[Senate Hearing 112-872]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-872

    THE VERIZON/CABLE DEALS: HARMLESS COLLABORATION OR A THREAT TO 
                    COMPETITION AND CONSUMER RIGHTS?

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 21, 2012

                               __________

                          Serial No. J-112-66

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHUCK SCHUMER, New York              MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota             CHUCK GRASSLEY, Iowa
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
       Caroline Holland, Democratic Chief Counsel/Staff Director
                  Rob Porter, Republican Chief Counsel































































                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
    prepared statement...........................................    48
Lee, Hon. Mike, a U.S. Senator from the State of Utah............     3
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    50

                               WITNESSES

Witness List.....................................................    47
Milch, Randal S., Executive Vice President and General Counsel, 
  Verizon Communications, Inc., New York, New York...............     5
    prepared statement...........................................    51
Cohen, David L., Executive Vice President, Comcast Corporation, 
  Philadelphia, Pennsylvania.....................................     7
    prepared statement...........................................    63
Rule, Charles F., Managing Partner, Washington, DC Office, 
  Cadwalader, Wickersham & Taft, LLP, Washington, DC.............     9
    prepared statement...........................................    93
Berry, Steven K., President and CEO, Rural Cellular Association, 
  Washington, DC.................................................    11
    prepared statement...........................................   106
Kelsey, Joel, Policy Advisor, Free Press, Washington, DC.........    12
    prepared statement...........................................   125
Wu, Timothy, Isidor & Seville Sulzbacher Professor of Law, 
  Columbia University, New York, New York........................    14
    prepared statement...........................................   141

                      QUESTIONS FOR THE WITNESSES

Questions for David Cohen submitted by Senator Al Franken........   146
Questions for Randal Milch submitted by Senator Al Franken.......   147
Questions for Steven Berry submitted by Senator Herb Kohl........   149
Questions for David Cohen submitted by Senator Herb Kohl.........   150
Questions for Joel Kelsey submitted by Senator Herb Kohl.........   153
Questions for Randal Milch submitted by Senator Herb Kohl........   154
Questions for Charles Rule submitted by Senator Herb Kohl........   158
Questions for Timothy Wu submitted by Senator Herb Kohl..........   159
Questions for Steven Berry submitted by Senator Michael S. Lee...   160
Questions for David Cohen submitted by Senator Michael S. Lee....   161
Questions for Joel Kelsey submitted by Senator Michael S. Lee....   163
Questions for Randal Milch submitted by Senator Michael S. Lee...   165
Questions for Charles Rule submitted by Senator Michael S. Lee...   167
Questions for Timothy Wu submitted by Senator Michael S. Lee.....   168
Questions for David Cohen submitted by Senator Charles E. Schumer   170
Questions for Randal Milch submitted by Senator Charles E. 
  Schumer........................................................   171

                           WITNESS RESPONSES

Responses by Steven Berry to Questions for the Record............   173
Responses by David Cohen to Questions for the Record.............   182
Responses by Joel Kelsey to Questions for the Record.............   197
Responses by Randal Milch to Questions for the Record............   207
Responses by Timothy Wu to Questions for the Record..............   228
NOTE: At the time of printing, after several attempts to obtain 
  responses to the written questions, the Committee had not 
  received any communication from Charles Rule...................   234

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

ConsumersUnion, Parul Desai, Policy & Action from Consumer 
  Reports, Washington, DC, March 20, 2012, letter................   235
IBEW Local 827 New Jersey & IBEW System Council T6 New England, 
  IBEW Local 824 West Central Florida, statement.................   238
T-Mobile USA, Inc., Thomas J. Sugrue, Senior Vice President, 
  Government Affairs, Washington, DC, March 20, 2012, letter.....   249

 
    THE VERIZON/CABLE DEALS: HARMLESS COLLABORATION OR A THREAT TO 
                    COMPETITION AND CONSUMER RIGHTS?

                              ----------                              


                       WEDNESDAY, MARCH 21, 2012

                               U.S. Senate,
  Subcommittee on Antitrust, Competition Policy and
                                           Consumer Rights,
                                Committee on the Judiciary,
                                                     Washington, DC
    The Subcommittee met, pursuant to notice, at 4:34 p.m., 
Room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Klobuchar, Franken, Blumenthal, and Lee.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Senator Kohl. Today we meet to consider the series of 
transactions between Verizon Wireless and four of the Nation's 
largest cable TV companies announced last December. These 
deals, coming on the heels of the now-abandoned proposed merger 
between AT&T and T-Mobile, are the latest transactions that 
seek to reshape the wireless phone, Internet access, and cable 
television markets.
    Under these deals, Verizon Wireless, the Nation's largest 
cell phone company, would acquire large chunks of Spectrum from 
Comcast, Time Warner, Cable Cox, and Bright House. And at the 
same time, these companies have all signed agreements in which 
Verizon Wireless and the cable companies agree to cross-market 
each other's services and form a joint technology venture.
    The parties to these transactions argue that these deals 
are highly beneficial both to their companies, as well as to 
consumers. It will give Verizon Wireless additional spectrum 
necessary to meet the exploding demand for Internet 
applications used by consumers with smart phones, and it will 
permit the four cable companies, which collectively account for 
over 70 percent of the Nation's cable TV subscribers, to offer 
a quad-play bundle to their customers: video, Internet, 
landline phone, and now wireless services, as well.
    Yet these transactions have come under serious criticism 
from consumer advocates and competitors. The basic premise of 
the landmark Telecommunications Act of 1996 was that cable 
companies and phone companies would enter each other's markets 
and compete. And this vision was well on the way to being 
realized with cable companies offering landline phone service, 
phone companies, like Verizon, offering cable TV through its 
VIAS service, and both offering consumers an on-ramp to the 
Internet, so crucial in today's economy.
    In addition, recent years have seen a tremendous expansion 
of cell phone service and wireless devices as a way both to 
make phone calls and access the Internet.
    Many now wonder if these agreements that we are examining 
today will roll back these advances in competition and even 
amount to a truce between one of the two largest phone 
companies and over 70 percent of the cable TV industry.
    Under these agreements, cable company represents will be 
present in Verizon Wireless stores, and cable representative 
will be selling products and services that directly compete 
with Verizon's, including VIAS.
    After these deals, will Verizon continue to develop and 
aggressively market VIAS?
    Furthermore, rather than attempt to develop competing 
wireless services with the spectrum the cable companies bought 
in 2006, the cable companies are selling that spectrum to 
Verizon Wireless and will be offering Verizon Wireless services 
to their customers.
    In addition, Verizon Wireless will be acquiring what is 
likely the last swath of crucial spectrum available for years 
to come, keeping this vital input for wireless service out of 
the hands of its competitors.
    After this deal, Verizon Wireless and AT&T will have, 
together, two-thirds of the Nation's cell phone customers, as 
well as the lion's share of the most valuable spectrum.
    Given the exploding consumer demand for smart phones and 
the spectrum they require, will the other cell phone carriers 
truly be able to compete?
    Having won the battle for competition by blocking last 
year's AT&T and T-Mobile merger, are we now in danger, indeed, 
of losing the war?
    So we enter today's hearing with more questions than 
answers, while cognizant of the very high stakes for 
competition in consumers in these transactions. We know that 
both Verizon and Comcast, as well as the other cable companies, 
believe that they are acting in the best interest of their own 
businesses and shareholders. Yet we need to ensure that 
consumers' best interests will be served in the long run.
    We urge their regulators to ensure that nothing in these 
deals reverse the historic gains in competition between phone 
and cable companies ushered in by the Telecom Act of 1996.
    The fundamental question we must answer is whether these 
deals will bring beneficial new choices to consumers or amount 
to previously fierce rivals standing down from competition.
    We look forward to the testimony of our panel of witnesses 
to shed light on these important issues.
    [The prepared statement of Senator Kohl appears as a 
submission for the record.]
    Senator Kohl. At this time, we turn to Senator Lee for his 
comments.

      STATEMENT OF HON. MIKE LEE, A U.S. SENATOR FROM UTAH

    Senator Lee. Thank you very much, Chairman Kohl. Hundreds 
of millions of Americans pay for cell phones, cable television, 
home Internet connections, and for home landline connections to 
the telephone network. In fact, there are over 320 million 
wireless subscriber connections in the United States, meaning 
that there are more cell phone contracts than there are people 
in the United States.
    Over 100 million households have cable-video service, and 
nearly 50 million pay for high-speed cable Internet. So the 
announcement late last year of commercial agreements between 
four of the country's largest cable companies and the country's 
largest wireless phone services company understandably 
attracted some attention.
    These agreements include the sale of wireless spectrum to 
Verizon Wireless from a group of cable companies, most of which 
had purchased the spectrum in 2006 and were not using it at the 
time.
    In separate agreements announced on the same day the cable 
companies and Verizon Wireless agreed to potential marketing 
arrangements for each other's products. For each Verizon 
Wireless contract obtained through cable marketing, Verizon 
will pay the cable company a commission of a few hundred 
dollars, and vice versa.
    The companies have also agreed to fund a joint research and 
development project. And these agreements provide cable 
companies a future option of renting from Verizon the necessary 
inputs to create their own wireless cell phone offerings.
    Since these deals were announced, competitors of Verizon 
Wireless and the cable companies, as well as consumer advocate 
and public interest groups, have voiced a number of concerns. 
Some have argued that the wireless market is tending toward a 
duopoly and that additional spectrum should be sold only to 
smaller wireless service providers.
    Others have argued that the Federal Communications 
Commission current spectrum screens, which are not implicated 
by Verizon's spectrum acquisitions, except in a few distinct 
localities, do not sufficiently account for the value of 
spectrum holdings and should be changed.
    Critics of the joint marketing agreements fear that Verizon 
Wireless' parent company, which owns Verizon VIAS, a fiber 
optic offering providing cable, phone and Internet services on 
a combined basis, will no longer compete as vigorously with the 
cable companies. They also worry over the potential competitive 
implications of the companies' joint venture and speculate that 
its resulting products and technology may give the member 
companies an undue advantage in the marketplace.
    It needs hardly be said that competition is essential to 
consumer welfare in the wireless and cable industries, just as 
it is elsewhere. The competitive state of the wireless market 
has recently received a lot of attention, including a hearing 
in this Subcommittee on the proposed merger between AT&T and T-
Mobile, which the companies were forced to abandon late last 
year.
    The competitive state of the cable and video industries is 
likewise worthy of consideration, both in the course of today's 
hearing and as part of future Subcommittee discussions. The 
concerns expressed by critics of the agreements between Verizon 
Wireless and the cable companies highlight important issues 
facing these industries, and I am hopeful that this hearing can 
help shed some light on the proper role of government in this 
context.
    With respect to the wireless spectrum, consumer demand for 
data has exploded and continues to increase at exponential 
rates. Some estimates suggest that data traffic will surge to 
as much as 18 times current levels in the next few years alone. 
Particularly because government agencies have been slow to free 
up unused spectrum and make it available in the marketplace, 
many analysts fear an increasingly severe spectrum crunch.
    Given this context, we must give significant weight to 
efficiencies that will result from the Verizon acquisition, 
including the substantial benefit of putting previously fallow 
spectrum to use by a highly efficient wireless network. 
Although this scarce and limited resource is overseen and 
administered by government agencies, regulators must take care 
to incentivize productive use of spectrum and must not punish 
private enterprise for government mismanagement.
    With respect to the joint marketing agreements, I believe 
we ought to pay close attention to the relevant business 
incentives at play. Perhaps the most important question in this 
regard is whether the joint marketing agreement signed by 
Verizon Wireless does, in fact, interfere with the motivation 
and the ability of its parent company to propagate VIAS. If the 
deal leaves Verizon's incentives with respect to VIAS 
unchanged, the agreement may be seen as pro-competitive, 
enhancing consumer choice in the form of new quadruple-play 
service.
    Absent evidence of anti-competitive conduct, the companies' 
joint venture and agreement allowing cable companies to brand 
their own wireless service offerings may likewise be seen as 
primarily pro-competitive deals that encourage innovation 
through collaborative research and development of new 
technologies and new services.
    Throughout our consideration of these agreements, we should 
remember that the purpose of our antitrust laws is simply to 
maximize consumer welfare. Although antitrust law, by its very 
nature, is forward looking, unmoored speculation must not be 
allowed to overtake rational economic analysis. Government may 
sometimes have a proper role in ensuring that businesses fairly 
compete and do not collude, but it is improper for government 
agencies to pick winners and losers in the marketplace or to 
run interference with private enterprise where robust market 
forces are in operation.
    I look forward to hearing from each of the witnesses and 
thank them for their cooperation and joining us today.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Lee.
    I would call our first panel witnesses. First to testify 
today will be Randal Milch. Mr. Milch is Executive Vice 
President and General Counsel of Verizon, a position he has 
held since 2008.
    Our next witness to testify will be David Cohen, Executive 
Vice President of Comcast Corporation. Mr. Cohen joined Comcast 
in 2002.
    Next, we will be hearing from Charles Rule. Mr. Rule is the 
managing partner of the Washington office and head of the 
antitrust group at Cadwalader, Wickersham & Taft. He served as 
assistant attorney general in charge of the antitrust division 
at the Department of Justice under President Reagan.
    Next to testify will be Steven Berry, President and CEO of 
the Rural Cellular Association. Mr. Berry has also served as 
senior vice president of government relations for the National 
Cable and Telecommunications Association.
    Our fifth witness today will be Joel Kelsey. Mr. Kelsey is 
a policy advisor at Free Press; he previously worked as a 
policy advisor for Consumers Union.
    Finally, we will be hearing from Timothy Wu, Professor of 
Law at Columbia University. Before that, Mr. Wu served as 
senior advisor at the Federal Trade Commission, and he is the 
author of several publications, including books, ``The Master 
Switch'' and ``Who Controls the Internet? ''
    We thank you all for appearing here before the 
Subcommittee. I ask you now to stand and raise your right hand 
as I administer the oath.
    [Witnesses sworn.]
    Senator Kohl. Thank you. So we will start with you, Mr. 
Milch. And, gentlemen, please keep your testimony to about five 
minutes or less.
    Thank you, Mr. Milch.

