[Federal Register Volume 78, Number 55 (Thursday, March 21, 2013)]
[Notices]
[Pages 17474-17586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-06440]
[[Page 17473]]
Vol. 78
Thursday,
No. 55
March 21, 2013
Part II
Department of Justice
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Antitrust Division
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United States v. Verizon Communications Inc., et al.; Public Comments
and Response on Proposed Final Judgment; Notice
Federal Register / Vol. 78 , No. 55 / Thursday, March 21, 2013 /
Notices
[[Page 17474]]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Verizon Communications Inc., et al.; Public
Comments and Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comments
received on the proposed Final Judgment in United States v. Verizon
Communications Inc. et al., Civil Action No. 1:12-CV-01354-RMC, which
were filed in the United States District Court for the District of
Columbia on March 11, 2013, together with the response of the United
States to the comments.
Copies of the comments and the response are available for
inspection at the Department of Justice Antitrust Division, 450 Fifth
Street NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-2481),
on the Department of Justice's Web site at http://www.justice.gov/atr,
and at the Office of the Clerk of the United States District Court for
the District of Columbia, 333 Constitution Avenue NW., Washington, DC
20001. Copies of any of these materials may be obtained upon request
and payment of a copying fee.
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District of Columbia
United States of America, and State of New York, Plaintiffs, v. Verizon
Commnications Inc., Cellco Partnership d/b/a Verizon Wireless, Comcast
Corp., Time Warner Cable Inc., Cox Communications, Inc., and Bright
House Networks, LLC, Defendants.
Case: 1:12-cv-01354 (RMC)
Plaintiff United States's Response to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the
United States hereby files the public comments concerning the proposed
Final Judgment in this case and the United States's response to those
comments. After careful consideration of the comments, the United
States continues to believe that the proposed Final Judgment will
provide an effective and appropriate remedy for the antitrust
violations alleged in the Complaint. The United States will move the
Court, pursuant to 15 U.S.C. 16(b)-(h), to enter the proposed Final
Judgment after the public comments and this Response have been
published in the Federal Register pursuant to 15 U.S.C. 16(d).
I. Procedural History
On August 16, 2012, the United States and the State of New York
filed a Complaint in this matter, alleging that certain agreements
among Verizon Communications Inc. (``Verizon''), Cellco Partnership d/
b/a Verizon Wireless (``Verizon Wireless''), Comcast Corporation
(``Comcast''), Time Warner Cable Inc. (``Time Warner Cable''), Bright
House Networks LLC (``Bright House Networks''), and Cox Communications,
Inc. (``Cox'') unreasonably restrain trade and commerce in violation of
Section 1 of the Sherman Act, 15 U.S.C. 1.
Simultaneously with the filing of the Complaint, the United States
filed a Competitive Impact Statement (``CIS''), a proposed Final
Judgment, and a Stipulation and Order signed by the parties consenting
to entry of the proposed Final Judgment after compliance with the
requirements of the APPA. Pursuant to those requirements, the United
States published the proposed Final Judgment and CIS in the Federal
Register on August 23, 2012, see 77 FR 51048; and had summaries of the
terms of the proposed Final Judgment and CIS, together with directions
for the submission of written comments relating to the proposed Final
Judgment, published in The Washington Post on August 18, 19, 20, 21,
22, 23, and 24 of 2012. The Defendants filed the statement required by
15 U.S.C. 16(g) on August 27, 2012. The sixty[hyphen]day period for
public comments ended on October 23, 2012. The United States received
four comments, as described below and attached hereto.
II. The Investigation and the Proposed Resolution
A. Investigation
In December 2011, Verizon Wireless and each of Comcast, Time Warner
Cable, Bright House Networks, and Cox (the ``Cable Defendants'')
entered into a series of commercial agreements (the ``Commercial
Agreements'') that allow them to sell bundled offerings that include
Verizon Wireless services and a Cable Defendant's residential wireline
voice, video, and broadband services. In addition, Verizon Wireless and
each of the Cable Defendants (except Cox) entered into an agreement
(the ``JOE Agreement'') to develop integrated wireline and wireless
telecommunications technologies through a research and development
joint venture, Joint Operating Entity LLC (``JOE'').
The proposed Final Judgment is the culmination of an investigation
by the Antitrust Division of the United States Department of Justice
(``Department'') and the Office of the Attorney General of the State of
New York into the Commercial Agreements and the JOE Agreement. The
Department conducted dozens of interviews with the parties' wireline
and wireless telecommunications competitors, media content suppliers,
public interest groups, and other interested third parties. The
Department obtained testimony from the Defendants' officers and
employees and required the Defendants to respond to interrogatories and
provide large quantities of documents. Throughout its investigation,
the Department coordinated closely with the Federal Communications
Commission, which conducted its own parallel investigation into the
same agreements. The Department carefully analyzed the information
obtained and thoroughly considered all of the relevant issues.
As a result of the investigation the Department filed a Complaint
on August 16, 2012, alleging that aspects of the Commercial Agreements
and the JOE Agreement were likely to unreasonably restrain competition.
A proposed Final Judgment was filed concurrently with the Complaint
that, if entered by the Court, would resolve the matter by remedying
the violation alleged in the Complaint.
B. The Proposed Final Judgment
The proposed Final Judgment is designed to preserve competition in
numerous local markets for broadband, video, and wireless services. In
certain parts of the country, Verizon Wireless's parent company \1\
Verizon offers fiber-based voice, video, and broadband services under
the trade name ``FiOS.'' Verizon offers FiOS service in numerous
geographic areas where one of the Cable Defendants also sells wireline
voice, video, and broadband services, including parts of New York City,
Philadelphia, and Washington, DC. In those areas, the Commercial
Agreements would have resulted in Verizon Wireless retail outlets
selling two competing ``quad-play'' \2\ offerings: One including
Verizon Wireless services and a Cable Defendant's services and the
[[Page 17475]]
other including Verizon Wireless services and Verizon FiOS services. In
addition, the Commercial Agreements and the JOE Agreement contained a
variety of mechanisms that likely would have diminished Verizon's
incentives and ability to compete vigorously against the Cable
Defendants with its FiOS offerings.
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\1\ Verizon Wireless is a joint venture owned by Verizon (55%)
and Vodafone Group Plc (45%), but is operated and managed by
Verizon.
\2\ ``Quad play'' refers to a bundle of four telecommunications
services: A ``triple play'' of wireline video, broadband, and
telephone services, plus mobile wireless services.
