of competitors and the same number of choices will remain in the marketplace.”
The companies said that they do not believe federal regulators can review their marketing agreement. They noted that AT&T has a similar cross-promotional deal with satellite company DirecTV.
But antitrust experts said that either Justice or the FCC could expand its review and question how the marketing partnership would affect consumer choice.
“It’s fair to say this is going to get a hard and thorough review,” said the person familiar with the concerns of federal antitrust officials, who spoke on condition of anonymity because the review process is not publicly disclosed.
A spokeswoman for the Justice Department did not immediately return a phone call and emails seeking comment. The FCC said in a statement that it would take a “thorough, fair, and fact-based review of the proposed transaction.”
Mark Cooper, the director of research for the Consumer Federation of America, said the deal deserves a hard look by Washington.
“Verizon was supposed to be the great competitor for Comcast in the video space, while Comcast has been looking for a wireless play to match the Verizon bundle,” he said. “The deal signals bad news for consumers, who can expect higher prices for video, fewer choices and higher prices for wireless.”