  STATEMENT OF RANDAL S. MILCH, EXECUTIVE VICE PRESIDENT AND 
 GENERAL COUNSEL, VERIZON COMMUNICATIONS, INC., NEW YORK, NEW 
                              YORK

    Mr. Milch. Thank you, Chairman Kohl. And good afternoon to 
you and Ranking Member Lee and the other Members of the 
Subcommittee.
    I wish to make three points this afternoon, and then I'd be 
happy to respond to your questions.
    First, it's critical that this previously unused spectrum 
be put to use to meet customers' growing needs in the mobile 
broadband economy. Mobile broadband is a continuing bright spot 
in our national economy, and it's built on investment in 
facilities and networks, startling daily innovation in 
applications, and widespread societal benefits.
    But it's no secret that we're currently in a critical 
situation. Customer demand for mobile bandwidth is growing 
faster than currently available spectrum. Customers using data-
intensive devices, like iPads, iPhones, tablets, as well as 
data-intensive applications, like streaming video and audio, 
are driving the need for more spectrum. According to public 
estimates, total smart phone traffic in 2015 will be 25 to 50 
times greater than it is today, and the FCC predicts that if 
additional spectrum is not made available in the near term, 
mobile data demand will likely exceed capacity by 2014.
    From Verizon's own perspective, on our networks, data usage 
has been doubling each of the last three years and we expect 
that trend to continue going forward. In some of our largest 
markets, the spectrum crunch will come as soon as 2013 and 
start hurting our customers and your constituents who expect 
and demand high-quality service.
    Finally, I would note that one thing has been true about 
all data estimates--they have been underestimates. The spectrum 
purchase will allow us, in the short term, to meet our 
customers' growing needs.
    Second, allowing Verizon Wireless to purchase this spectrum 
and build it and invest in it is a good reallocation of an 
important asset. Verizon is a good steward of spectrum. We put 
it to use, and we do it more efficiently than anyone else in 
the United States.
    As this chart demonstrates, Verizon Wireless serves more 
customers per megahertz of spectrum than any other carrier in 
the United States, despite the huge growth of data traffic from 
smart phone usage.
    For example, Verizon Wireless, which is here on the right, 
serves over 1.2 million customers per megahertz of spectrum; 
and, for instance, T-Mobile, which is right here, serves 
660,000 customers per megahertz of spectrum.
    Verizon Wireless is almost twice as efficient as T-Mobile. 
And I want to point out that we are not seeking to buy this 
spectrum without already having taken other expensive steps to 
best use the spectrum we already have. We have spent $22.3 
billion over the past three years, $8.3 billion alone in 2011, 
on our network, and that's more than any other wireless 
provider in the United States.
    Roughly half of that spend has been investments to increase 
our capacity within our existing spectrum limits by numerous 
engineering techniques, such as cell splitting and denser cell 
site deployment.
    Now, of course, these engineering techniques are available 
to any carrier who chooses to invest in them, but I would also 
point out that we do not believe that we can engineer our way 
out of the spectrum crunch. More spectrum is necessary.
    I would also push back on the notion that Verizon Wireless 
is somehow taking more than its fair share of available 
spectrum. After acquiring this additional spectrum, our 
holdings in nearly all geographic areas will remain below the 
level where the FCC has said that no further competitive 
inquiry is necessary, because there is clearly no competitive 
harm.
    This is the so-called ``spectrum screen,'' which identifies 
areas where there's competitive concern. Ninety-eight percent 
of the counties involved here fall below the spectrum screen.
    Third, let me talk for one second about the separate cross-
marketing agreements. I fully believe they will be good for 
consumers in the competitive marketplace by providing them more 
choice.
    Let me explain why we did this. Verizon's award-winning 
FiOS service has always been intended to reach a relatively 
small portion of the country. As this chart indicates, Verizon 
FiOS, here in the blue, hugs the east coast largely, a small 
bit in Florida, Texas, and in southern California.
    This represents our current build, which is about 80 
percent of the total FiOS build that we had intended to begin 
in 2005 and announced in 2009 was going to be our FiOS build.
    Now, on the other hand, Verizon Wireless provides service 
across the country, which is provided in this chart. This is 
our 3G footprint, our current footprint, but our 4G footprint 
will match this by the middle of the next year when we finish 
building out our high-speed 4G bandwidth service.
    So what we needed to do was figure out a way to ensure that 
Verizon Wireless, which covers the entire country, would have 
the ability to be part of bundles and of wireless and wire line 
services in the parts of the country where FiOS didn't exist.
    We also wanted to be able to compete in the innovation race 
and tried to create new technical capabilities to allow 
customers to more seamlessly use mobile and wired broadband 
products. That's what these various agreements do. Verizon 
Wireless and the cable companies will have the ability to act 
as sales agents for one another. They will not control the 
price of the input. So the cable companies don't control the 
price of the Verizon Wireless service and Verizon Wireless 
doesn't control the price of the cable service. They merely 
sell it for a one-time agency commission.
    There are thousands of such agency commissions in the 
marketplace today. Verizon Wireless has over 1,000 itself. 
They've never attracted any anti-competitive attention.
    The companies also have created a joint venture in order to 
try to produce this new product. We don't have it yet. If we do 
have it, it will be successful only if the marketplace deems it 
so.
    Finally, let me dispel the notion that Verizon would 
somehow disadvantage FiOS in this transaction. FiOS is one of 
the largest investments by a private company in the last decade 
in this country, $23 billion invested to do this. We have only 
just recently begun to see positive cash-flow out of this 
investment. It's important for us to continue it and there will 
be no stopping it, because it's a superior product that 
customers like and that we are going to push as hard as we can.
    Thank you very much for your time. I'd be happy to answer 
your questions.
    [The prepared testimony of Mr. Milch appears as a 
submission for the record.]
    Senator Kohl. Thank you, Mr. Milch.
    Mr. Cohen.

STATEMENT OF DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST 
            CORPORATION, PHILADELPHIA, PENNSYLVANIA

    Mr. Cohen. Thank you, Mr. Chairman and Members of the 
Subcommittee. It's a pleasure to be back in this room, and I 
thank you for the opportunity to testify today on the 
substantial benefits consumers will realize from SpectrumCo's 
sale of spectrum to Verizon Wireless and the reseller, 
technology joint venture, and joint marketing agreements the 
companies entered into in this transaction.
    Because Mr. Milch from Verizon has really fully covered the 
spectrum aspects of the transaction, I'm going to focus on the 
commercial agreements. So the commercial agreements at issue 
here are ordinary and customary, market-standard agreements. 
There is no merger here, like there was in AT&T/T-Mobile. There 
is no acquisition of customers or of ongoing business 
operations. Not one competitor will be removed from the 
marketplace as a result of this transaction.
    Let's break those commercial agreements down into the three 
types. The reseller agreements will allow us to become a mobile 
virtual network operator, an MVNO, and offer consumers our own 
unique branded wireless services.
    The FCC consistently has acknowledged the benefits that 
resellers can provide to consumers. The government has never 
insisted on preapproving such agreements. In fact, it has 
encouraged and even compelled them in certain transactions. 
They are a slam-dunk win for consumers.
    The technology joint venture will lead to more innovation 
as we develop amazing new technologies that will offer 
consumers the ability to use all of their communications 
devices and services seamlessly across multiple platforms. This 
innovation will compete with other innovation already occurring 
in the marketplace. Joint ventures such as these have also been 
viewed favorably by the government.
    The agency agreements allow us immediately to begin selling 
Verizon Wireless services as part of multi-product bundles, and 
they also allow Verizon Wireless to do the same. There are 
many, many examples of our competitors entering into similar 
agency agreements to offer multi-product bundles.
    The latest example is the announcement by AT&T and DirecTV 
of an agency agreement at the end of last year. Again, so far 
as we are aware, the government has never questioned or 
challenged any of these agreements.
    Contrary to certain parties' claims, these agreements will 
not affect Verizon's or the cable companies' incentives to 
compete vigorously against each other. Such claims ignore basic 
business realities.
    Initially, please remember that Verizon Wireless and 
Verizon are separate companies, with Verizon owning 55 percent 
of Verizon Wireless. As a matter of simple business economics, 
as Mr. Milch just testified, Verizon is hardly going to walk 
away from its $23 billion investment in FiOS, which generates 
61 percent of its consumer wireline revenues today.
    Second, it is important to note that there is no FiOS 
overlap with the cable company partners of SpectrumCo--it's an 
analog to that chart--in over 85 percent of our collective 
footprint nor is there any incentive for Verizon to lay down 
its weapons in the fierce FiOS/cable battle in the remaining 15 
percent of the country.
    Put yourself in Verizon's position. Would you rather hold 
on to an existing or attract a new FiOS subscriber worth 
thousands of dollars in ongoing monthly subscription fees, or 
would you rather get 55 percent of a one-time commission worth, 
at most, only a few percentage points of the value of a FiOS 
customer? This isn't even a close call.
    Arguments that are predicated on the idea that this set of 
agreements will encourage Verizon not to expand its FiOS 
footprint or discourage the cable companies from entering the 
wireless marketplace ignore clear market realities. Verizon 
announced over two and a half years ago that it did not intend 
to build FiOS out to additional areas of the country outside of 
its existing franchise areas, and the cable companies have made 
a considered business decision not to build a new wireless 
network.
    Speculative claims that ignore the reality of considered 
business decisions are not what the antitrust laws were 
intended to address.
    Finally, and with all due respect, opposition by some of 
our competitors should also be seen in its proper context. What 
they are really concerned about is that our agreements will 
increase competition and compel them to respond accordingly.
    The antitrust laws, however, are designed to protect 
competition, not to insulate competitors from having to respond 
to competition. In our view, the proper focus here should be on 
the consumer. And for the consumer, these agreements are 
entirely additive--more choice, more competition, more 
investment, and more innovation.
    So thank you for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared testimony of Mr. Cohen appears as a 
submission for the record.]
    Senator Kohl. Thank you, Mr. Cohen.
    Mr. Rule.