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The Commercial Agreements and the JOE Agreement also threatened the
Defendants' long-term incentives to compete insofar as they created a
product development partnership of potentially unlimited duration.
Innovation and rapid technological change characterize the
telecommunications industry, but the agreements failed reasonably to
account for such change and instead would have frozen in place
relationships that, in certain respects, may have been harmful in the
long term. Exclusive sales partnerships and research and development
collaborations between rivals which have no end date can blunt the
long-term incentives of the Defendants to compete against each other,
and others, as the industry develops.
The proposed Final Judgment forbids Verizon Wireless from selling
the Cable Defendants' wireline telecommunications services (``Cable
Services'') in areas where Verizon offers, or is likely soon to offer,
FiOS services,\3\ and removes contractual restrictions on Verizon
Wireless's ability to sell FiOS,\4\ ensuring that Verizon's incentives
to compete aggressively against the Cable Defendants remain unchanged.
In addition, after December 2016 the proposed Final Judgment forbids
Verizon Wireless from selling Cable Services to customers in areas
where Verizon today sells Digital Subscriber Line (``DSL'') Internet
service (subject to potential exceptions at the Department's sole
discretion),\5\ thereby preserving Verizon's incentives to expand its
FiOS network and otherwise compete using DSL or other technologies.
Finally, the proposed Final Judgment limits the duration of JOE and
other features of the agreements,\6\ ensuring that the agreements will
not dampen the Defendants' incentives to compete against one another
over the long term.
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\3\ Proposed Final Judgment, United States et al. v. Verizon
Communications Inc. et al., Civ. No. 1:12-cv-01354 (RMC), Sec. V.A
(D.D.C. filed Aug. 16, 2012) (``Proposed Final Judgment''),
available at http://www.justice.gov/atr/cases/f286100/286102.pdf.
\4\ Id. Sec. IV.B.
\5\ Id. Sec. V.B.
\6\ Id. Sec. Sec. V.D, V.F.
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The proposed settlement also requires the Commercial Agreements to
be amended so that:
Verizon retains the ability to sell bundles of services
that include Verizon DSL and Verizon Wireless services as well as the
video services of a direct broadcast satellite company (i.e., DirecTV
or Dish Network); \7\
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\7\ Id. Sec. IV.C.
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The Cable Defendants may resell Verizon Wireless services
using their own brand at any time, rather than having to wait for four
years;\8\ and
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\8\ Id. Sec. IV.F.
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Upon dissolution of JOE, all members receive a non-
exclusive license to all of the venture's technology, and each may then
choose to sublicense to other competitors.\9\
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\9\ Id. Sec. IV.E.
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The proposed Final Judgment also forbids any form of collusion and
restricts the exchange of competitively sensitive information.\10\
Finally, Verizon is required to provide regular reports to the
Department to ensure that the collaboration does not harm competition
going forward.\11\
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\10\ Id. Sec. Sec. V.J, V.K.
\11\ Id. Sec. VI.D.
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III. Standard of Judicial Review
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see also United
States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public-interest standard under the Tunney Act); United
States v. InBev N.V./S.A., 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S.
Dist. LEXIS 84787, No. 08-1965 (JR), at *3 (D.D.C. Aug. 11, 2009)
(noting that the court's review of a consent judgment is limited and
only inquires ``into whether the government's determination that the
proposed remedies will cure the antitrust violations alleged in the
complaint was reasonable, and whether the mechanisms to enforce the
final judgment are clear and manageable.'').
Under the APPA, a court considers, among other things, the
relationship between the remedy secured and the specific allegations
set forth in the United States's Complaint, whether the decree is
sufficiently clear, whether enforcement mechanisms are sufficient, and
whether the decree may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS Inc.,
858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d
at 1460-62; InBev, 2009 U.S. Dist. LEXIS 84787, at *3; United States v.
Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001). Courts have held
that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\12\
In determining whether a proposed settlement is in the public interest,
a
[[Page 17476]]
district court ``must accord deference to the government's predictions
about the efficacy of its remedies, and may not require that the
remedies perfectly match the alleged violations.'' SBC Commc'ns, 489 F.
Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need
for courts to be ``deferential to the government's predictions as to
the effect of the proposed remedies''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that
the court should grant due respect to the United States's ``prediction
as to the effect of proposed remedies, its perception of the market
structure, and its views of the nature of the case'').
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\12\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''); see generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Courts have less flexibility in approving proposed consent decrees
than in crafting their own decrees following a finding of liability in
a litigated matter. ``[A] proposed decree must be approved even if it
falls short of the remedy the court would impose on its own, as long as
it falls within the range of acceptability or is `within the reaches of
public interest.' '' United States v. Am. Tel. & Tel. Co., 552 F. Supp.
131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v.
Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom.
Maryland v. United States, 460 U.S. 1001 (1983); see also United States
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985)
(approving the consent decree even though the court would have imposed
a greater remedy). To meet this standard, the United States ``need only
provide a factual basis for concluding that the settlements are
reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 489
F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009
U.S. Dist. LEXIS 84787, at *20 (``the `public interest' is not to be
measured by comparing the violations alleged in the complaint against
those the court believes could have, or even should have, been
alleged''). Because the ``court's authority to review the decree
depends entirely on the government's exercising its prosecutorial
discretion by bringing a case in the first place,'' it follows that
``the court is only authorized to review the decree itself,'' and not
to ``effectively redraft the complaint'' to inquire into other matters
that the United States did not pursue. Microsoft, 56 F.3d at 1459-60.
As the United States District Court for the District of Columbia
confirmed in SBC Communications, courts ``cannot look beyond the
complaint in making the public interest determination unless the
complaint is drafted so narrowly as to make a mockery of judicial
power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments to the Tunney Act,\13\ Congress made clear
its intent to preserve the practical benefits of using consent decrees
in antitrust enforcement, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. 16(e)(2). This language effectuates what
Congress intended when it enacted the Tunney Act in 1974. As Senator
Tunney explained: ``[T]he court is nowhere compelled to go to trial or
to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather, the procedure for the public-interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11.\14\
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\13\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for courts to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
\14\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298 at 6 (1973) (``Where the
public interest can be meaningfully evaluated simply on the basis of
briefs and oral arguments, that is the approach that should be
utilized.'').
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IV. Summary of Public Comments and the United States's Response
During the 60-day public comment period, the United States received
comments from the following entities: The Communications Workers of
America, a trade union representing workers in the telecommunications
industry; \15\ RCN Telecom Services, LLC, a facilities-based provider
of wireline voice, video, and broadband services; \16\ Montgomery
County, Maryland; \17\ and the City of Boston, Massachusetts.\18\ The
following is a summary of the issues raised by the commenters and the
United States's responses to them. Part A addresses issues that were
raised by more than one commenter; Part B addresses issues raised by
individual commenters.
