United States v. Verizon Communications Inc., et al.; Public Comments and Response on Proposed Final Judgment, 17473-17586 [2013-06440]
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Vol. 78
Thursday,
No. 55
March 21, 2013
Part II
Department of Justice
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Antitrust Division
United States v. Verizon Communications Inc., et al.; Public Comments
and Response on Proposed Final Judgment; Notice
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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
https://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.
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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
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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
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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.
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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 https://
www.justice.gov/atr/cases/f286100/286102.pdf.
4 Id. § IV.B.
5 Id. § V.B.
6 Id. §§ V.D, V.F.
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• 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.
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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’ ’’).
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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.
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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 https://
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.’’).
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A. Response to Issues Raised by
Multiple Commenters
1. The Proposed Final Judgment
Properly Prohibits Verizon Wireless
From Selling Cable Services in All
Geographic Markets at Risk of
Reasonably Foreseeable Anticompetitive
Effects
The proposed Final Judgment
prohibits Verizon Wireless from selling
Cable Services in areas where Verizon
presently offers FiOS or is likely to do
so in the foreseeable future. Each of the
four commenters argues that the
proposed Final Judgment should
prohibit Verizon Wireless from selling
Cable Services in a broader geographic
area.19 The commenters argue that
unless Verizon Wireless is prohibited
from selling Cable Services in areas
where Verizon operates wireline
facilities but does not offer FiOS,
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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 https://
www.justice.gov/atr/cases/f286100/286108.pdf; see
also Boston Comments at 6 (showing that in 2008
Verizon planned to build FiOS only to certain parts
of the Boston metropolitan area).
22 See Yu-Ting Wang & Jonathan Make, Cities
Seek Alternatives as Verizon Halts Further FiOS
Expansion, COMMC’NS DAILY, Mar. 31, 2010, at 4.
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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.’’).
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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.
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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:
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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.’’).
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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.
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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,
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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)).
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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
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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.
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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.
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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 https://www.justice.gov/
atr/cases/f286100/286100.pdf.
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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.
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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
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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 https://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
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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
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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,
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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
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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
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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
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BILLING CODE C
]]>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 https://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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 https://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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\7\ Id. Sec. IV.C.
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\8\ Id. Sec. IV.F.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\9\ Id. Sec. IV.E.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\10\ Id. Sec. Sec. V.J, V.K.
\11\ Id. Sec. VI.D.
---------------------------------------------------------------------------
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'').
---------------------------------------------------------------------------
\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' '').
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.'').
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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 https://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
https://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.
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The proposed Final Judgment is designed to address the competitive
concerns outlined in the Complaint, which predominantly relate to the
effect of the Commercial Agreements on direct horizontal competition
between Verizon and the Cable Defendants rather than its incentives to
promote third-party products. Accordingly, Sections IV.A and IV.B are
designed to ensure that Verizon Wireless--the Verizon entity that is
party to the Commercial Agreements--is freely able to sell Verizon
Wireless and Verizon Telecom services. Those two Sections are not
intended to interfere with restrictions on Verizon Wireless's ability
to sell third-party video and wireline broadband services.\36\
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\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)).
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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.
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\39\ CIS at 19-20.
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According to CWA, this provision ``eliminates the marketing
advantage held by Verizon FiOS, which otherwise may have been able to
capitalize on the retail presence of Verizon Wireless.'' \40\ The
Department disagrees. FiOS still will have a marketing advantage in the
FiOS Footprint. Verizon Wireless stores in the FiOS Footprint will be
able to advertise and sell FiOS, but will be prohibited from selling
Cable Services. In addition, the proposed Final Judgment allows the
Cable Defendants to sell Verizon Wireless services to customers who
live in the FiOS Footprint using their own sales channels--indeed,
inhibiting them from doing so would deprive customers in the FiOS
Footprint of a choice of quad-play offers. But once a customer chooses
to purchase a quad play from a Cable Defendant instead of a FiOS-based
quad play from Verizon, there is no reason not to allow that customer
to seek support for his wireless services at a Verizon Wireless store.
---------------------------------------------------------------------------
\40\ CWA Comments at 10.
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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.
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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.
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\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 https://www.justice.gov/atr/cases/f286100/286100.pdf.
---------------------------------------------------------------------------
The proposed Final Judgment addresses this harm in two ways. First,
Section V.F requires each JOE member to exit the joint venture by
December 2, 2016, unless the Department decides in its sole discretion
that the member's participation will not adversely impact competition.