STATEMENT OF CHARLES F. RULE, MANAGING PARTNER, WASHINGTON, DC, 
   OFFICE, CADWALADER, WICKERSHAM & TAFT, LLP, WASHINGTON, DC

    Mr. Rule. Thank you, Mr. Chairman, Senator Lee, and Members 
of the Subcommittee. It's an honor to be invited to discuss 
with you the antitrust aspects of the Verizon Wireless/cable 
deals.
    The views that I am expressing today are mine and mine 
alone. I have no clients involved in this transaction or really 
have any interest in it one way or the other. And until I was 
invited to come here today to talk to you, I hadn't spent that 
much time thinking about the transaction.
    As a consequence, my analysis is based on a review that 
I've been able to do over the last few days of the principal 
filings made with the FCC and then consideration of those 
arguments for and against the deal.
    My analysis, such as it is, has been provided in written 
form to the Committee and I won't dwell on it, but I will 
summarize it.
    The analysis is strictly through the lens of the antitrust 
laws. There may be and seem to be other arguments made at the 
FCC, but they are not necessarily antitrust issues.
    The antitrust lens is shaped by three core principles. 
First, the antitrust laws are, the Supreme Court has said, a 
consumer welfare prescription. A merger, acquisition or 
collaboration is ultimately judged by whether, on balance, it 
is likely to increase quality-adjusted total output.
    Second, private mergers and acquisitions are critical to a 
dynamic economy and facilitate the movement of assets from 
lower- to higher-valued uses. While due to factors such as 
market structure, the position of the parties and so forth, a 
very small fraction of such deals may threaten harm to consumer 
welfare. Antitrust should not unduly interfere with or raise 
obstacles to the market for the flow of assets.
    Third, short of an M&A transaction, collaboration among 
firms, even competitors, is critical to the economy and 
generally holds the potential for increasing consumer welfare. 
Sure, under certain circumstances, collaboration can threaten 
consumer welfare and competition, but the antitrust laws are 
sensitive to the welfare-enhancing promise of collaboration.
    Ultimately, the antitrust analysis of any transaction, 
including this one, is heavily dependent on the relevant facts 
surrounding the particular transaction. Gathering those facts 
and examining them under the antitrust lens is currently 
underway at the Department of Justice, and I would imagine that 
that will continue for several months more.
    Given my limited time and access to the facts, I'm able to 
reach only tentative views about the agreements. Based on those 
constraints, let me briefly summarize my tentative views on 
three aspects of the deal--Verizon Wireless acquisition of the 
cable companies AWS spectrum licenses, the commercial 
collaboration agreements between Verizon Wireless and the cable 
companies, and the R&D collaboration between the parties.
    First, with respect to the acquisition of spectrum, the 
cable companies have never developed that spectrum. They've 
never gotten into the business of competing for wireless 
service on a facilities basis.
    Moreover, in the absence of the transfer, the spectrum that 
they hold will continue to generate zero wireless service for 
the foreseeable future. As a consequence, Verizon Wireless 
acquisition of that spectrum will not eliminate any existing 
competition.
    Moreover, Verizon Wireless claims to have a roadmap for the 
use of the spectrum to generate 4G LTE service in the next 
three years or so. So the transaction appears to increase 
output.
    The fact that opponents can conjure up that there may be 
some conceivable alternative deal that will increase output 
even more is not, under existing antitrust law, a basis to 
challenge the transaction.
    Second, the commercial agreements. Those I have an interest 
in, I actually happen to be a happy, satisfied customer of 
FiOS. So I am concerned, like everybody else should be, as to 
whether or not these agreements are going to impact that 
competition.
    However, looking at the deals that are fairly standard 
commercial agreements, the structure and economics of them do 
not appear to materially impact either the cable companies' 
incentives to go into facilities-based wireless communication 
or Verizon's incentives and ability to continue to compete with 
FiOS.
    However, it's important for the department, as they look at 
these transactions, to make sure that there are adequate 
safeguards to prevent anti-competitive spillover.
    Last, with respect to the cable/wireless collaboration on 
innovation, it seems to me, on its face, this collaboration 
raises little concern. Joint R&D is treated favorably by the 
antitrust laws, and the consortium will face vigorous 
competition from others.
    The basis of my views is, as I said, provided in the 
written submission. I hope it's of help.
    Mr. Chairman, that concludes my remarks and I look forward 
to any questions that the Committee may have.
    [The prepared testimony of Mr. Rule appears as a submission 
for the record.]
    Senator Kohl. Thank you very much, Mr. Rule.
    Now, we will hear from Mr. Berry.

STATEMENT OF STEVEN K. BERRY, PRESIDENT AND CEO, RURAL CELLULAR 
                  ASSOCIATION, WASHINGTON, DC

    Mr. Berry. Thank you, Mr. Chairman. Chairman Kohl, Ranking 
Member Lee, and Members of the Subcommittee. Thank you for the 
opportunity and inviting me to testify before this Committee 
about the proposed spectrum transfer and integrated commercial 
agreements between Verizon Wireless and the cable companies.
    These transactions will further cement Verizon's dominant 
control over every input and resource critical to provide 
mobile broadband services to the detriment of every other 
smaller competitor.
    Mr. Chairman, the RCA, the competitive carriers' 
association, represents over 100 wireless carriers. You might 
recognize Celcom if you're from Wisconsin or Union Wireless 
Telephone if you're from Utah, and Duet Wireless if you're from 
St. Cloud, Minnesota. But I think you'll also recognize some of 
the other names, T-Mobile, Sprint, Metro PCS, Cricket, US 
Cellular, Alltel, Cincinnati Bell, C Spire, and I Wireless.
    All have come together at RCA because of the dangerous 
pattern of consolidation in the once-competitive wireless 
industry. There used to be the big four. Now, we talk about the 
big two, the twin bells, the duopoly of Verizon and AT&T.
    It's difficult to explain the potential impact of this deal 
without getting bogged down into the minutia of spectrum 
policy. However, I must say that the Verizon/cable deal is 
elegantly contrived, is superbly clever, and very difficult to 
deconstruct. But it will deliver the same insidious and 
disastrous impact on competition, and, unless conditioned, 
would not be in the public interest.
    Because of the massive consolidation and the dominant 
control of all inputs into the mobile services, RCA filed a 
petition to condition this deal to allow competitive carriers 
an opportunity to access spectrum, back-haul, and ensure data 
roaming and interoperability.
    This deal is not about price, except maybe perhaps higher 
prices for consumers. And these arrangements are integrated 
transactions. This is about control of the market share, and 
the deal is effectively a non-compete agreement. Verizon will 
not compete with cable on the wire line service side and cable 
will not compete against Verizon on the wireless side.
    Over 60 million households will immediately be affected by 
this deal on the wire line side and far greater on the wireless 
side. If this were only about spectrum price, higher prices 
could be commanded in the marketplace by multiple carriers 
starved for green field spectrum. Verizon owns substantial 
spectrum reserves, as much as 44 megahertz of unused spectrum 
in most markets currently. And if this deal is approved, they 
could warehouse as much as 72 megahertz of unused spectrum in 
many of the top markets. And the Verizon heat map before you 
over here shows their holdings and their superior position.
    These companies, all products of decades of state-
sanctioned monopoly, have figured out a way to guarantee and 
solidify market share in their respective areas. This is not in 
the public interest, and it certainly impacts market conditions 
contemplated by the Clayton Act.
    Spectrum is a finite and unique taxpayer resource. And make 
no mistake about it, manipulation of spectrum resources is, 
unfortunately, a reliable and effective tool to eliminate 
competition. Spectrum is the lifeblood of the wireless 
industry. You cutoff the lifeblood and the heart does not pump 
for long.
    The Verizon/cable team wants you to believe that this is 
merely about a spectrum transfer, a license transfer, albeit 
the largest single spectrum license transfer the FCC has ever 
considered, covering approximately 280 million consumer pops 
and spanning almost the entire United States, as the map before 
you shows.
    This is the equivalent of eliminating a national carrier in 
the marketplace or, in this case, it does eliminate four 
potential wireless competitors.
    RCA did not file a petition to deny. We filed a petition to 
condition this transaction. The very considerations that forced 
cable to exit the wireless industry must become transaction 
conditions if we are going to promote a competitive industry 
and avoid additional regulation.
    In summary, Mr. Chairman, in their own words, Comcast, Cox, 
and the SpectrumCo members provided us with an excellent 
roadmap of the conditions needed for a competitive wireless 
market.
    Clearly, the deal must be conditioned by significant 
spectrum divestitures under an updated spectrum screen; 
commercially reasonable roaming requirements; affordable and 
available back-haul; and interoperable standards. Denying 
competitive carriers an opportunity to access these critical 
inputs is denying their ability to survive.
    Mr. Chairman, America's competitive telecom policy should 
not be relegated to the mantra--if you can't beat them, join 
them.
    I'll be more than happy to answer your questions.
    [The prepared testimony of Mr. Berry appears as a 
submission for the record.]
    Senator Kohl. Thanks, Mr. Berry.
    Now, we will hear from Mr. Kelsey.