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\15\ The Tunney Act Comments of the Communications Workers of
America on the Proposed Final Judgment (Oct. 23, 2012) (``CWA
Comments''), attached hereto as Exhibit A. On February 19, 2013 CWA
submitted an ``Addendum'' to its comment, in which it alleges that
Comcast and Verizon violated the proposed Final Judgment by
exchanging competitively sensitive information pursuant to an FCC
proceeding. Although the Addendum was submitted well outside the 60-
day comment period specified in the statute, the Department includes
it here as Exhibit B. The Department notes in response to CWA's
Addendum that Verizon's disclosure of subscriber data to Comcast
apparently occurred in late 2011, well before the proposed Final
Judgment was filed with the Court and, therefore, cannot constitute
a violation of the proposed decree. See Opposition to Motion to
Dismiss of Comcast Cable Communications, LLC, In the Matter of
Comcast Cable Communications, LLC Petitions for Determination of
Effective Competition in Communities in New Jersey, FCC MB Docket
Nos. 12-152 et al. (Feb. 19, 2013), available at http://apps.fcc.gov/ecfs/comment/view?id=6017164408.
\16\ Comments Regarding the proposed Final Judgment Submitted on
Behalf of RCN Telecom Services, LLC (Oct. 22, 2012) (``RCN
Comments''), attached hereto as Exhibit C.
\17\ Opposition of Montgomery County, Maryland, to proposed
Final Judgment (Oct. 22, 2012) (``Montgomery County Comments''),
attached hereto as Exhibit D.
\18\ Opposition of the City of Boston, Massachusetts to Proposed
Settlement (Oct. 22, 2012) (``Boston Comments''), attached hereto as
Exhibit E.
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A. Response to Issues Raised by Multiple Commenters
1. The Proposed Final Judgment Properly Prohibits Verizon Wireless From
Selling Cable Services in All Geographic Markets at Risk of Reasonably
Foreseeable Anticompetitive Effects
The proposed Final Judgment prohibits Verizon Wireless from selling
Cable Services in areas where Verizon presently offers FiOS or is
likely to do so in the foreseeable future. Each of the four commenters
argues that the proposed Final Judgment should prohibit Verizon
Wireless from selling Cable Services in a broader geographic area.\19\
The commenters argue that unless Verizon Wireless is prohibited from
selling Cable Services in areas where Verizon operates wireline
facilities but does not offer FiOS,
[[Page 17477]]
Verizon will have no incentive to expand its FiOS network.\20\
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\19\ See CWA Comments at 14; RCN Comments at 6-10; Montgomery
County Comments at 23; Boston Comments at 10.
\20\ See, e.g., Boston Comments at 9; Montgomery County Comments
at 12-13.
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The Department carefully considered the potential impact of the
Commercial Agreements on the likelihood that Verizon would expand its
FiOS network. Under its existing franchise obligations, Verizon is
required to build FiOS to millions of additional households over the
next few years, and as discussed further below, these households are
covered by the proposed remedy. However, the Department's investigation
also found that, well before entering into the Commercial Agreements at
issue in this matter, Verizon had decided not to build its FiOS network
throughout its entire wireline footprint.\21\ As early as March 2010,
Verizon publicly stated that it had no plans to obtain additional
franchise agreements or build beyond where it is obligated under
existing agreements, and had chosen to focus on increasing its
penetration in areas where it has already obtained cable franchise
agreements.\22\ Accordingly, it appears unlikely that Verizon would
have expanded FiOS significantly beyond areas with existing franchise
agreements for at least the next several years even in the absence of
the Commercial Agreements. Thus, competitive harm resulting from the
Commercial Agreements appears unlikely in these areas, and it would be
very difficult for the Department to prove a significant risk of such
harm.
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\21\ See Competitive Impact Statement, United States et al. v.
Verizon Communications Inc. et al., Civ. No. 1:12-cv-01354 (RMC), at
15, 17-18 (D.D.C. filed Aug. 16, 2012) (``CIS''), available at
http://www.justice.gov/atr/cases/f286100/286108.pdf; see also Boston
Comments at 6 (showing that in 2008 Verizon planned to build FiOS
only to certain parts of the Boston metropolitan area).
\22\ See Yu-Ting Wang & Jonathan Make, Cities Seek Alternatives
as Verizon Halts Further FiOS Expansion, Commc'ns Daily, Mar. 31,
2010, at 4.
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The proposed Final Judgment therefore takes a bifurcated approach
to areas that do not currently have FiOS: (1) In areas where FiOS
buildout is likely in the next few years (e.g., areas with franchise
agreements or build commitments), the decree immediately prohibits
Verizon Wireless from selling Cable Services; and (2) in areas where
Verizon does not have a franchise agreement or build commitment, but
does offer DSL service as of the date of entry of the Final Judgment--
areas in which it is unlikely to build FiOS for at least the next
several years--the decree prohibits Verizon Wireless from selling Cable
Services after December 2, 2016.
With respect to the first category, the proposed Final Judgment
ensures that Verizon will retain whatever incentive it has to maintain
and expand its FiOS network in areas where such an expansion is
plausible. Section V.A prohibits Verizon Wireless from selling Cable
Services to households in the ``FiOS Footprint,'' as well as from
selling Cable Services in stores that are located in the FiOS
Footprint. Contrary to what the comments may suggest, the FiOS
Footprint is defined broadly to include not only areas where Verizon
currently offers FiOS, but all areas in which it is either obligated or
authorized to provide any fiber-based video service.\23\ Thus defined,
the FiOS Footprint includes all of New York City and Washington, DC,
despite the fact that Verizon has only just begun to build FiOS in
those cities. Verizon thus has the same incentive to fully build out in
those cities, and in other areas where it is authorized but has not yet
built, as it had before entering into the Commercial Agreements.
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\23\ See Proposed Final Judgment Sec. II.M (`` `FiOS Footprint'
means any territory in which Verizon at the date of entry of this
Final Judgment or at any time in the future: (i) Has built out the
capability to deliver FiOS Services, (ii) has a legally binding
commitment in effect to build out the capability to deliver FiOS
Services, (iii) has a non-statewide franchise agreement or similar
grant in effect authorizing Verizon to build out the capability to
deliver FiOS Services, or (iv) has delivered notice of an intention
to build out the capability to deliver FiOS Services pursuant to a
statewide franchise agreement.'').