In exercising its discretion, the Department may rely in part on
periodic reports on the activities of JOE that Verizon Wireless is
required to furnish to the Department under Section VI.A. Second,
Section IV.E requires the Defendants to amend the JOE Agreement to
ensure that parties exiting JOE will take with them any intellectual
property rights owned by JOE as of the date they exit. Defendants
exiting JOE (including those exiting JOE pursuant to Section V.F) each
will be free to license any such technologies to other firms, including
RCN. These two provisions address the harm identified in the Complaint
by ensuring that (1) the joint venture does not lock its members into
an exclusive partnership that reduces their incentives to compete with
one another over the long term, and (2) each member is free immediately
to use the fruits of the venture upon its dissolution without
anticompetitive interference by the others. Any further mandatory
licensing requirement that would require the Court to determine whether
any given set of licensing terms is ``commercially reasonable'' is
unnecessary here and unjustified by the competitive harm that the
Department alleged in its Complaint.
b. RCN's Desired Backhaul Remedies Are Not Justified Based on the Harms
Alleged in the Complaint
RCN complains that the Commercial Agreements require Verizon
Wireless to give the Cable Defendants preferential treatment when
purchasing backhaul services, the means by which data are carried from
wireless cell sites to the core wireline networks that underlie the
wireless communications infrastructure. Backhaul services are provided
by wireline network operators, including the Cable Defendants, cable
overbuilders (e.g., RCN), and traditional telephone carriers (e.g.,
Verizon, AT&T, CenturyLink).
The proposed Final Judgment does not address this issue because the
United States's Complaint does not allege any anticompetitive harm
relating to backhaul services. Absent any such allegation, there is no
justification for a remedy relating to backhaul services.
[[Page 17481]]
c. The Definition of ``FiOS Footprint'' Unambiguously Includes the
District of Columbia
RCN argues that the phrase ``non-statewide franchise'' in the
proposed Final Judgment's definition of ``FiOS Footprint'' creates
ambiguity as to the District of Columbia. According to RCN, Verizon
could ``take the position that its franchise to provide service
throughout the District of Columbia is not a `non-statewide franchise'
because the District of Columbia has many of the attributes of a
State.'' \51\
---------------------------------------------------------------------------
\51\ RCN Comments at 20.
---------------------------------------------------------------------------
The FiOS Footprint is defined in the proposed Final Judgment to
mean ``any territory in which Verizon at the date of entry of this
Final Judgment or at any time in the future: (i) Has built out the
capability to deliver FiOS Services, (ii) has a legally binding
commitment in effect to build out the capability to deliver FiOS
Services, (iii) has a non-statewide franchise agreement or similar
grant in effect authorizing Verizon to build out the capability to
deliver FiOS Services, or (iv) has delivered notice of an intention to
build out the capability to deliver FiOS Services pursuant to a
statewide franchise agreement.'' \52\ Even if, as RCN argues, there is
ambiguity as to whether Verizon's franchise to provide service in the
District of Columbia is a ``statewide'' or ``non-statewide'' franchise,
there is no ambiguity as to whether Verizon ``has a legally binding
commitment in effect to build out the capability to deliver FiOS
Services'' there. Verizon's video franchise agreement with the District
of Columbia requires it to offer video service to residential areas
throughout the District by 2018.\53\ The entirety of the District of
Columbia is therefore unambiguously included within the definition of
the FiOS Footprint.
---------------------------------------------------------------------------
\52\ Proposed Final Judgment Sec. II.M.
\53\ Cable Franchise Agreement Between the District of Columbia
and Verizon Washington, DC Inc. (Apr. 30, 2009), available at https://www.oct.dc.gov/information/legal_docs/verizon/doc_viewer.asp?document=Verizon_DC_Franchise_Agrement_2009.pdf.
---------------------------------------------------------------------------
3. Montgomery County, Maryland
a. Mandatory Build Out Requirements Are Not Justified Based on the
Harms Alleged in the Complaint
Montgomery County asks that ``[a]s a condition of approval, Verizon
and the Cable Defendants should be ordered to provide a 100 percent
build out of their respective service footprints without any
limitations.'' \54\ The proposed Final Judgment does not place any
requirements on Verizon or the Cable Defendants to extend or upgrade
their networks.
---------------------------------------------------------------------------
\54\ Montgomery County Comments at 25.
---------------------------------------------------------------------------
The Complaint alleges harm to competition resulting from the
Commercial Agreements' diminishing the incentives to compete between
Verizon, on the one hand, and a relevant Cable Defendant, on the other.
The purpose of the proposed Final Judgment is therefore to ensure that
Verizon and the Cable Defendants have the same incentives to compete
against each other, including by extending and upgrading their
respective networks, as they had before they entered the Commercial
Agreements. The proposed remedy accomplishes this. The proposed Final
Judgment is not a vehicle for Montgomery County to obtain through this
Court what it has been unable to obtain as a local franchising
authority.\55\ The County heretofore has not required Comcast, Verizon,
or RCN for that matter, to build their networks to every single
residential unit in the county ``without any limitations,'' \56\ and
indeed such a requirement would be extraordinary and inappropriate to
this proceeding.