     STATEMENT OF JOEL KELSEY, POLICY ADVISOR, FREE PRESS, 
                         WASHINGTON, DC

    Mr. Kelsey. Chairman Kohl, Ranking Member Lee, and esteemed 
Members of the Committee, thank you for the opportunity to 
testify before you today on behalf of Free Press.
    In my testimony, I plan to cover three topics. First, I'd 
like to provide a consumer perspective on the consolidating 
telecom market in which these deals are being proposed; second, 
I'd like to explain what it means to put this much control over 
our Nation's spectrum market into the hands of one company; 
and, last, I'd like to explain how the joint marketing 
arrangements would leave many of our Nation's households facing 
monopoly conditions in the market for residential Internet 
access.
    We've heard a lot about the spectrum crisis, but today I'd 
like to point out we have an equally large competition crisis. 
This is a crisis that consumers are already facing today as 
they get locked into more expensive multi-year bundles, while 
competitors are locked out of entering the marketplace to offer 
better alternatives.
    The market for wireless service is concentrated at the top, 
with Verizon and AT&T together controlling nearly 65 percent of 
the market share and capturing nearly 80 percent of the entire 
wireless industry's profits. To put this in perspective, this 
dwarfs the level of concentration that we see in the oil, 
banking, or airline industry.
    The market for at-home broadband service has long been a 
duopoly, and FCC data predict that most American households 
will have no other choice than their cable company for next-
generation Internet access. These trends have real consequences 
for consumers. J.D. Power reports the average wireless bill in 
2011 was $86. That's a 25 percent increase in just the last 
four years.
    The central theme that I'd like to get across here today is 
that these market conditions will be made much worse if this 
deal is approved. For example, this deal will result in AT&T 
and Verizon controlling a combined 60 percent value share of 
all mobile broadband spectrum in America.
    The benefit here for Verizon is not just in using the 
spectrum. It is also in foreclosing other companies from using 
this critical resource to challenge Verizon's market dominance.
    Not all spectrum is created equal. The more high-quality 
spectrum a carrier controls, the more market power it has, 
making it easier to mount a competitive challenge.
    Put simply, with better spectrum, cell towers can carry 
signals for longer distances, so fewer towers are needed. So 
for a dominant firm like Verizon, with more spectrum depth than 
any of its competitors, acquiring more spectrum is not the only 
way to meet growing consumer data demand. Verizon could 
continue to build more towers, conduct spectrum swaps in 
congested areas, or use Wi-Fi offloading to carry traffic. 
Acquiring more spectrum is, however, the best way to ensure 
competitors cannot mount a serious challenge by using that 
spectrum to offer high-quality services at lower prices.
    If Federal regulators are serious about protecting the 
public interest, they must act to preserve the limited amount 
of competition in the wireless market that exists today, and 
that starts with denying this license transfer.
    The spectrum sale is enough to tilt this transaction 
against the public interest in the wireless market. However, 
the joint marketing arrangements will also exacerbate 
consolidation in the residential broadband market.
    These agreements simply represent a deal between these 
companies to stay out of each other's way in perpetuity. They 
put former rivals on the path to collaboration rather than 
competition, and they send a clear signal to Wall Street that 
the largest cable and wireless companies in America are aligned 
together, and it will be nearly impossible for any competitor 
to mount a viable threat in either market.
    Congress recognized the danger in these sorts of 
arrangements when it passed the 1996 Telecom Act. That Act 
specifically bans local telephone companies and cable companies 
joining forces. That's because Congress intended to encourage 
competition between cable and telephone companies, competition 
that would be eliminated through these agreements.
    For example, these agreements eliminate the incentives for 
Verizon to aggressively market its fiber to the home broadband 
service in markets where it competes head-to-head with cable 
companies. Competition benefits consumers when companies are 
trying to win subscribers from their competitors, not when they 
are offering to sign up their own customers for their rival's 
services.
    In conclusion, I'd like to point out that the consolidation 
that we've been experiencing is no accident. It is not the hand 
of the free market. Rather, it's the outcome of public policy 
decisions that have unwound protections on competition and 
placed a disproportionate amount of our Nation's most valuable 
spectrum into the hands of just two companies.
    There is no reason this pattern of poorly protecting the 
public interest has to continue. The DOJ and the FCC showed 
immense analytical skill and political courage in rejecting the 
AT&T/T-Mobile merger. And if that was the down payment on 
future competition, preventing this proposed transaction should 
be the next installment.
    Thank you very much. I look forward to your questions.
    [The prepared testimony of Mr. Kelsey appears as a 
submission for the record.]
    Senator Kohl. Thank you, Mr. Kelsey.
    Now, Professor Wu.