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With respect to the second category, although it appears unlikely
that Verizon would, in at least the next few years, expand FiOS beyond
the areas where it currently has authorization to build, the Department
recognized that developments in the technology and economics of FiOS
deployment may make additional expansion attractive. Accordingly,
Section V.B of the proposed Final Judgment expands the prohibition on
Verizon Wireless's sale of Cable Services to include the ``DSL
Footprint'' as of December 2, 2016.\24\ Thus, even in areas where
Verizon has no plans to expand FiOS, and FiOS expansion is unlikely for
the foreseeable future, the proposed Final Judgment has the added
protection that Verizon may be prohibited from selling Cable Services
beyond the end of 2016 if such selling would adversely impact
competition (e.g., by adversely affecting the incentives to engage in
additional expansion of FiOS).
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\24\ See id. Sec. II.J (`` `DSL Footprint' means any territory
that is, as of the date of entry of this Final Judgment, served by a
wire center that provides Digital Subscriber Line (`DSL') service to
more than a de minimis number of customers over copper telephone
lines owned and operated by [Verizon], but excluding any territory
in the FiOS Footprint. Verizon Wireless may petition the United
States to allow continued sales of Cable Services in the DSL
Footprint or subsets thereof, which the United States shall grant or
deny in its sole discretion.'').
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The Department believes that, taken together, Sections V.A and V.B
preserve Verizon's incentives to continue to invest in FiOS, and that
the alternatives proposed by the commenters are overbroad and
unjustified by the facts. For instance, the City of Boston and
Montgomery County would ban Verizon Wireless from selling Cable
Services, and the Cable Defendants from selling Verizon Wireless
services anywhere in California or Texas, even though Verizon offers
wireline services in only a small portion of those states.\25\ Such a
prohibition would deprive millions of consumers in those states of a
potentially attractive quad-play offer of wireline voice, video, and
broadband services along with wireless services, despite the fact that
those areas have no prospect of being served by Verizon wireline
services.
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\25\ Boston Comments at 11; Montgomery County Comments at 24.
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RCN's proposal to ban Verizon Wireless's sales of Cable Services in
entire Designated Marketing Areas (``DMAs'') where FiOS is authorized
to be offered to 10% of residents \26\ is less sweeping, but
nonetheless overbroad. RCN argues that ``the most logical and
economical area for FiOS expansion is adjacent to the area that [FiOS]
presently serves or is authorized to serve.'' \27\ Although Verizon is
likely to expand FiOS in the areas in which Verizon already is
authorized to build (and, therefore, the prohibition on Verizon
Wireless selling Cable Services immediately applies to those areas),
expansion beyond those areas is unlikely to occur in the near term. To
the extent further FiOS expansion does eventually occur, the most
promising areas are likely within the DSL Footprint, much of which is
adjacent to the FiOS Footprint, and thus, beginning on December 2,
2016, the prohibition on Verizon Wireless selling Cable Services
expands to Verizon's entire DSL Footprint.
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\26\ RCN Comments at 9-10.
\27\ Id. at 9.
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Ultimately, there is little or no justification to expand the
immediate prohibition on Verizon Wireless's sale of Cable Services to
areas where it is unlikely--and hence the Department could not prove--
that Verizon would build out FiOS in the absence of the Commercial
Agreements.
[[Page 17478]]
2. National and Regional Advertising of Cable Services by Verizon
Wireless Will Not Undermine the Proposed Final Judgment
CWA and RCN each argue that Section V.C of the proposed Final
Judgment undermines the prohibition on Verizon Wireless's sale of Cable
Services by allowing Verizon Wireless to advertise Cable Services in
national or regional advertising that may reach households in the FiOS
Footprint.\28\ This, they argue, will ``inevitably result in Verizon
marketing Cable Services to large numbers of residents who live within
the FiOS Footprint.'' \29\
---------------------------------------------------------------------------
\28\ RCN Comments at 10-13; CWA Comments at 10.
\29\ RCN Comments at 11; see also CWA Comments at 10 (``The
inclusion of this loophole is the functional equivalent of not
having included any prohibited conduct in the first place.'').
---------------------------------------------------------------------------
Section V.C states:
Notwithstanding V.A and V.B, Verizon Wireless may market Cable
Services in national or regional advertising that may reach or is
likely to reach street addresses in the FiOS Footprint or DSL
Footprint, provided that Verizon Wireless does not specifically
target advertising of Cable Services to local areas in which Verizon
Wireless is prohibited from selling Cable Services pursuant to V.A
and/or V.B. Further notwithstanding V.A and V.B, Verizon Wireless
may, in any Verizon Store:
i. service, provide, and support Verizon Wireless Equipment sold
by a Cable Defendant; and
ii. provide information regarding the availability of Cable
Services, provided that Verizon Wireless does not enter any
agreement requiring it to provide and does not receive any
compensation for providing such information in any Verizon Store
where Verizon Wireless is prohibited from selling Cable Services
pursuant to V.A and/or V.B.
Importantly, Section V.C does nothing to eviscerate the prohibition
on Verizon Wireless selling Cable Services. Rather, Section V.C relates
solely to advertising. Even if customers within the FiOS Footprint
receive regional or national advertising, Verizon Wireless is
nonetheless prohibited by Sections V.A and V.B from selling them Cable
Services.
Section V.C, like the rest of the proposed Final Judgment, is
designed to balance the Commercial Agreements' potential to result in
procompetitive outcomes against their potential to bring about
anticompetitive effects. It is possible that the Commercial Agreements
will enable the Defendants to create innovative new products that
integrate wireline and wireless technologies. Should the Defendants
wish to bring such products to market, one expects that they would
advertise the products as broadly as possible in order to attract
customers from their competitors.\30\ Section V.C allows Verizon
Wireless to market the availability of Cable Services in national or
regional advertising that may reach households within the FiOS
Footprint or DSL Footprint, provided that Verizon Wireless does not
specifically target advertising of Cable Services to those areas.
Absent Section V.C, Verizon Wireless would be prohibited from all
national advertising of Cable Services, despite the fact that it is
prohibited from selling Cable Services only in a relatively small
subset of the nation. Regional and national advertising is generally
much more efficient than advertising that can reach only a small,
limited audience. Without the ability to efficiently advertise Cable
Services, Verizon Wireless would have less ability to market, and
ultimately less incentive to develop, innovative technologies through
JOE. The proposed Final Judgment properly addresses the need for
Verizon Wireless to purchase advertising on an economically efficient
scale, while nonetheless preventing Verizon Wireless from conducting
marketing activities specifically targeted to areas where it is
prohibited from selling Cable Services.
