Ranking Member Statement:
Hundreds of millions of Americans pay for cell phones, cable television, home internet connections, and land line telephone services. In fact, there are over 320 million wireless subscriber connections in the United States, meaning there are more cell phone contracts than there are people. Over 100 million households have cable video service and nearly 50 million pay for high-speed cable internet. So the announcement late last year of commercial agreements between four of the country’s largest cable companies and the country’s largest wireless phone services company understandably attracted attention.
The agreements include the sale of wireless spectrum to Verizon Wireless from a group of cable companies, most of which had purchased the spectrum in 2006 and were not using it. In separate agreements announced the same day, the cable companies and Verizon Wireless agreed to potential marketing arrangements for each other’s products. For each Verizon Wireless contract obtained through cable marketing, Verizon will pay the cable company a commission of a few hundred dollars, and vice versa. The companies have also agreed to fund a joint research and development project, and the agreements provide cable companies a future option of renting from Verizon the necessary inputs to create their own wireless phone offerings.
Since these deals were announced, competitors of Verizon Wireless and the cable companies, as well as consumer advocate and public interest groups, have voiced a number of concerns. Some have argued that the wireless market is tending toward a duopoly and that additional spectrum should be sold only to smaller wireless service providers. Others have argued that the Federal Communications Commission’s current spectrum screens, which are not implicated by Verizon’s spectrum acquisitions except in a few localities, do not sufficiently account for the value of spectrum holdings and should be changed. Critics of the joint marketing agreements fear that Verizon Wireless’s parent company, which owns Verizon FiOS—a fiber optic offering providing cable, phone, and internet services—will no longer compete as vigorously with the cable companies. They also worry over the potential competitive implications of the companies’ joint venture and speculate that its resulting products and technology may give the member companies an undue advantage.
It needs hardly be said that competition is essential to consumer welfare in the wireless and cable industries. The competitive state of the wireless market has recently received much attention, including a hearing in this Subcommittee on the proposed merger between AT&T and T-Mobile, which the companies were forced to abandon late last year. The competitive state of the cable and video industries is likewise worthy of consideration, both in the course of today’s hearing and as part of future Subcommittee discussions. The concerns expressed by critics of the agreements between Verizon Wireless and the cable companies highlight important issues facing these industries, and I am hopeful this hearing can help shed light on the proper role of government in this context.
With respect to wireless spectrum, consumer demand for data has exploded and continues to increase at exponential rates. Some estimates suggest that data traffic will surge to as much as 18 times current levels in the next few years alone. Particularly because government agencies have been slow to free up unused spectrum and make it available in the marketplace, many analysts fear an increasingly severe spectrum crunch. Given this context, we must give significant weight to efficiencies that will result from the Verizon acquisition, including the substantial benefit of putting previously fallow spectrum to use by a highly efficient wireless network. Although this scarce and limited resource is overseen and administered by government agencies, regulators must take care to incentivize productive use of spectrum and must not punish private enterprise for government mismanagement.
With respect to the joint marketing agreements, I believe we ought to pay close attention to the relevant business incentives at play. Perhaps the most important question in this regard is whether the joint marketing agreement signed by Verizon Wireless does in fact interfere with the motivation and ability of its parent company to propagate FiOS. If the deal leaves Verizon’s incentives with respect to FiOS unchanged, the agreement may be seen as pro-competitive, enhancing consumer choice in the form of a new quadruple play service.
Absent evidence of anticompetitive conduct, the companies’ joint venture and agreement allowing cable companies to brand their own wireless service offerings may likewise be seen as primarily pro-competitive deals that encourage innovation through collaborative research and development of new technologies and services.
Throughout our consideration of these agreements, we should remember that the purpose of our antitrust laws is to maximize consumer welfare. Although antitrust law is by its very nature forward looking, unmoored speculation must not be allowed to overtake rational economic analysis. Government may sometimes have a proper role in ensuring that businesses compete fairly and do not collude. But it is improper for government agencies to pick winners and losers in the marketplace or to interfere with private enterprise where robust market forces are in operation.
I look forward to hearing from the witnesses and would like to thank them for being here today.