STATEMENT OF TIMOTHY WU, ISIDOR & SEVILLE SULZBACHER PROFESSOR 
        OF LAW, COLUMBIA UNIVERSITY, NEW YORK, NEW YORK

    Mr. Wu. Thank you, Mr. Chairman, Senator Lee, and Members 
of the Subcommittee.
    Does support for robust competition remain the 
communications policy for the United States?
    It may sound like a rhetorical question, yet it is the 
right question to ask as we witness increasing concentration in 
every single communication market, including the prospect of a 
de facto duopoly in wireless communications.
    This was the same question that this Committee faced--the 
Subcommittee faced--when it addressed the AT&T/T-Mobile merger 
last year. And it's the same question raised by the sale of 
spectrum and the marketing agreements that we examine today.
    As compared to the spectacle of T-Mobile and AT&T, 
Verizon's softer strategy may seem like a sideshow, but subtle 
action is often the more powerful, particularly in the 
distracted age.
    Verizon holds more valuable spectrum than anyone else and 
should it complete this transaction, it will actually be left 
with spectrum holdings that are, by book value, even larger 
than AT&T and T-Mobile would have been.
    Yes, AT&T's challenge to competition was feckless and loud, 
but Verizon's deal affects the very competitive structure of 
the communications industry. This transaction, and others that 
are like it, does not threaten to be the single grand coup that 
ends competition in our time. The danger rather is the prospect 
of a creeping duopoly in wireless and a quiet end to the 
contest once thought to be the most important to the consumers 
of all, namely, competition for last mile access.
    That is why the Federal Communications Commission must 
examine this transaction just as closely as it did the AT&T/T-
Mobile merger.
    The usual dangers of excessive concentration are well 
known--higher prices, poor customer service, and, over time, a 
kind of depressing stagnancy. But I would like to highlight the 
particular dangers to innovation that are the likely byproduct 
of non-competition between Verizon and the main cable 
companies.
    I'm going to make two quick points. First of all, I want to 
point out that communications policy, not antitrust law, is the 
appropriate lens for addressing this transaction. The reason is 
that spectrum belongs to the public and it is the government's 
role to make sure that the asset of the public is used 
properly.
    The Commission cannot sit idly by, as it were, and say that 
nature is taking its course when the government has such a 
central intrinsic role of deciding what competition is in this 
industry. On an ongoing basis, the Commission needs to decide 
whether more competition or more concentration will be better 
for the people of the United States.
    If the Commission truly believes that greater 
concentration, in this case, in the wireless industry serves 
the interest of the American public, it is free to make that 
choice. Congress, similarly, is free to pass a law that 
supersedes the 1996 Telecom Act and remove competition as the 
policy of the United States.
    But if we take these actions, we owe it to the public to 
explain that we are changing the communications policy of the 
United States from a policy of competition and back toward 
something along the lines of regulated monopoly or regulated 
duopoly.
    Second, I want to point out that over the last decade, 
Verizon has been the clearest and strongest competitor to the 
cable industry, and what we face here is the prospect of the 
elimination of that competition. I don't want to simply focus 
on the FiOS arrangement, which I think is important, but not 
the only thing at issue here.
    What is at issue is the future of disruptive innovation. 
That is to say, the innovations we don't understand right now, 
but the innovations that could potentially undermine the 
stranglehold that cable has over the viewing habits of the 
American public.
    Consider, for example, something we haven't discussed much, 
which is 4G broadband to the home. PC Magazine wrote, ``The 
mobile broadband service that has the best chance of being a 
true cable replacement is Verizon's new 4G LTE service. The 
firm has an admirable home fusion product it just launched 
which shows much promise.''
    But the fact is that 4G is a cable replacement, not a 
complement. It is not clear how selling a cable replacement can 
be consistent with promoting cable's products at the same time.
    Thank you very much, and I welcome any questions you have.
    [The prepared testimony of Mr. Wu appears as a submission 
for the record.]
    Senator Kohl. Thank you, Professor Wu.
    We will now start our questions in seven-minute rounds.
    Mr. Milch, the vision of the landmark 1996 
Telecommunications Act was that the phone companies and cable 
companies would, for the first time, compete with each other in 
each other's markets.
    In the last few years, we have seen this vision on its way 
to being realized, particularly with Verizon FiOS, which offers 
consumers high-speed Internet connections and video in direct 
competition to the cable companies. FiOS has grown to be a 
strong competitive rival to cable, recently capturing market 
shares of 29 percent for FiOS TV and 33 percent for FiOS 
Internet in its service areas. Even outside the areas where 
Verizon has deployed FiOS, Verizon competes with cable for 
connections to the Internet and landline phone service. 
Consumers reap the benefits of this competition each and every 
day.
    Now, many are concerned that the joint marketing agreements 
represent a truce between these fierce rivals. Under the 
marketing agreements, cable company representatives will be in 
Verizon Wireless stores selling the very cable products that 
Verizon competes against, and Verizon Wireless will realize a 
commission for every cable product sold.
    So, Mr. Milch, what does this deal mean for the future of 
competition between Verizon and the cable companies? How can we 
expect you to compete as vigorously against cable when your 
subsidiary, Verizon Wireless, is partnering with these cable 
companies?
    We know you argue that you will not end your FiOS service 
for merely a commission of a few hundred dollars. But the 
question here is the level and vigor of competition.
    How do we know that you will maintain your same level of 
price competition and promotion or will not instead pull your 
punches in competing with the cable companies?
    Mr. Milch.
    Mr. Milch. Thank you, Senator--I mean, Chairman Kohl. Thank 
you for the question.
    Just to reiterate, these various agreements are between the 
cable companies and Verizon Wireless, not with the parts of 
Verizon that provide our FiOS service, our landline service.
    Number one, I think it's just important to know what the 
square corners of the agreements are so that we're clear on 
that. Verizon FiOS, which is part of our telecom part of 
Verizon, is going to vigorously compete, Senator, because its 
primary goal is to continue to provide the best level of 
service it can and extend its reach within its franchise areas, 
which have already been set out, and provide a world-leading 
service, a service that we believe beats cable because it's 
superior.
    And we want to continue to provide that service, Senator, 
because of the economics that you pointed out. It doesn't make 
us--there is no rationale for saying that you're going to go 
halfway if you want that sale, and that sale of FiOS is the 
clear winner, from a financial services--from a financial 
perspective.
    So a half-baked effort would leave you without that sale 
and would have--redound negatively to our bottom line.
    All the financial impetus is to compete vigorously. Verizon 
Telecom spends hundreds of millions of dollars a year 
advertising FiOS services where it's available. They're going 
to continue to spend hundreds of millions of dollars a year 
selling those services, and we will continue to compete 
vigorously, because it's a superior product.
    Senator Kohl. Mr. Milch, in an interview with Politico two 
weeks ago, Mr. Cohen of Comcast stated that, quote, ``Within 
the FiOS footprint, all we have agreed is that Verizon Wireless 
stores will be Switzerland. They can sell Comcast products and 
they can sell FiOS products. There is no favoritism,'' quote.
    But until now, Verizon and Comcast have been fierce rivals 
where you overlap. Now, Mr. Cohen says your wireless subsidiary 
stores will be like, quote, ``neutral Switzerland.''
    Is this not another way of saying the competitive battle, 
if not entirely over, is, for the most part, over?
    Mr. Milch. Senator, no, I disagree. Right now, our Verizon 
Wireless stores don't sell FiOS. They don't sell anything on 
the landline side. So they are already--the status quo is that 
they don't sell any landline services.
    If, in fact, we end up with a situation in which those in-
region stores, those FiOS in-region wireless stores provide--
sell landline services and do it neutrally, then there will be 
both wire line services there.
    Neutrality is also achieved, Senator, I might add, by 
selling neither. So it's entirely possible that those wireless 
stores within the FiOS perimeter will not sell either service 
and the status quo will be absolutely the same.
    Senator Kohl. All right.
    Mr. Milch. We market FiOS through the--not through those 
stores.
    Senator Kohl. Mr. Cohen, what did you mean by saying 
Verizon Wireless stores would be like Switzerland? Does that 
not imply that Verizon will not be able to compete as 
vigorously or will not compete as vigorously against you?
    Mr. Cohen. No. Actually, I think Mr. Milch gave the right 
answer. The full context of that question really was the 
question of, well, if Verizon Wireless stores sell Comcast's 
Xfinity product, does that give the Xfinity product a leg up on 
the FiOS product, and the answer is no.
    Those stores are like Switzerland and they're going to 
become additional battlegrounds for Comcast to compete against 
FiOS and for FiOS to compete against Comcast. And the critical 
issue here, as Mr. Milch said, is right now there is nobody in 
those stores.
    So a consumer who walks into a Verizon Wireless store 
doesn't have the option to buy a wireline service from anyone. 
And once we are in the stores, if we are in the stores, Verizon 
Wireless doesn't control the Xfinity offer that's in the stores 
and they don't control the FiOS offer that's in the stores.
    If we come in and say, ``You can buy a quad-play in the 
store for a $300 Visa card,'' FiOS could come in and say, 
``Well, we're going to sell the bundle at $69.95 instead of 
$99.95,'' and then requiring us to respond, requiring them to 
respond. And so that Switzerland, if you will, creates a hotbed 
of potential competition between Xfinity and FiOS that does not 
exist today.
    Senator Kohl. Professor Wu, does the Verizon/cable joint 
marketing agreement signal a, quote, ``standing down from 
competition'' between Verizon and these four cable companies?
    Mr. Wu. Mr. Chairman, I am very concerned that it does. You 
can see very clearly it's in the companies' interests often not 
to compete. It's something that the government always has to 
remain vigilant about. And if I were in their shoes, why would 
you compete after this?
    The incentives are for them to cooperate as opposed to 
compete, which is very good for both companies, but it's not 
clear that it's good for consumers.
    I want to add one thing. Verizon was saying that at 
present, Verizon Wireless does not sell wireline services, 
which is true, but they do sell a service that competes 
directly or could compete directly with cable. You can use 
wireless, 4G wireless, very fast wireless, to offer a 
competitor to a cable service, to a cable broadband service in 
the home, and they also sell that product and I think their 
incentive to sell that product will be diminished.
    Senator Kohl. Thank you very much.
    Senator Lee.
    Senator Lee. Thank you, Mr. Chairman. And thanks to all of 
you for coming.
    Mr. Rule, first of all, I appreciate you joining us. I 
understand you do not represent any particular business 
interest in this, and I appreciate your willingness to come and 
testify even in the absence of having such an interest.
    As you know, the primary focus of our antitrust laws is on 
consumer welfare. So accordingly, in considering the effects of 
a transaction and the effects that it might have on 
competition, we have to give appropriate weight to any 
efficiencies that might be produced as a result of that 
transaction.
    What, if any, efficiencies do you see that could come from 
this transaction and how might those efficiencies translate 
into some kind of benefit for consumers on the ground level?
    Mr. Rule. Senator, as I indicate in the written comments, a 
form of efficiency, if you will, or what efficiency ultimately 
generates is increased output. And anytime you take an asset 
that--and I view the AWS spectrum as an asset, and it's not 
being used to generate any output, it's, in effect, 
inefficient.
    What--and there are certainly arguments, I think Professor 
Wu has made them, that maybe in the hands of the cable 
companies, you couldn't expect them to be fully developed. I 
don't know. I don't think that's that important.
    What is important is that there's a market transaction 
where Verizon is willing to pay for it. Verizon has 
represented, and I'm sure that government will find out whether 
or not that's an accurate representation in their 
investigation, that they're going to take that spectrum, 
they're going to put it into their network, and it's going to 
allow them to keep up with demand for advanced 4G service, it 
may improve the quality of the service that they have. All 
those things, that is, the increased output, the improved 
quality, are very beneficial.
    With respect to the commercial agreements, I'm going to 
admit that I don't know that those efficiencies knock my socks 
off. I do think that these are agreements that are not 
unfamiliar to most of us out there in the marketplace.
    The real question from the antitrust perspective, though, 
is what sort of impact do those agreements have on the 
incentives of the two parties to compete. And it strikes me, 
again, as a FiOS consumer, customer, I'm concerned about that. 
But I think if you look at those commercial agreements, it's 
just hard to tell a story that they really significantly or 
even materially impact the incentives of the companies.
    So to me, that sort of need to get a communications service 
that each doesn't have on its own to fill in a bundled package 
makes sense. I think it reflects what consumers want, in some 
cases. But what everybody needs to understand is you're still 
going to be able to get FiOS service directly from Verizon. 
You're still going to be able to get wireless service directly 
from the wireless provider.
    As I said, I'm a FiOS customer. I'm a Verizon Wireless 
customer. I bought them in two separate places. And so to me, I 
don't think the competitive threat of those commercial 
agreements, when you actually look at them, is all that 
significant. And while there may be some benefits, I don't 
think it's incumbent on the parties under the antitrust laws to 
come forward with a lot of efficiencies to justify those sort 
of standard commercial agreements.
    Senator Lee. And you say the efficiencies do not 
necessarily knock your socks off. Does that mean that--you are 
not necessarily suggesting it is producing inefficiencies.
    Mr. Rule. No. No, not at all. And, again, under the 
antitrust laws, the way they're structured, if the government 
or a plaintiff wants to challenge a transaction, the burden is 
on them to show that welfare is being harmed, that allocative 
efficiency, if you will, is being reduced, total output is 
threatened with being reduced as a result of the transaction.
    It's only if you could sort of establish that first that 
