United States v. Verizon Communications Inc., et al.; Public Comments and Response on Proposed Final Judgment, 17473-17586 [2013-06440]

Download as PDF Vol. 78 Thursday, No. 55 March 21, 2013 Part II Department of Justice emcdonald on DSK67QTVN1PROD with NOTICES2 Antitrust Division United States v. Verizon Communications Inc., et al.; Public Comments and Response on Proposed Final Judgment; Notice VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\21MRN2.SGM 21MRN2 17474 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 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. emcdonald on DSK67QTVN1PROD with NOTICES2 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 VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 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-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 PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 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 fiberbased 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 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. E:\FR\FM\21MRN2.SGM 21MRN2 emcdonald on DSK67QTVN1PROD with NOTICES2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 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. 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. The proposed settlement also requires the Commercial Agreements to be amended so that: 3 Proposed Final Judgment, United States et al. v. Verizon Communications Inc. et al., Civ. No. 1:12– cv–01354 (RMC), § 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. § IV.B. 5 Id. § V.B. 6 Id. §§ V.D, V.F. VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 • 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 • 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 • 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 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 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 sixtyday 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 7 Id. § IV.C. § IV.F. 9 Id. § IV.E. 10 Id. §§ V.J, V.K. 11 Id. § VI.D. 8 Id. PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 17475 (D.C. Cir. 1995); see also United States v. SBC Commc’ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing publicinterest 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 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’ ’’). E:\FR\FM\21MRN2.SGM 21MRN2 emcdonald on DSK67QTVN1PROD with NOTICES2 17476 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 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-DanielsMidland 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’’). 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. VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 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 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. 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 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. 19 See CWA Comments at 14; RCN Comments at 6–10; Montgomery County Comments at 23; Boston Comments at 10. 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.’’). PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 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, E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices emcdonald on DSK67QTVN1PROD with NOTICES2 Verizon will have no incentive to expand its FiOS network.20 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. 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 20 See, e.g., Boston Comments at 9; Montgomery County Comments at 12–13. 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. VerDate Mar<14>2013 18:12 Mar 20, 2013 Jkt 229001 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. 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 23 See Proposed Final Judgment § 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.’’). 24 See id. § 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.’’). PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 17477 the incentives to engage in additional expansion of FiOS). 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. 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. 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. 25 Boston Comments at 11; Montgomery County Comments at 24. 26 RCN Comments at 9–10. 27 Id. at 9. E:\FR\FM\21MRN2.SGM 21MRN2 17478 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 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 Section V.C states: emcdonald on DSK67QTVN1PROD with NOTICES2 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 28 RCN 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. 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 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.’’). VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 30 Indeed, as one of the Defendants’ competitors, RCN appears to be concerned about this very possibility. See RCN Comments at 12–13. 31 CWA Comments at 10–11; RCN Comments at 13–15. PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 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. 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. 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 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. 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. 34 Verizon Telecom is the business unit through which Verizon offers consumer wireline services, E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices emcdonald on DSK67QTVN1PROD with NOTICES2 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. 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 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 including FiOS services as well as DSL and traditional telephone services. 35 CWA Comments at 8. 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). 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 § 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)). VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 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. 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 doorto-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. 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 quadplay 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 39 CIS at 19–20. Comments at 10. 40 CWA PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 17479 support for his wireless services at a Verizon Wireless store. 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. 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 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. 44 CWA Comments at 13. E:\FR\FM\21MRN2.SGM 21MRN2 emcdonald on DSK67QTVN1PROD with NOTICES2 17480 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 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. 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 nonexpansion 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 nonexpansion 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. 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 45 Id. at 14. VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 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 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. 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 46 Id. 47 United States et al. v. Comcast Corp. et al., 808 F. Supp. 2d 145, 150 (D.D.C. 2011). 48 RCN Comments at 18. 49 Id. 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. PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 and abilities to compete against one another through product development. 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. E:\FR\FM\21MRN2.SGM 21MRN2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices c. The Definition of ‘‘FiOS Footprint’’ Unambiguously Includes the District of Columbia RCN argues that the phrase ‘‘nonstatewide 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 ‘nonstatewide franchise’ because the District of Columbia has many of the attributes of a State.’’ 51 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 nonstatewide 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 ‘‘nonstatewide’’ 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. 3. Montgomery County, Maryland emcdonald on DSK67QTVN1PROD with NOTICES2 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 Comments at 20. Final Judgment § 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. 54 Montgomery County Comments at 25. Defendants to extend or upgrade their networks. 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. 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 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 51 RCN 52 Proposed VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 55 See Montgomery County Comments at 5–8. id. at 6 n.13. 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’’). 56 See PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 17481 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. 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 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. 58 See, e.g., Proposed Final Judgment §§ V.D, V.F. e.g., id. §§ VI, VIII. 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. 63 See Montgomery County Comments at 23–24. 59 See, E:\FR\FM\21MRN2.SGM 21MRN2 17482 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices emcdonald on DSK67QTVN1PROD with NOTICES2 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 VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 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 PO 00000 Frm 00010 Fmt 4701 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, Jared.Hughes@usdoj.gov. BILLING CODE P Sfmt 4725 E:\FR\FM\21MRN2.SGM 21MRN2 EN21MR13.000</GPH> V. Conclusion VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4725 E:\FR\FM\21MRN2.SGM 21MRN2 17483 EN21MR13.001</GPH> emcdonald on DSK67QTVN1PROD with NOTICES2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices VerDate Mar<14>2013 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 15:11 Mar 20, 2013 Jkt 229001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4725 E:\FR\FM\21MRN2.SGM 21MRN2 EN21MR13.002</GPH> emcdonald on DSK67QTVN1PROD with NOTICES2 17484 VerDate Mar<14>2013 15:11 Mar 20, 2013 Jkt 229001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4725 E:\FR\FM\21MRN2.SGM 21MRN2 17485 EN21MR13.003</GPH> emcdonald on DSK67QTVN1PROD with NOTICES2 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices VerDate Mar<14>2013 Federal Register / Vol. 78, No. 55 / Thursday, March 21, 2013 / Notices 15:11 Mar 20, 2013 Jkt 229001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4725 E:\FR\FM\21MRN2.SGM 21MRN2 EN21MR13.004</GPH> emcdonald on 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Agencies

[Federal Register Volume 78, Number 55 (Thursday, March 21, 2013)]
[Notices]
[Pages 17473-17586]
From the Federal Register Online via the Government Printing 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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.'').
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \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.'').
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \25\ Boston Comments at 11; Montgomery County Comments at 24.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \26\ RCN Comments at 9-10.
    \27\ Id. at 9.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
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    \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.
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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.
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    \54\ Montgomery County Comments at 25.
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    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.
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    \55\ See Montgomery County Comments at 5-8.
    \56\ See id. at 6 n.13.
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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\
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    \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'').
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    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.
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    \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.
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    \63\ See Montgomery County Comments at 23-24.

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[[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, Jared.Hughes@usdoj.gov.
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[FR Doc. 2013-06440 Filed 3-20-13; 8:45 am]
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