---------------------------------------------------------------------------
\30\ Indeed, as one of the Defendants' competitors, RCN appears
to be concerned about this very possibility. See RCN Comments at 12-
13.
---------------------------------------------------------------------------
3. Verizon Wireless's Ability To Provide Information About Cable
Services on a Voluntary and Uncompensated Basis Will Not Undermine the
Proposed Final Judgment
CWA and RCN argue that Section V.C(ii) of the proposed Final
Judgment, which allows Verizon Wireless to provide information about
Cable Services in Verizon Stores, undermines the prohibition against
Verizon Wireless selling Cable Services.\31\ The Department believes
that allowing Verizon Wireless to provide information about the
availability of Cable Services will not cause any anticompetitive harm
of the type alleged in the Complaint. The proposed Final Judgment is
intended to preserve competition between the respective Cable
Defendants and FiOS; it does not require every customer who desires a
quad play with Verizon Wireless to purchase FiOS instead of Cable
Services. There may be many instances, in fact, when the proposed Final
Judgment prevents Verizon Wireless from selling Cable Services to
consumers who do not even have the option of purchasing FiOS. For
example, there will be some customers who live within the FiOS
Footprint but do not yet have FiOS available at their homes, and others
who live outside the FiOS Footprint but shop at FiOS Footprint
Stores.\32\ Although the proposed Final Judgment prevents Verizon
Wireless from selling Cable Services in those situations, there is no
reason to prohibit Verizon Wireless from providing information about
the availability of Cable Services on a purely voluntary basis. Indeed,
allowing Verizon Wireless to provide this information benefits
consumers who visit Verizon Wireless retail stores and are interested
in a quad play, but for whom FiOS services are not available.
---------------------------------------------------------------------------
\31\ CWA Comments at 10-11; RCN Comments at 13-15.
\32\ For example, the City of Alexandria, VA is outside the FiOS
Footprint, but Alexandria residents likely shop in nearby Arlington,
VA or Washington, DC, which are within the FiOS Footprint.
---------------------------------------------------------------------------
Because the proposed Final Judgment prohibits Verizon Wireless from
receiving any compensation from the Cable Defendants to provide such
information, Verizon Wireless has no significant incentive to promote
Cable Services in lieu of Verizon products where available, nor is it
likely that Verizon Wireless will spend significant resources informing
consumers about a product that it cannot actually sell.\33\ Section
V.C(ii) merely allows Verizon Wireless to provide potentially helpful
information to consumers on those occasions when it chooses to do so,
perhaps, for instance, to enhance customer satisfaction. The provision
does not undermine Verizon Wireless's incentives to promote and sell
Verizon's own FiOS products, which was the harm alleged in the
Complaint.
---------------------------------------------------------------------------
\33\ RCN argues that Verizon Wireless has an incentive,
independent of commissions, to promote the use of JOE-developed
technologies. RCN Comments at 12-13. This is likely true. But within
the FiOS Footprint, Verizon Wireless will have a greater incentive
and ability to promote JOE technologies deployed by FiOS than those
deployed by the Cable Defendants.
---------------------------------------------------------------------------
B. Responses to Issues Raised by Individual Commenters
1. Communications Workers of America
a. Sections IV.A and IV.B Adequately Ensure That Verizon Wireless Will
Be Permitted To Sell Verizon Wireless and Verizon Telecom Services
Sections IV.A and IV.B of the proposed Final Judgment clearly
require that the Commercial Agreements be amended to remove any
restrictions on Verizon Wireless's ability to sell Verizon Wireless and
Verizon Telecom \34\ services. Nevertheless, CWA
[[Page 17479]]
argues that Section IV.C somehow ``dismantles'' these requirements.\35\
CWA's complaint appears rooted in a misreading of the proposed Final
Judgment, because Section IV.C addresses a different issue than
Sections IV.A and IV.B.
---------------------------------------------------------------------------
\34\ Verizon Telecom is the business unit through which Verizon
offers consumer wireline services, including FiOS services as well
as DSL and traditional telephone services.
\35\ CWA Comments at 8.
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The proposed Final Judgment is designed to address the competitive
concerns outlined in the Complaint, which predominantly relate to the
effect of the Commercial Agreements on direct horizontal competition
between Verizon and the Cable Defendants rather than its incentives to
promote third-party products. Accordingly, Sections IV.A and IV.B are
designed to ensure that Verizon Wireless--the Verizon entity that is
party to the Commercial Agreements--is freely able to sell Verizon
Wireless and Verizon Telecom services. Those two Sections are not
intended to interfere with restrictions on Verizon Wireless's ability
to sell third-party video and wireline broadband services.\36\
---------------------------------------------------------------------------
\36\ The Commercial Agreements as originally drafted authorized
Verizon Wireless to sell Cable Services as agents of the Cable
Defendants but prohibited Verizon Wireless from selling other third-
party video or wireline broadband services (except for FiOS
Services).
---------------------------------------------------------------------------
Section IV.C addresses another issue, namely, what Verizon Telecom
may or may not sell. As explained in the CIS, Section IV.C serves to
remove an ambiguity in the Commercial Agreements, which, as originally
drafted, arguably prohibited Verizon Telecom-- which is not a party to
the Commercial Agreements--from selling Verizon Wireless along with
third-party video services.\37\ Thus, Section IV.C requires the
Defendants to amend the Commercial Agreements to clarify that the
Commercial Agreements do not restrict Verizon Telecom's ability to sell
a bundle that includes Verizon Telecom services, Verizon Wireless
services, and third-party video services.\38\ The language cited by CWA
simply clarifies that the Commercial Agreements may restrict Verizon
Wireless from actively marketing this form of combined sale by Verizon
Telecom. Thus, Verizon Telecom may resell Verizon Wireless services as
part of a triple- or quad-play bundle, but the Commercial Agreements
may restrict Verizon Wireless's ability to initiate bundled sales with
broadband, telephony, or video services from any firm other than
Verizon Telecom or the firms that are parties to the Commercial
Agreements.
---------------------------------------------------------------------------
\37\ See CIS at 24.
