The Senate May Do to Verizon What It Did to AT&T

This may be deja vu all over again. When AT&T (NYSE: T  ) proposed that it merge with T-Mobile, there wasn't much of an uproar about it -- except from rival carrier Sprint Nextel (NYSE: S  ) -- until Sen. Herb Kohl (D-Wis.), chairman of the Senate Antitrust Subcommittee, voiced strong concerns and urged the Department of Justice and the Federal Communications Commission to block the deal.

And we know how that story ended.

Now, two months after Verizon (NYSE: VZ  ) pulled off its December coup of acquiring a cache of spectrum licenses from several cable companies, Sen. Kohl has announced that his antitrust subcommittee will hold a hearing to examine that and a subsequent deal Verizon made with another cable company.

SpectrumCo, a consortium of cable companies made up of Comcast (Nasdaq: CMCSA  ) , Time Warner Cable (NYSE: TWC  ) , and Brighthouse Networks, sold its hoard of unused wireless licenses to Verizon for $3.6 billion and cross-marketing and wireless reselling arrangements with the carrier. Verizon later purchased an additional $315 million worth of spectrum from cable company Cox Communications, a deal that also included cross-marketing arrangements.

It's the marketing arrangements that are what's raising a red flag with Sen. Kohl and his subcommittee. "Plans are well under way for a hearing to examine the impact of Verizon's spectrum purchase from a number of cable companies and a separate marketing agreement to cross-sell each other's products," Kohl said in a statement.

Other carriers, as expected, would also like to see what's going on. Sprint, DirecTV, and T-Mobile have asked the FCC to bring the full details of the marketing arrangements, not just the spectrum exchange, into the light of day. But Verizon and the cables have been hesitant to do so. In a filing with the FCC expressing that reluctance, they claim: "Nothing in the Commercial Agreements requires approval of the spectrum license transaction, or vice versa."

Verizon and Comcast have not wasted any time in putting their newfound cooperation into action. Two weeks ago, the first examples of their joint venture began in Seattle and in Portland, Ore., where the companies were offering bundles of cross-marketed wireless, wireline, cable TV, and Internet services. They are now adding a third cross-marketing market in the San Francisco Bay area.

What is strange about this new coziness, especially between Verizon and Comcast, is the bitter advertising fights they had pitting Verizon's FiOS against Comcast's XFINITY. But now you can go to Verizon Wireless' website and see XFINITY touted as "the nation's leading TV, home phone and Internet experience." However, if you go to the Verizon website, you will see FiOS put forward as having "the best picture quality and America's fastest Internet."

Confused? Me, too. Let's hope some serious questioning by Sen. Kohl's committee can make some sense of it. If not, then maybe the FCC can, or even the Antitrust Division of the Department of Justice, which has been doing some probing of its own.

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Fool contributor Dan Radovsky owns shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2012, at 9:13 PM, Raymondpoppy wrote:

    According to the report “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” two of the 25 companies with the largest total tax subsidies were AT&T at #2 ($14.5 billion) and Verizon at #3 ($12.3 billion). Also, there were 30 corporations that paid less than nothing in aggregate federal income taxes over the same period. These 30 companies, whose pretax U.S. profits totaled $160 billion over the three years, included Verizon. The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support.

  • Report this Comment On February 02, 2012, at 9:14 PM, Raymondpoppy wrote:

    Shenanigans are nothing new for Verizon ...

    Here are a few examples of the headlines they’ve made in the past.

    - Verizon Pays Nearly $100 Million to Settle Government Whistleblower Suit

    - Verizon Wireless Pays $25 Million to End FCC Fee Probe

    - Verizon Wireless to Pay Back Customers for Accidental Data Fees

  • Report this Comment On February 03, 2012, at 10:12 AM, vamagguy wrote:

    Keep in mind that Verizon Communications (which has the FiOS brand) and Verizon Wireless are two different companies that share only partial ownership. The spectrum deal was made with Verizon Wireless, which is a partnership between Verizon Communications and British-based Vodafone. Although there is a connection, neither version of Verizon has complete control over what goes on in the other version.

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