the courts will look at efficiencies. So the burden on a party 
to an agreement is not to prove that their transaction will 
increase efficiency or increase output, it's really to prove 
that the transaction will not lower output, will not lower 
efficiency. And so I think that's the issue.
    But, again, they certainly have arguments for where the 
efficiencies lie in all three of these transactions. As I said, 
while it doesn't knock my socks off in the commercial 
agreement, I think in the joint R&D, there, there are real 
possible efficiencies that, again, I think Congress has 
recognized in the National Cooperative Research Act of 1984 and 
elsewhere and recognized that the antitrust laws needed to be 
sensitive to the potential benefits that joint R&D develop, for 
example.
    Senator Lee. Thank you. Thank you.
    Mr. Milch, one of the chief purposes of the 
Telecommunications Act of 1996 was to encourage increased 
competition between cable companies, on the one hand, and 
telephone companies, on the other hand.
    Some have suggested that FiOS, which competes directly with 
cable in areas where it has been built out, is exactly the kind 
of competition that the Act envisioned and was trying to 
encourage.
    Now, I understand that Verizon announced in 2010 that it 
did not intend to expand FiOS to areas where it is not already 
present, where it has not already been built out, but some have 
now expressed concerns that Verizon Wireless' cross-selling 
agreement will interfere with any remaining incentive that 
Verizon Communications might have to build out FiOS at some 
later date and that that deal symbolizes, it represents, it 
signals some kind of an end to any competition between FiOS and 
cable.
    Can you comment on that and on Verizon's decision not to 
expand FiOS beyond its current footprint?
    Mr. Milch. Yes, Senator. Thank you. Verizon made it clear 
in 2009, Senator, I believe, that it had reached--that it was 
near to the point of beginning to lower its capital commitment 
and had reached a point where it could see the end of its FiOS 
commitment.
    It announced then that it was not going to expand beyond 
the 18 million homes that were its target. We were very 
transparent with Wall Street and everyone else, because Wall 
Street punished us quite a bit for the massive investment we 
made in FiOS. That massive investment is the investment that we 
are going to continue to seek to recoup by providing the best 
service we can to our existing and to new customers to hold on 
and increase that revenue stream.
    But the confines of FiOS have been set since the very 
beginning. When we began this in 2005, we had a target in mind. 
We were clear on the target, and we were clear on the amount of 
money we were going to--of our shareholders' money that we were 
going to commit to this.
    So we owe it to our shareholders, Senator, to give them 
some return on this. We owe it to our customers to continue to 
provide them a service, that they're going to want to stay with 
us. And we owe it to our future customers in our franchise 
areas to continue to provide a service that they want us over 
our cable competitors.
    Senator Lee. It sounds like Mr. Rule will be pretty upset 
if you would go back on that. He will hold you accountable.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Lee.
    Senator Klobuchar.
    Senator Klobuchar. Thank you, Mr. Chairman and Ranking 
Member Lee, for holding this important hearing. Thank you to 
our witnesses.
    I wanted to just start out with one thing that happened 
today, and, that is, Mr. Milch, I want to acknowledge Verizon's 
announcement today on the measure that your company is taking 
to stop cramming and the unauthorized phone charges, third-
party phone charges that appear on bills.
    As you know, I have been long involved in this and have 
been asking this, and the Commerce Committee has been 
investigating this for quite some time. And so I am encouraged 
that you have taken these steps. And I am also going to ask 
other national phone companies, especially the top phone 
companies that have been engaged in this, to follow Verizon's 
lead and protect consumers from these fraudulent charges.
    But now back to the topic at hand. I would start out with 
just the issue of bundled services. Almost one-third of 
American households have cut the cord and rely on the wireless 
instead of a landline.
    Part of the business incentive behind this transaction is 
that the companies that are party to these deals want consumers 
to subscribe to a bundle of communications services, what we 
call the triple play of video, broadband, and traditional 
telephone service, and now a quad-play that also includes a 
wireless plan.
    On one hand, many consumers like the convenience of one-
stop shopping, purchasing a bundle of communications services. 
On the other hand, locking consumers into bundled services 
plans could potentially result in less competition, higher 
rates, and less innovation.
    So I would, I guess, start with you, Mr. Milch and Mr. 
Cohen, and then go over to Mr. Wu and ask--what are the 
consumer impacts as companies increasingly look to offer 
triple-play or quad-play bundles of service?
    Mr. Milch. Senator, thank you very much, first, for the 
kind words. We believe that we're going to be able to offer 
consumers more choices. So if right now the consumer doesn't 
have the choice of buying a bundle of services from Comcast 
that includes Verizon Wireless or vice versa and they want that 
convenience, they can get that convenience.
    As I said, it's important to note that the prices are set 
not by the agent selling it, but by the principal who provides 
it.
    Second, no one is constrained to buy it in these bundles. 
These are not bundles that are exclusive in some fashion. 
Verizon Wireless is going to continue to sell through all of 
its channels. FiOS will sell through its channels in its FiOS 
region, and I assume that Comcast is going to vigorously sell 
across its region.
    So there is nothing to get from this bundle other than 
convenience or a discount of some sort, but the consumer can 
choose or not choose.
    Senator Klobuchar. Mr. Cohen.
    Mr. Cohen. I will be short and give you plenty of time. I 
think Mr. Milch covers it from the Comcast or cable company 
perspective. The motivation for this transaction was to be able 
to afford our customers who wanted a quad-play bundle the 
opportunity to purchase one and to gain the convenience of the 
single purchase, particularly because our major competitors are 
going into that space and providing their customers with that 
opportunity; that is, AT&T, Verizon, DirecTV through its agency 
agreement with AT&T. And we did not have the opportunity to 
give our customers that particular option.
    So I think it's about optionality. About half of our 
customers buy a bundle today. The other half do not. And we are 
all about flexibility and providing our customers with the 
option to purchase our services in the way in which they want 
to purchase the services.
    So that's one of the reasons why this transaction increases 
customer choice, does not take away any optionality, and only 
improves, I believe, the consumer welfare and benefit, which 
maybe we can't quantify, but which we can certainly talk about 
in terms of improving customer flexibility and customer 
optionality.
    Senator Klobuchar. Mr. Wu. Thank you.
    Mr. Wu. Senator, thank you for raising the issue of triple 
or quadruple play. The industry loves quadruple play for many 
reasons, one of which that it means four streams of income.
    But for the consumer, it's not always so clear that the 
consumer is served by a quadruple play strategy, which can 
start to migrate into something more like a market allocation 
scheme.
    What the consumer really wants is one play that's fighting 
with the rest of them. It wants, that is to say, one service to 
try to start to try to compete with and kind of destroy the 
other three services and be the only bill that the consumer 
needs to get.
    The consumer is served by destructive innovation, not by 
bundling. And I think the problem with these agreements is they 
sort of foresee, I fear, a perpetual quadruple play, when, in 
fact, particularly with the advancement of Internet services, 
eventually one service could replace the rest.
    Senator Klobuchar. Thank you. I am going to come back to 
you, Mr. Kelsey, on something else.
    But, Mr. Milch, I am a sponsor of the Next Generation 
Wireless Disclosure Act, a bill that would require wireless 
carriers to give consumers complete and accurate information 
about their 4G service, including information about minimum 
data speeds, coverage maps, and network reliability.
    When consumers purchase a 4G wireless plan, I believe they 
have a right to know exactly what they are getting.
    What do the joint marketing arrangements mean in terms of 
the transparency and information that consumers can expect to 
receive about their wireless speeds and coverage?
    And then I would ask Mr. Kelsey the same and anything he 
would want to respond to.
    Mr. Milch.
    Mr. Milch. Senator, first, I applaud the introduction of 
this. We believe it's a real problem with people passing off 
faux-G for 4G. So we want to try to prevent that.
    As for the effect on these marketing agreements, we don't 
believe there is any effect in this sense. Whatever the rules 
are about disclosure, they will follow through to our agents. 
Our agents are very carefully--have to follow all the rules 
that we have to follow as Verizon Wireless.
    So if there are rules about disclosure, they will be 
followed through. So there is no aspect in which these 
agreements affect the utility of your efforts here.
    Senator Klobuchar. Mr. Kelsey. Thank you. Mr. Kelsey.
    Mr. Kelsey. I would say that for the most part, in the 
telecom marketplace, we see that when these companies are 
making deals with one another, there is not the types of 
incentives that are there to try to differentiate their 
products in ways that are valuable to consumers.
    So I would fear a lack of transparency as a result. And I 
would go back to some of the comments that Professor Wu made 
and that were made earlier in the panel, that, specifically, 
what's interesting with these deals is that the cable companies 
that jointly own SpectrumCo have shown that they really want to 
get involved with the wireless market and offer a 4G service.
    And that's well and good, but there's lots of ways for them 
to do that that it isn't harmful to the competitive 
environment. They could make deals with other wireless carriers 
that offer a competitive alternative to the dominant AT&T and 
Verizon.
    With this deal, that threat is removed from the table. And 
so I think the real question here is, do these deals make the 
prospect for competition in the wireless marketplace in 
particular better or worse? We would say no, and, as a result, 
the FCC should reject the license transfer.
    Senator Klobuchar. Thank you very much.
    Senator Kohl. Thank you, Senator Klobuchar.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman, for holding this 
very important hearing.
    Mr. Milch, when you received that phone call a little 
earlier, was that on your Verizon Wireless?
    Mr. Milch. Yes, sir.
    Senator Franken. Because the ring seemed very, very clear 
and a very good, clear connection.
    Mr. Milch. It was over a blazing fast 4G phone.
    [Laughter.]
    Senator Franken. And was the call from Brian Roberts? Is 
there any collusion here?
    [Laughter.]
    Senator Franken. No. All right. That was a joke.
    [Laughter.]
    Senator Franken. Mr. Milch and Mr. Cohen, the FCC found in 
its 2011 report on cable industry prices that over a 14-year 
period, cable prices have increased by 134 percent. That means 
an average family used to be paying $22 per month for cable, 
but as of 2009, they were paying $53 per month.
    This is a pretty large increase. That is more than three 
times the rate of inflation, and this was three years ago I am 
talking about.
    But even more tellingly, the FCC found that cable rates 
were lower in communities where there was effective competition 
and higher in places where there was no real rival operator.
    This is really at the heart of why I am skeptical about 
this deal. It is almost as if your company has gotten a room 
with the other big cable companies and you agreed to throw in 
the towel and stop competing with each other. And I fear that 
will mean consumers will just keep seeing their cable rates 
rise.
    How can we be assured that will not happen? And, again, 
this is for the two of you.
    Mr. Cohen. I will go first this time. Thank you, Senator 
Franken. And let me respond in two ways, if I can, which is, 
first of all, as in looking at any government report, you can 
sort of find what you want in the report.
    So I don't want to quibble with the premise of your 
question except to point out that in the same report, the FCC 
also concluded that the price per channel for cable subscribers 
had actually declined almost seven percent over the preceding 
12-month period.
    And I think in the cable business, we're looking at 
providing more channels, more high definition----
    Senator Franken. I am sorry. Excuse me for----
    Mr. Cohen [continuing]. More choice.
    Senator Franken [continuing]. Being amused. Go ahead.
    Mr. Cohen. So I think--so I actually think that market is 
robustly competitive. I think it has improved quality. I think 
it has lowered price for the consumers.
    In terms of the concern that you have expressed, which I 
think is the legitimate concern and each of the questions have 
gone to this, I'm a believer, at the end of the day, that 
businesses are going to perform primarily in their best 
economic interest, and there's just nothing in these 
transactions that is going to stop us from trying to beat the 
brains out of FiOS, continuing to compete against FiOS on 
quality and on price, and there's nothing in this transaction 
that's going to prevent them from trying to do the same thing 
to us.
    So just look what's happened since the transaction has been 
announced. FiOS has come out with a $69.95 a month bundle in a 
chunk of its footprint, reducing the price of its bundle by a 
third in that particular area.
    They have announced a deal with Redbox to provide a new 
over-the-top service to FiOS customers that is exclusive to 
FiOS, and we have responded by launching Streampix, which is 
our new----
    Senator Franken. All right. I got it. I only have a certain 
amount of time, but thank you for your very complete answer.
    Mr. Milch, thanks for being here.
    Mr. Cohen, one of my many hearings or of the many hearings 
that was held prior to the passage of the 1996 
Telecommunications Act, the Comcast CEO at the time testified 
that the company planned to, quote, ``combine wireless and wire 
technologies in a bold new way to give American consumers 
unprecedented choice, convenience, and competitive prices,'' 
unquote.
    He went on to say, quote, ``When we are done, America will 
be the first nation on earth to have full-fledged facilities-
based telephone competition everywhere. We will achieve the 
vision of the two-wired world,'' unquote.
    This deal seems to completely abandon the goals of the 
Telecom Act and seems to signify that the promises that Comcast 
made in 1996 will no longer come to fruition.
    Do you disagree with me on that? And do you think that this 
means that we, Congress, need to reevaluate the deregulation 
that took place in the Telecom Act?
    Mr. Cohen. I never like disagreeing with you, Senator. So I 
think I'd rather just put the comments in a slightly different 
perspective that's reflective----
    Senator Franken. I appreciate that.
    Mr. Cohen. I think the comments at the time were reflective 
of a marketplace that existed in the mid-1990s. At that time, 
Comcast actually owned a small wireless business, Metrophone in 