\38\ For example, Verizon Telecom markets DirecTV service in its
DSL service area; should Verizon Telecom wish to offer a quad-play
bundle including Verizon Wireless services and DirecTV, Section IV.C
ensures that it will be able to do so. See Proposed Final Judgment
Sec. IV.C (``Defendants shall amend the Commercial Agreements so
that there is unambiguously no restriction on Verizon Wireless's
ability to authorize, permit, or enable VZT to sell a Verizon
Wireless Service in combination with VZT Services or any Person's
Broadband Internet, telephony, or Video Programming Distribution
service.'' (emphasis added)).
---------------------------------------------------------------------------
b. Verizon Wireless's Ability To Service, Provide, and Support Verizon
Wireless Equipment Sold by the Cable Defendants Will Not Undermine the
Proposed Final Judgment
CWA also objects to Section V.C(i) of the proposed Final Judgment,
which permits Verizon Wireless to ``service, provide, and support
Verizon Wireless Equipment sold by a Cable Defendant.'' As explained in
the CIS, the Cable Defendants do not operate retail stores on a
widespread basis.\39\ Instead, most of the Cable Defendants' sales of
video and broadband services are generated through telephone, Internet,
and door-to-door sales channels, and it is likely that their sales of
Verizon Wireless products will be as well. Customers who purchase
Verizon Wireless handsets through the Cable Defendants might wish to
obtain their devices, or seek assistance with setting up their service,
at a Verizon Wireless store. Section V.C(i) makes clear that Verizon
Wireless will not violate the proposed Final Judgment by providing such
services at Verizon Wireless stores within the FiOS Footprint or to
customers who live in the FiOS Footprint.
---------------------------------------------------------------------------
\39\ CIS at 19-20.
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According to CWA, this provision ``eliminates the marketing
advantage held by Verizon FiOS, which otherwise may have been able to
capitalize on the retail presence of Verizon Wireless.'' \40\ The
Department disagrees. FiOS still will have a marketing advantage in the
FiOS Footprint. Verizon Wireless stores in the FiOS Footprint will be
able to advertise and sell FiOS, but will be prohibited from selling
Cable Services. In addition, the proposed Final Judgment allows the
Cable Defendants to sell Verizon Wireless services to customers who
live in the FiOS Footprint using their own sales channels--indeed,
inhibiting them from doing so would deprive customers in the FiOS
Footprint of a choice of quad-play offers. But once a customer chooses
to purchase a quad play from a Cable Defendant instead of a FiOS-based
quad play from Verizon, there is no reason not to allow that customer
to seek support for his wireless services at a Verizon Wireless store.
---------------------------------------------------------------------------
\40\ CWA Comments at 10.
---------------------------------------------------------------------------
c. The Proposed Final Judgment Prohibits, Rather Than Permits,
Collusion
CWA objects to Sections V.I \41\ and V.J \42\ on the grounds that
they permit the Defendants to collude on price.\43\ To the contrary,
these provisions are designed to enable the Department to monitor the
Defendants' compliance with the proposed Final Judgment without
unreasonably burdening either the Department or the Defendants. The
Department brought its Complaint in this matter to prevent harm to
competition arising from the implementation of the Commercial
Agreements. Section V.I is intended to prohibit the Defendants from
entering into new agreements that might also threaten competition, or
even simply executing new versions of the Commercial Agreements,
without notifying, and receiving approval from, the Department.
---------------------------------------------------------------------------
\41\ Section V.I states in relevant part that ``[n]o Verizon
Defendant shall enter into any agreement with a Cable Defendant nor
shall any Cable Defendant enter into any agreement with a Verizon
Defendant providing for the sale of VZT Services, the sale of
Verizon Wireless Services, the sale of Cable Services, or the joint
development of technology or services without the prior written
approval of the United States in its sole discretion.'' Section V.I
excludes certain types of agreements from its coverage. See infra
page 21.
\42\ Section V.J states in relevant part that ``[n]o Defendant
shall participate in, encourage, or facilitate any agreement or
understanding between VZT and a Cable Defendant relating to the
price, terms, availability, expansion, or non-expansion of VZT
Services or Cable Services.'' Section V.J excludes certain types of
agreements from its coverage. See infra page 22.
\43\ CWA Comment at 13.
---------------------------------------------------------------------------
Section V.I does contain enumerated exceptions, but these are not
anticompetitive ``loopholes,'' as CWA argues.\44\ Instead, they are
categories of agreements that the Department has determined to be
likely to occur in significant volume, but unrelated to the sorts of
agreements that are the subject of the Complaint and therefore unlikely
to pose significant competitive concerns. For instance, Section V.I
excepts ``content agreements between the Verizon Defendants and Cable
Defendants who provide video content.'' Absent this exception, Verizon
and the Cable Defendants would need to seek prior approval from the
Department before entering into, extending, or amending an agreement
for FiOS to carry channels owned by Comcast. The Defendants will likely
enter into dozens of such agreements over the term of the proposed
Final Judgment, none of which are likely to pose the sorts of
[[Page 17480]]
competitive concerns identified in the Complaint. Rather than burden
the Department with reviewing each such transaction, and the Defendants
with waiting for the Department's approval, Section V.I allows the
Defendants to continue entering into video content agreements without
undue delay.
---------------------------------------------------------------------------
\44\ CWA Comments at 13.
---------------------------------------------------------------------------
Unlike Section V.I, Section V.J prohibits certain agreements
outright, rather than conditioning them on the prior approval of the
Department. Section V.J's exceptions were designed to allow generally
benign transactions between the Defendants while ensuring that
anticompetitive conduct does not go unnoticed or unpunished. Section
V.J prohibits the Defendants from entering into agreements that relate
to the ``price, terms, availability, expansion, or non-expansion of VZT
Services or Cable Services,'' with exceptions for certain categories of
agreements: ``(1) intellectual property licenses between JOE LLC and
VZT, (2) the negotiation of and entering into content agreements
between Verizon Defendants and Cable Defendants who provide video
programming content, (3) the purchase, sale, license or other provision
of commercial or wholesale products or services (including advertising
and sponsorships) and the lease of space in the ordinary course among
or between the Defendants, or (4) any interconnection agreement between
any Cable Defendant and the Verizon Defendants.'' As CWA notes, ``[i]t
is impossible for the Defendants to discuss these topics without
discussing `price, terms, availability, expansion, or non-expansion of
VZT or Cable Services.' '' \45\ That is precisely the point. Strictly
construed, absent the exceptions enumerated above Section V.J would
prohibit the Defendants from entering into even routine interconnection
agreements. But interconnection agreements do not implicate the type of
harm alleged in the Complaint and are unlikely to be anticompetitive in
most circumstances. Prohibiting them would serve no useful purpose but
would greatly disrupt the functioning of the Internet.