---------------------------------------------------------------------------
\55\ See Montgomery County Comments at 5-8.
\56\ See id. at 6 n.13.
---------------------------------------------------------------------------
b. The Proposed Final Judgment Properly Balances the Potential Benefits
of Cooperation With the Need for Strong Protections of Competition
Montgomery County asserts that the proposed Final Judgment is not
in the public interest because it allegedly permits an
``[u]nprecedented [l]evel [o]f [c]ooperation [a]nd [c]ollaboration''
among competitors and will lead to the ``allocation'' of wireless and
wireline markets.\57\
---------------------------------------------------------------------------
\57\ See id. at 11-19; see also Boston Comments at 9-10 (arguing
that the Commercial Agreements will enable Verizon Wireless and the
Cable Defendants to ``remain the dominant players in their
respective broadband markets avoiding direct competition with each
other'').
---------------------------------------------------------------------------
The Department carefully considered the potential impact of the
Commercial Agreements and the JOE Agreement on the likelihood and
intensity of competition among the parties in the future. The
Department's investigation did not uncover any anticompetitive
``allocation'' of markets. Moreover, the Department's investigation
revealed that the cooperation and collaboration enabled by the
Commercial Agreements have the potential both to benefit competition
and consumers (e.g., through the introduction of new products) but also
to create competitive risks. The proposed Final Judgment seeks to allow
the realization of the benefits from the Commercial Agreements while,
by imposing certain restrictions, minimizing the potential competitive
risks. For example, recognizing risks from indefinite collaboration,
the Department included in the proposed Final Judgment automatic time
limits on participation in JOE and certain exclusivity provisions of
the Commercial Agreements.\58\ It also mandated vigorous reporting
requirements, document retention, and mandatory antitrust education for
all Defendants.\59\ The Department reserves the right to pursue any
illegal conduct, and stands ready and willing to enforce the antitrust
laws should violations occur in the future.
---------------------------------------------------------------------------
\58\ See, e.g., Proposed Final Judgment Sec. Sec. V.D, V.F.
\59\ See, e.g., id. Sec. Sec. VI, VIII.
---------------------------------------------------------------------------
c. Montgomery County's Grievances With the Contemporary Practice of
Bundling Are Irrelevant to the Harms Alleged in the Complaint
Montgomery County devotes a substantial portion of its comments to
explaining how, in its view, bundled sales tend to work to the benefit
of producers rather than consumers.\60\ These remarks are irrelevant to
the question of whether the proposed Final Judgment adequately remedies
the harms alleged in the Complaint and is therefore ``within the
reaches'' of the public interest.\61\ The Complaint filed by the
Department alleges no harm resulting from the bundling of wireless and
wireline services. Montgomery County is not entitled to substitute its
own hypothetical complaint for the one filed in this case by the
Department of Justice.\62\
---------------------------------------------------------------------------
\60\ See Montgomery County Comments at 19-23.
\61\ See Microsoft, 56 F.3d at 1461.
\62\ See id. at 1459; see also InBev, 2009 U.S. Dist. LEXIS
84787, at *20.
---------------------------------------------------------------------------
d. The Proposed Final Judgment Is Workable and Enforceable
Finally, Montgomery County suggests that the proposed Final
Judgment is ``obviously fraught with problems,'' ``will lead to
consumer confusion,'' and ``will be difficult to monitor, interpret,
and enforce.'' \63\ However, the County provides no explanation as to
why it believes the proposed Final Judgment will be unworkable or
unenforceable. The Department of Justice has carefully crafted the
proposed Final Judgment exactly so that it will be understandable and
enforceable throughout the life of the decree, and does not foresee any
significant difficulties with its interpretation or enforcement.
---------------------------------------------------------------------------
\63\ See Montgomery County Comments at 23-24.
---------------------------------------------------------------------------
[[Page 17482]]
V. Conclusion
After reviewing the public comments, the United States continues to
believe that the proposed Final Judgment, as drafted, provides an
effective and appropriate remedy for the antitrust violations alleged
in the Complaint, and is therefore in the public interest. The United
States will move this Court to enter the proposed Final Judgment after
the comments and this response are published in the Federal Register.
Dated: March 11, 2013.
Respectfully submitted,
/s/ Jared A. Hughes
Jared A. Hughes
Trial Attorney, U.S. Department of Justice, Antitrust Division,
Telecommunications & Media Section, 450 Fifth Street NW., Suite 7000,
Washington, DC 20530, Telephone: (202) 598-2311, Facsimile: (202) 514-
6381, Jared.Hughes@usdoj.gov.
BILLING CODE P
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[FR Doc. 2013-06440 Filed 3-20-13; 8:45 am]
BILLING CODE C