Philadelphia, and I think we have seen a dramatic change in the 
marketplace over time.
    So we got out of that business. Then starting in the mid-
2000s, we decided we needed to be in that business. We tried a 
joint venture with Sprint around Pivot. We formed SpectrumCo. 
We bought spectrum. We spent tens of millions of dollars 
evaluating the opportunities, clearing that spectrum, concluded 
we couldn't enter the wireless space on our own, and now we 
have ended up in the sale of the spectrum and these commercial 
agreements, I believe, to----
    Senator Franken. I am sorry, but could you----
    Mr. Cohen. I am sorry--I believe, to accomplish exactly 
what it is that Mr. Roberts said in 1996. So I don't think we 
have changed the goal. I think we have changed the tactics to 
be able to get to the goal.
    Senator Franken. Just very quickly. Did you consider--
because you made the sale right before the AT&T/T-Mobile deal 
was scuttled. Did you consider maybe holding out and using 
competition on who could buy the spectrum? Would not that have 
been a smart thing to do from a business perspective?
    Mr. Cohen. We engaged--I'll answer with one sentence and if 
you want to probe beyond that, we engaged in discussions with 
virtually every wireless carrier in the country with respect to 
this spectrum and the types of commercial agreements that ended 
up being the product, and ended up believing that the 
transaction that is in front of you is the best transaction for 
our customers.
    Senator Franken. Thank you.
    One last question for Mr. Wu and Mr. Kelsey. I am worried 
about what this deal might mean for consumers not just two 
years from now or five years from now, but 10 or 20 years from 
now.
    The fact that this is a joint venture can live on and the 
fact that it can live on indefinitely has me worried about the 
long-range impact of the deal.
    Can you tell me what you expect to be the downside for 
consumers if the deal goes through?
    Mr. Kelsey. I'll just jump in first. As I mentioned in the 
oral remarks, there is such a trend toward duopoly in the 
wireless market that would be exacerbated by putting close to a 
third of the Nation's broadband spectrum, measured by value, 
into the hands of Verizon, and that's something that the FCC 
really ought to take into consideration.
    I'm from Upstate New York, and if the State of New York was 
in charge of handing out all of the valuable farmland in 
Upstate New York and they decided to give 80 percent of that 
land only to two farmers, no one would be surprised when the 
price of corn all of a sudden skyrocketed.
    But we would expect the State then to come in and start to 
figure out how to protect consumers in that regard. That, to 
us, sounds like a whole lot of government. We would rather the 
FCC reject these deals in favor of more competition in the 
wireless marketplace, and we think that there are a number of 
items before the Commission that they could do to make sure 
that there are stronger competitors there.
    Senator Franken. Mr. Wu.
    Mr. Wu. I think the prospect is a slow drift back to the 
conditions of the 1960s and 1950s, which I think were good in 
some ways, great music, things like that, but in terms of 
innovation in communications, they were fairly dead. And the 
reason is we'd drift slowly back to a duopoly/monopoly 
structure, the only difference being no regulation against 
customer abuse.
    So I think those are serious problems. To be more concrete, 
I think we would gradually move toward the natural monopoly in 
the wireline side focused on cable. At least for now, we'd go 
toward the duopoly in wireless.
    And I want to add, finally, there's a lot of technologies 
that everyone was thinking were just around the corner that may 
just remain around the corner maybe forever. The idea that 
maybe America will have a fiber optic network to the home at 
some point in our Nation's history would be put on hold, 
perhaps perpetually. And the idea that wireless services might 
end up being a significant way of moving information to the 
home on a fixed basis, I mean, 4G, and people cutting their 
cable connections and just using their 4G modems, to be more 
technical, to get Internet access, that that as a major 
competitor to cable might disappear.
    So we drift back to sort of the stagnant, depressing 
communications markets of the 1960s and 1970s, and I think that 
wouldn't be so good.
    Senator Franken. Thank you all. Thank all of you, 
gentlemen.
    Mr. Chairman.
    Senator Kohl. Thank you, Senator Franken.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman. And thank you 
for holding this hearing.
    Let me begin by thanking Mr. Milch for your endorsement of 
the bill that I have introduced that Senator Klobuchar 
mentioned, the next generation wireless bill, and hope to be 
working with you in light of your endorsement on it, because I 
think it is very important.
    I would begin by asking you about these agreements, 
referring to, in the plural, the spectrum agreement and the 
marketing agreement. I take it your view is that they should be 
and can be reviewed separately.
    Mr. Milch. Yes, Senator. The agreements are not contingent 
upon one another. The spectrum agreement will move forward 
regardless of what happens to the marketing agreements. The 
marketing agreements will move forward regardless of what 
happens to the spectrum agreement.
    There are differences in the process, as you are very well 
aware, Senator. The spectrum agreement needs affirmative 
approval. The marketing agreements can move forward, and then 
there will be investigations that are already ongoing about 
them at Department of Justice and at the FTC.
    Senator Blumenthal. And in those reviews, they are separate 
reviews done by the Department of Justice and the FTC. Is that 
correct?
    Mr. Milch. Yes, sir.
    Senator Blumenthal. And with different standards and 
different laws that apply.
    Mr. Milch. Yes, sir.
    Senator Blumenthal. But it seems to me, in light of the 
market concentration that exists here, that the antitrust 
review is an important one. Would you agree?
    Mr. Milch. Yes, sir. And the Department of Justice is doing 
a thorough job.
    Senator Blumenthal. And should be.
    Mr. Milch. Yes, sir.
    Senator Blumenthal. In fact, my feeling has been over the 
years that the Department of Justice really has failed to be as 
rigorous or vigorous as it should be in enforcing antitrust 
laws going back for some years, perhaps not to Mr. Rule's time, 
without any criticism of that era.
    But with all due respect to the ladies and gentlemen who 
sit on this panel, the Department of Justice really has the 
primary enforcement role in this area. Would you agree?
    Mr. Milch. Yes, sir, I would.
    Senator Blumenthal. Really, the Department of Justice has 
that responsibility, and now the ball is in the Department of 
Justice's court. Is that correct?
    Mr. Milch. Yes, sir.
    Senator Blumenthal. Is there anyone who disagrees with that 
basic premise?
    Professor Wu.
    Mr. Wu. I disagree with that with respect to the spectrum 
sales. Those are the Federal Communications Commission's duty. 
And I think they should apply different standards to those than 
they would for a normal antitrust transaction.
    Senator Blumenthal. And I thank you for that clarification, 
because we were really talking about the antitrust issue, I 
think, primarily.
    Mr. Wu. The marketing agreements, correct? That's what I 
understood your question to be.
    Senator Blumenthal. Exactly. But you are absolutely right, 
Professor, and, luckily, we have a professor in the house to 
keep us on the straight and narrow.
    Let me ask the panel as a whole where you think, in effect, 
the burden of proof should be, because in this kind of 
antitrust review, I think there is a very strong argument that 
when you come to the Department of Justice, the companies bear 
a burden of proof because of the market concentration that 
exists in these respective areas of enterprise. And that is an 
open question.
    Mr. Cohen.
    Mr. Cohen. I'll take a shot, but I'm going to quote Mr. 
Rule, who is the only active practicing antitrust lawyer on the 
panel. Actually--and if I can, again, I hate to always be picky 
about this.
    Yes, we're the largest cable company. Yes, Verizon Wireless 
is the largest wireless provider. But we both function in 
intensely competitive markets. And notwithstanding our size, 
there are large numbers of competitors with robust competition 
and a pretty clear demonstration across the board as to the 
benefits of that competition to consumers.
    So I don't think our size alone would dictate a change in 
what the normal course of conduct would be, which is, on a 
strict antitrust analysis, as Mr. Rule stated in response to a 
prior question, the Justice Department analysis is to look, in 
the first instance, as to whether there is anti-competitive 
harm, whether there is harm to consumers. And in the absence of 
such harm to consumers, the proponents of a transaction 
actually do not have an obligation to come forward to 
demonstrate consumer benefit in order to outweigh that consumer 
harm.
    So I will tell you that in our--in this review, as in 
probably all reviews, we are aggressively making the case to 
the Department of Justice both that there is no consumer harm 
and that there is consumer benefit.
    So we're certainly at least assuming a burden of making an 
affirmative case that this is not a problem under the antitrust 
laws.
    But I think strictly speaking, in this case, we actually 
don't have a burden, because I don't think there is anti-
competitive harm that we need to overcome. But if we did, there 
is plenty of consumer benefit that we can put on the table to 
offset any anti-competitive harm that the Justice Department 
would articulate.
    Senator Blumenthal. Mr. Rule.
    Mr. Rule. Let me just say, put in a word for the U.S. 
antitrust system, the system isn't a law enforcement system 
and, essentially, the Department, when it investigates a 
merger, is trying to decide whether or not, under the 
precedents that are in place at that time, they can go in and 
block the transaction.
    So technically, the way the law is set up, the burden is on 
the Department, at least that's the way the Department views 
it, as to whether or not they can go into court and prove that 
merger may tend substantially to lessen competition.
    And so in that sense, the burden is on the government. The 
sort of notion----
    Senator Blumenthal. Well, the burden is on the government 
when it gets to court.
    Mr. Rule. When it gets to court.
    Senator Blumenthal. When it reviews the transaction, the 
burden is on the government, as well, to uncover the facts and 
do a thorough investigation. And my point earlier was simply 
that in many instances, States have filled a gap left by the 
lack of Federal antitrust enforcement.
    Mr. Rule. And I think that's fair, but I will--I mean, it's 
a fair comment. I don't know that I agree with it, but I 
understand where the comment comes from.
    I will say that, look, the Department of Justice and, 
particularly, the career folks, you take me and my successors 
out of it, they are very committed, they work very hard. 
They're going to put these guys through quite a bit of expense 
and effort in looking at all these issues.
    But I think the one thing that's important about this 
transaction in the spectrum part of it is they have to answer, 
I think, at the outset, the fundamental question whether or not 
the cable companies, simply because they own spectrum, are 
actual or potential competitors to Verizon Wireless.
    And the problem is that they are going to have if they go 
in and bring a lawsuit is it looks like the facts that at least 
I can see, it's going to be very difficult to argue that the 
cable companies are even a viable potential competitor under 
the existing case law, much less an actual competitor.
    So that's the dilemma that the Department faces.
    Senator Blumenthal. My time has expired, but I want to 
thank really all the witnesses for addressing these questions 
so well. And I understand and think that your points on the 
standard of proof issue are certainly fair points, and I will 
be very interested in seeing what the Department of Justice and 
the FCC determine.
    Thank you.
    Senator Kohl. Thank you, Senator Blumenthal.
    Mr. Cohen, when Comcast and the other cable companies that 
are part of SpectrumCo partnership bought spectrum at FCC 
auction in 2006, there was hope that the cable companies would 
develop a competing wireless service.
    Instead, these cable companies decided that it would be not 
economical to spend the resources to deploy this spectrum and 
enter the wireless market. Instead, you are now selling all of 
the spectrum to the largest wireless company, Verizon.
    We are not suggesting that you and your cable partners 
should be compelled to operate a cell phone service if you 
determine it is not economical and not in the interest of your 
shareholders. However, spectrum is government-granted public 
airwaves to be used in the public interest.
    Indeed, there are FCC rules against speculation in and 
warehousing of spectrum. And that is why we were disappointed 
when your CFO told an investors conference in January that, 
quote, ``We never really intended to build that spectrum.''
    So is it in the public interest, Mr. Cohen, for you to sell 
this valuable spectrum to Verizon, the Nation's biggest 
wireless company, which will keep it out of the hands of any of 
the competitors?
    Would it not have been better to at least have a public 
auction for the spectrum? The competitors would have a fair 
chance to bid on it, Mr. Cohen.
    Mr. Cohen. I think there are two questions embedded there. 
One is the warehousing argument, if I could address briefly, 
and I already gave a lot of this answer in response to Senator 
Franken's question.
    At the time we bought this spectrum, we had every intention 
of at least exploring whether we had a viable wireless 
business. We cleared the spectrum. We engaged in technology 
tests on the spectrum. We invited companies to come in and test 
their devices on the spectrum. We expended tens of millions of 
dollars in those efforts.
    We engaged in a detailed analysis of the viability of 
launching a wireless business. Over that period of time, things 
happened, like the launch of the iPhone and the iPad that 
dramatically increased the amount of data that was going over 
wireless networks, and we concluded that 20 megahertz of 
spectrum was wholly inadequate to be able to build a business.
    We would have to buy more spectrum. We'd have to invest 
more dollars in the build-out of that spectrum, and we could 
not figure out a viable business model to be able to launch the 
fifth national wireless competitor. And that's the reason we 
made the judgment not to go into the wireless business.
    Mr. Angelakis' comments were in a Q-and-A at an investor 
conference, I think. I think they were--I think in the overall 
context of the five years of work that they did, they reflected 
our current view. The word ``never,'' I think, was unfortunate.
    We did explain that subsequently publicly, but I know and 
our documents will reflect that we did anything but engage in 
spectrum warehousing. We seriously studied this alternative and 
just determined there was not a viable business for it.
    In terms of whether we should have auctioned it off or made 
it available, as I, again, said in response to a question from 
Senator Franken, we marketed this spectrum. We talked to 
virtually every wireless player in the marketplace.
    And at the end of the day, we made the conclusion that the 
transaction we entered into with Verizon Wireless was the best 
transaction for our company and for our customers. And under 
Section 310(b) of the Communications Act, Congress has directed 
the FCC that its appropriate standard of review is of this 