---------------------------------------------------------------------------
\45\ Id. at 14.
---------------------------------------------------------------------------
In order to avoid any misunderstanding that Section V.J's
exceptions serve to condone anticompetitive agreements, as CWA is
concerned, the provision contains a savings clause making clear that
``in no event shall a Defendant participate in, encourage, or
facilitate any agreement or understanding between VZT and a Cable
Defendant that violates the antitrust laws of the United States.'' This
savings clause ensures that an agreement that falls within Section
V.J's exceptions may nonetheless violate the decree if it violates the
antitrust laws.
d. The Court Did Not Refuse To Enter the Proposed Final Judgment in
United States v. Comcast Corp.
CWA urges the Court to refuse to enter the proposed Final Judgment,
citing the example of United States v. Comcast Corp. CWA misrepresents
that case. In Comcast, U.S. District Judge Richard Leon held a hearing
in which he raised concerns about arbitration provisions in the
proposed Final Judgment in that matter. However, Judge Leon did not
``determin[e] that the binding arbitrations are not in the public
interest,'' as CWA asserts.\46\ Judge Leon entered the proposed Final
Judgment, but also issued a Memorandum Order setting forth certain
reporting requirements ``to ensure that the Final Judgment is, and
continues to be, in the public interest[.]'' \47\
---------------------------------------------------------------------------
\46\ Id.
\47\ United States et al. v. Comcast Corp. et al., 808 F. Supp.
2d 145, 150 (D.D.C. 2011).
---------------------------------------------------------------------------
2. RCN
a. The Mandatory Licensing of JOE Technology Is Not Justified Based on
the Harms Alleged in the Complaint
RCN urges the Court to require that ``products developed by JOE [ ]
be available to other wired broadband providers on a commercially
reasonable and nondiscriminatory basis.'' \48\ RCN believes that
``because of the size of the participants in the JOE, the technology
that it develops for the exclusive use of its members will become the
industry standard for integration of wired and wireless technologies,
and those that have no ability to use that technology will find
themselves unable to compete.'' \49\ RCN thus believes that JOE could
harm competition among wireline firms by foreclosing some of them from
access to JOE-developed technologies.
---------------------------------------------------------------------------
\48\ RCN Comments at 18.
\49\ Id.
---------------------------------------------------------------------------
As RCN notes, the proposed Final Judgment does not address this
concern. That is because the Department did not allege such harm in its
Complaint. Instead, the Complaint alleges that JOE may unreasonably
restrict the JOE members' abilities to innovate outside the joint
venture.\50\ JOE's exclusivity provisions and unlimited duration could
reduce the Defendants' incentives and abilities to compete against one
another through product development.
---------------------------------------------------------------------------
\50\ Complaint, United States et al. v. Verizon Communications
Inc. et al., Civ. No. 1:12-cv-01354 (RMC), ] 40 (D.D.C. filed Aug.
16, 2012) (``Complaint''), available at http://www.justice.gov/atr/cases/f286100/286100.pdf.
---------------------------------------------------------------------------
The proposed Final Judgment addresses this harm in two ways. First,
Section V.F requires each JOE member to exit the joint venture by
December 2, 2016, unless the Department decides in its sole discretion
that the member's participation will not adversely impact competition.
In exercising its discretion, the Department may rely in part on
periodic reports on the activities of JOE that Verizon Wireless is
required to furnish to the Department under Section VI.A. Second,
Section IV.E requires the Defendants to amend the JOE Agreement to
ensure that parties exiting JOE will take with them any intellectual
property rights owned by JOE as of the date they exit. Defendants
exiting JOE (including those exiting JOE pursuant to Section V.F) each
will be free to license any such technologies to other firms, including
RCN. These two provisions address the harm identified in the Complaint
by ensuring that (1) the joint venture does not lock its members into
an exclusive partnership that reduces their incentives to compete with
one another over the long term, and (2) each member is free immediately
to use the fruits of the venture upon its dissolution without
anticompetitive interference by the others. Any further mandatory
licensing requirement that would require the Court to determine whether
any given set of licensing terms is ``commercially reasonable'' is
unnecessary here and unjustified by the competitive harm that the
Department alleged in its Complaint.
b. RCN's Desired Backhaul Remedies Are Not Justified Based on the Harms
Alleged in the Complaint
RCN complains that the Commercial Agreements require Verizon
Wireless to give the Cable Defendants preferential treatment when
purchasing backhaul services, the means by which data are carried from
wireless cell sites to the core wireline networks that underlie the
wireless communications infrastructure. Backhaul services are provided
by wireline network operators, including the Cable Defendants, cable
overbuilders (e.g., RCN), and traditional telephone carriers (e.g.,
Verizon, AT&T, CenturyLink).
The proposed Final Judgment does not address this issue because the
United States's Complaint does not allege any anticompetitive harm
relating to backhaul services. Absent any such allegation, there is no
justification for a remedy relating to backhaul services.
[[Page 17481]]
c. The Definition of ``FiOS Footprint'' Unambiguously Includes the
District of Columbia
RCN argues that the phrase ``non-statewide franchise'' in the
proposed Final Judgment's definition of ``FiOS Footprint'' creates
ambiguity as to the District of Columbia. According to RCN, Verizon
could ``take the position that its franchise to provide service
throughout the District of Columbia is not a `non-statewide franchise'
because the District of Columbia has many of the attributes of a
State.'' \51\
---------------------------------------------------------------------------
\51\ RCN Comments at 20.
---------------------------------------------------------------------------
The FiOS Footprint is defined in the proposed Final Judgment to
mean ``any territory in which Verizon at the date of entry of this
Final Judgment or at any time in the future: (i) Has built out the
capability to deliver FiOS Services, (ii) has a legally binding
commitment in effect to build out the capability to deliver FiOS
Services, (iii) has a non-statewide franchise agreement or similar
grant in effect authorizing Verizon to build out the capability to
deliver FiOS Services, or (iv) has delivered notice of an intention to
build out the capability to deliver FiOS Services pursuant to a
statewide franchise agreement.'' \52\ Even if, as RCN argues, there is
ambiguity as to whether Verizon's franchise to provide service in the
District of Columbia is a ``statewide'' or ``non-statewide'' franchise,
there is no ambiguity as to whether Verizon ``has a legally binding
commitment in effect to build out the capability to deliver FiOS
Services'' there. Verizon's video franchise agreement with the District
of Columbia requires it to offer video service to residential areas
throughout the District by 2018.\53\ The entirety of the District of
Columbia is therefore unambiguously included within the definition of
the FiOS Footprint.
---------------------------------------------------------------------------
\52\ Proposed Final Judgment Sec. II.M.
\53\ Cable Franchise Agreement Between the District of Columbia
and Verizon Washington, DC Inc. (Apr. 30, 2009), available at http://www.oct.dc.gov/information/legal_docs/verizon/doc_viewer.asp?document=Verizon_DC_Franchise_Agrement_2009.pdf.
---------------------------------------------------------------------------
3. Montgomery County, Maryland
a. Mandatory Build Out Requirements Are Not Justified Based on the
Harms Alleged in the Complaint
Montgomery County asks that ``[a]s a condition of approval, Verizon
and the Cable Defendants should be ordered to provide a 100 percent
build out of their respective service footprints without any
limitations.'' \54\ The proposed Final Judgment does not place any
requirements on Verizon or the Cable Defendants to extend or upgrade
their networks.
---------------------------------------------------------------------------
\54\ Montgomery County Comments at 25.
---------------------------------------------------------------------------
The Complaint alleges harm to competition resulting from the
Commercial Agreements' diminishing the incentives to compete between
Verizon, on the one hand, and a relevant Cable Defendant, on the other.
The purpose of the proposed Final Judgment is therefore to ensure that
Verizon and the Cable Defendants have the same incentives to compete
against each other, including by extending and upgrading their
respective networks, as they had before they entered the Commercial
Agreements. The proposed remedy accomplishes this. The proposed Final
Judgment is not a vehicle for Montgomery County to obtain through this
Court what it has been unable to obtain as a local franchising
authority.\55\ The County heretofore has not required Comcast, Verizon,
or RCN for that matter, to build their networks to every single
residential unit in the county ``without any limitations,'' \56\ and
indeed such a requirement would be extraordinary and inappropriate to
this proceeding.
---------------------------------------------------------------------------
\55\ See Montgomery County Comments at 5-8.
\56\ See id. at 6 n.13.
---------------------------------------------------------------------------
b. The Proposed Final Judgment Properly Balances the Potential Benefits
of Cooperation With the Need for Strong Protections of Competition
Montgomery County asserts that the proposed Final Judgment is not
in the public interest because it allegedly permits an
``[u]nprecedented [l]evel [o]f [c]ooperation [a]nd [c]ollaboration''
among competitors and will lead to the ``allocation'' of wireless and
wireline markets.\57\
---------------------------------------------------------------------------
\57\ See id. at 11-19; see also Boston Comments at 9-10 (arguing
that the Commercial Agreements will enable Verizon Wireless and the
Cable Defendants to ``remain the dominant players in their
respective broadband markets avoiding direct competition with each
other'').
---------------------------------------------------------------------------
The Department carefully considered the potential impact of the
Commercial Agreements and the JOE Agreement on the likelihood and
intensity of competition among the parties in the future. The
Department's investigation did not uncover any anticompetitive
``allocation'' of markets. Moreover, the Department's investigation
revealed that the cooperation and collaboration enabled by the
Commercial Agreements have the potential both to benefit competition
and consumers (e.g., through the introduction of new products) but also
to create competitive risks. The proposed Final Judgment seeks to allow
the realization of the benefits from the Commercial Agreements while,
by imposing certain restrictions, minimizing the potential competitive
risks. For example, recognizing risks from indefinite collaboration,
the Department included in the proposed Final Judgment automatic time
limits on participation in JOE and certain exclusivity provisions of
the Commercial Agreements.\58\ It also mandated vigorous reporting
requirements, document retention, and mandatory antitrust education for
all Defendants.\59\ The Department reserves the right to pursue any
illegal conduct, and stands ready and willing to enforce the antitrust
laws should violations occur in the future.
---------------------------------------------------------------------------
\58\ See, e.g., Proposed Final Judgment Sec. Sec. V.D, V.F.
\59\ See, e.g., id. Sec. Sec. VI, VIII.
---------------------------------------------------------------------------
c. Montgomery County's Grievances With the Contemporary Practice of
Bundling Are Irrelevant to the Harms Alleged in the Complaint
Montgomery County devotes a substantial portion of its comments to
explaining how, in its view, bundled sales tend to work to the benefit
of producers rather than consumers.\60\ These remarks are irrelevant to
the question of whether the proposed Final Judgment adequately remedies
the harms alleged in the Complaint and is therefore ``within the
reaches'' of the public interest.\61\ The Complaint filed by the
Department alleges no harm resulting from the bundling of wireless and
wireline services. Montgomery County is not entitled to substitute its
own hypothetical complaint for the one filed in this case by the
Department of Justice.\62\
---------------------------------------------------------------------------
\60\ See Montgomery County Comments at 19-23.
\61\ See Microsoft, 56 F.3d at 1461.
\62\ See id. at 1459; see also InBev, 2009 U.S. Dist. LEXIS
84787, at *20.
---------------------------------------------------------------------------
d. The Proposed Final Judgment Is Workable and Enforceable
Finally, Montgomery County suggests that the proposed Final
Judgment is ``obviously fraught with problems,'' ``will lead to
consumer confusion,'' and ``will be difficult to monitor, interpret,
and enforce.'' \63\ However, the County provides no explanation as to
why it believes the proposed Final Judgment will be unworkable or
unenforceable. The Department of Justice has carefully crafted the
proposed Final Judgment exactly so that it will be understandable and
enforceable throughout the life of the decree, and does not foresee any
significant difficulties with its interpretation or enforcement.
---------------------------------------------------------------------------
\63\ See Montgomery County Comments at 23-24.
---------------------------------------------------------------------------
[[Page 17482]]
V. Conclusion
After reviewing the public comments, the United States continues to
believe that the proposed Final Judgment, as drafted, provides an
effective and appropriate remedy for the antitrust violations alleged
in the Complaint, and is therefore in the public interest. The United
States will move this Court to enter the proposed Final Judgment after
the comments and this response are published in the Federal Register.
Dated: March 11, 2013.
Respectfully submitted,
/s/ Jared A. Hughes
Jared A. Hughes
Trial Attorney, U.S. Department of Justice, Antitrust Division,
Telecommunications & Media Section, 450 Fifth Street NW., Suite 7000,
Washington, DC 20530, Telephone: (202) 598-2311, Facsimile: (202) 514-
6381, [email protected].
BILLING CODE P
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[FR Doc. 2013-06440 Filed 3-20-13; 8:45 am]
BILLING CODE C