transaction, not of some other hypothetical transaction that we 
might have entered into, and the antitrust laws through case 
law have established exactly the same principle in the 
antitrust context.
    Senator Kohl. All right. Mr. Milch, just a few minutes ago, 
you said these agreements are separate. However, Mr. Cohen, in 
his interview with Politico on March 8, said, ``The transaction 
is an integrated transaction. There was never any discussion 
about selling the spectrum without having the commercial 
agreements.''
    So I suppose, Mr. Milch, you would be challenging that 
view. And if you do not, does that not mean that the regulators 
should consider these together?
    Mr. Milch. Senator, I don't challenge his view. I interpret 
it a certain way. I don't think that he meant by integrated 
that they are contingent upon one another, which they are not 
contingent upon one another.
    And there is no doubt that they were negotiated at the same 
time. That's obvious. They were signed at the same time. That's 
also obvious, as they are part of a larger set of deals. That's 
also obvious.
    But the law is you look at deals on their square corners. 
These deals are not contingent upon one another. And, finally, 
I would say, Senator, that the responsible agencies, both the 
Department of Justice and the FCC, are undertaking 
investigations.
    So if the concern is will the appropriate authorities look 
at them, the appropriate authorities are looking at them.
    Senator Kohl. Mr. Cohen, just to understand your statement, 
you are saying that you would have not done the spectrum sale 
unless you obtained the commercial agreements. Is that not what 
you said?
    Mr. Cohen. That is basically correct. From a Comcast or a 
cable company perspective, our interest was in having an 
integrated solution and a comprehensive strategic wireless 
solution for our company and for our customers. And sale of the 
spectrum, as well as entering into the commercial agreements, 
provides us with that integrated comprehensive solution.
    And to be clear, I do not disagree with Mr. Milch that the 
agreements are not contingent upon each other. There is no 
legal connection between them. The Justice Department could 
challenge the commercial agreements and nobody could do 
anything with respect to the spectrum agreements. That is 
absolutely something that could occur.
    So legally, it's not the agreements that are integrated. 
It's the fact that the sale of the spectrum, plus our entry 
into the commercial agreements, provided us with an integrated 
wireless solution.
    Senator Kohl. Professor Wu, is it your view that in keeping 
with the goals of competition and communications policy to 
permit cable companies to sell this spectrum to Verizon 
Wireless?
    Mr. Wu. I certainly don't think it's in the spirit of a 
policy which maximizes competition in these industries, 
spectrum-based industries. And I want to repeat again that the 
appropriate lens for analysis here of the spectrum sale is not 
antitrust law, with respect to Senator Blumenthal.
    This is a matter of communications policy and this Nation 
decided almost three decades ago that we are embarking on a 
course of competition, not regulated monopoly. And these 
transactions threaten to take us back in the direction of 
duopoly/monopoly, this time unregulated.
    Senator Kohl. Thank you very much.
    Senator Lee.
    Senator Lee. Thank you.
    Mr. Berry, some have made the estimate that the U.S. 
Government may own as much as 61 percent of the best airwaves, 
and, meanwhile, the mobile broadband providers may own only 
about 10 percent.
    Some commentators have argued that the impending spectrum 
crunch that everyone is anticipating and, in many respect, 
fearing, has been made worse by government mismanagement and 
failure to free up spectrum in a more timely manner.
    Could you comment for us just kind of the role of 
government, the role that it has played in the spectrum market, 
what could be done separate and apart from efforts to 
scrutinize this deal, to help ensure that more spectrum is 
available for all wireless companies that might need it?
    Mr. Berry. Thank you, Senator. Thank you for the question. 
I was starting to feel like a potted plant here.
    Senator Lee. I did not want you to feel left out.
    Mr. Berry. Appreciate it. Thank you for the question. Yes, 
you're right. The government, most notoriously in the 
President's broadband plan, identified a hope of having 300 to 
500 megahertz of additional spectrum made available for 
broadband, and I understand that that is a very difficult role.
    Over the past 15-20 years, I have been involved in numerous 
legislative efforts to free up more spectrum for wireless uses 
and, particularly, broadband. That is a government function.
    We also have a government function directly related to this 
particular transaction, and it is incumbent upon the FCC to 
look at not only the efficiencies, as Verizon had indicated, 
but the spectrum that they currently have warehoused and 
currently not utilizing as we move forward, because many of our 
carriers didn't have an opportunity to purchase the spectrum.
    T-Mobile, who was otherwise engaged in an AT&T event, was 
unable to acquire this spectrum. I don't think that any----
    Senator Lee. Unable from a financial----
    Mr. Berry. No. They were involved with the AT&T/T-Mobile 
acquisition.
    Senator Lee. So in that respect.
    Mr. Berry. So that sort of took them off the market during 
that period of time, for sure. But the overall issue is how do 
you get spectrum in the hands of competitors, competitive 
carriers that can utilize it efficiently, effectively, 
immediately.
    And what I'm saying is in this particular case, the FCC is 
going to review that and I think they're going to find that 
there is additional spectrum that Verizon has that will only be 
enhanced by this particular deal, and it may be best in the 
U.S. public interest that spectrum divestiture and spectrum 
screen be applied to this particular deal so you can get that 
spectrum out there.
    It's a real shame that private companies throughout the 
wireless world may, in fact, be continually harmed by spectrum 
policies that have not brought spectrum to the marketplace in 
time to meet customer and consumer demand.
    And since we are in a very, very limited market, with 
tight, very finite resources, I think we have to be very 
prudent about how those spectrum resources get assigned. And 
I'm not so sure that it is in the public interest for the 
largest company that is not only one of the best and most 
efficient, but still has spectrum warehoused.
    They may pay $3.9 billion for this slice of spectrum. 
They're warehousing over $5 billion worth of spectrum that is 
currently not in use. We think we would like to see more 
competitive carriers get access to that.
    Senator Lee. Mr. Cohen, did you talk to T-Mobile? Was T-
Mobile somebody you consulted in this offering?
    Mr. Cohen. Senator, I have generically said that we talked 
to virtually everyone in this space. Most of those discussions, 
as I know you appreciate, take place pursuant to non-disclosure 
agreements. So I'm a little limited in what I can say.
    The good news for your question, however, is that I don't 
think anything would prevent me from disclosing something that 
is already in the public domain. And the fact of the matter is 
that Robert Dotson, in 2010, who was the president of T-Mobile 
at the time, stated publicly that T-Mobile was engaged in 
discussions with cable companies about spectrum. And I think 
it's probably a pretty natural extension--it doesn't take is 
very far to know who else could he have been engaged in 
discussions with other than us.
    And so I'm happy to confirm Mr. Dotson's public 
representation that he was in discussions with us about this 
spectrum.
    Senator Lee. Mr. Berry seems eager to respond.
    Mr. Berry. And I think it's important to note. Mr. Cohen 
has said this is an integrated transaction, and I think it's 
very important that they made the decision, the corporate 
business decision that this particular transaction could only 
be given by Verizon. No one else could, in fact, sign a non-
compete agreement nationwide that would impact wireless and 
give cable companies, SpectrumCo, the ability to have 
nationwide wireless access to a network.
    Senator Lee. Understood. Understood.
    Mr. Milch, I would like to raise with you the same question 
that I originally presented to Mr. Berry regarding the fact 
that apparently 61 percent of the best airwaves are held by the 
government, 10 percent only are available to broadband, 
wireless broadband providers.
    What can the government do to help free up some of that 
spectrum?
    Mr. Milch. Senator, thank you. Surprisingly, I agree with 
Mr. Berry that there is a great deal of spectrum that is 
available that's in the government's hands, but it is a very 
difficult job for the Federal Communications Commission, given 
the intergovernmental issues and the priority that seems to be 
claimed by certain government agencies over their spectrum, to 
free up that spectrum.
    Nevertheless, there is considerable spectrum that's 
potentially coming on board, and I do want to stress that this 
notion that some spectrum is so much better than another 
spectrum is reasonably well concocted for the purposes of this 
hearing, particularly when you weight certain spectrum based on 
book values and an arbitrary analysis that was done for the 
purposes of trying to take spectrum out of play in order to 
artificially inflate Verizon's alleged proportion of valuable 
spectrum.
    Senator Lee. That is not to say that all spectrum is 
created equal.
    Mr. Milch. It is not created equal. But, for instance, the 
Sprint head of technology recently--in 2010, I believe it was, 
opined how certain higher frequency spectrum is much better for 
mobile broadband in congested areas because it has more 
carrying capacity.
    All spectrum is created differently. But you have the 
spectrum you have, you do the best you can with it, and if you 
invest in your technology, you can have a world-leading 
service, like Verizon Wireless does.
    Senator Lee. With the higher frequency, it has got more 
carrying capacity, but one of the disadvantages is it cannot go 
through----
    Mr. Milch. Different propagation characteristics through 
walls and the like. Yes, Senator.
    Mr. Berry. For example, a high-frequency spectrum of 2.3, 
2.5 would cost more than four times as much to build out to 
have the same capacity and use as a 700 megahertz spectrum, 
especially the propagation values and characteristics are great 
for Utah and Wisconsin and other large States.
    So it's not created equal, and I think this particular 
spectrum is one of the four slices of spectrum that LTE, 4G LTE 
is going to be rolled out on nationwide, which makes it 
extremely attractive and very valuable.
    Senator Lee. Thank you. I see my time has expired, Mr. 
Chairman.
    Mr. Kelsey. Excuse me. Since he seemed to indicate the 
value stream that we had tried to place on it, I would just 
jump in and say we agree that spectrum is absolutely not 
created equal, but the way that the FCC currently measures it 
is by just looking at square foot.
    So if you are in the property market where location drives 
the value of property, you wouldn't just look at the square 
feet of a house. You'd look at is it beachfront, is it beach-
adjacent, does it have a beach view. The FCC does not do that 
in its spectrum screen.
    And I also think it's important to remember that the 
spectrum screen is not a bright line test, you fall inside or 
outside of it. It's more of a guideline to indicate to the FCC 
when there is enough consolidation in a spectrum sale for them 
to be interested in it and to take a deeper look at the 
competitive impacts that that spectrum sale will have on the 
larger wireless market.
    And in this particular sale, we're saying that Verizon 
already has quite a bit of the beachfront, sub-1 gigahertz 
spectrum. This is the last piece of nationwide spectrum that 
will come on the market for some time and giving it to Verizon 
for the foreseeable future would have an adverse impact on 
competition and consumers going forward.
    Senator Lee. I see my time has expired. Thank you, Mr. 
Kelsey.
    Thank you, Chairman.
    Senator Kohl. Thank you.
    Senator Franken.
    Senator Franken. Thank you. Mr. Milch and Mr. Cohen, one of 
my big concerns with this deal is the joint venture that your 
companies have agreed to create. I am imagining that you could 
produce some very valuable technology that you could also keep 
locked up between yourselves, similar to what we now see with 
cable set-top boxes.
    Will you commit to opening up the technology and the 
intellectual property that your companies create to your 
competitors so that they can obtain the technology at fair, 
reasonable, and nondiscriminatory rates?
    Mr. Milch. Senator, I hope you are right that we are going 
to create something valuable. Right now, we have nothing. We 
are starting from scratch in, as Mr. Cohen said, a very 
competitive market with Apple, Google, everyone else. And if we 
do, Senator, then the question is why would it be that this 
particular set of intellectual property is commanded to be 
opened up when other people's intellectual property isn't.
    For me, Senator, the question is going to come down to this 
joint venture to decide what the best way to monetize that 
intellectual property is and whether it is in its interest to 
open it up or not.
    One thing we have seen is that closed technologies do not 
survive as well in the marketplace as open technologies do.
    Senator Franken. I guess one of the reasons--the answer to 
your question is that we worry about this agreement, this joint 
venture agreement. That is why I am asking you this question.
    Mr. Milch. Yes, Senator. But as I said, we have nothing in 
comparison to some very, very successful and well-heeled 
competitors who have a lot.
    Senator Franken. You guys are very successful and very well 
heeled, and, presumably, your joint venture will yield some 
really exciting stuff and that, I think, is the point of it.
    Let me move on. Mr. Rule, if you had known in 1996 what you 
know now, that cable would never enter the wireless market and 
Verizon would abandon its copper infrastructure and stop 
marketing it, its DSL technology, do you not think you would 
have been--we would have been foolhardy or Congress would have 
been to completely deregulate the market?
    Mr. Rule. Well, let me start the answer by indicating that 
one of the things I did when I was at the Department of Justice 
back in the 1980s was administer the AT&T decree, which, de 
facto, at least, was the way in which the industry was 
regulated.
    And notwithstanding, again, a lot of good faith efforts by 
people at the Department of Justice, I think we created some 
issues. And one of the reasons I always viewed the 1996 Act as 
being important was because it took this sort of regulation out 
of the antitrust division and tried to open an area up to 
competition. But it didn't--after all, it did not completely 
deregulate.
    I guess I would not say that I would have been an advocate 
of the status quo in 1996, even if I knew what I know now. You 
might have done things a little differently. I don't know 
exactly, because I haven't thought about it.
    Senator Franken. Well, let us ask Professor Wu. Have you 
thought about it?
    Mr. Wu. I have thought about the 1996 Act, and I think the 
1996 Act, as you suggested, Senator Franken, was a deal. The 
idea was that the government would proactively take a policy of 
promoting competition, not just sort of sitting around seeing 
whether competition happened, but trying to promote competition 
in exchange for deregulation. And it did so in an effort to 
move away from a regulated monopoly and still attempt to keep 
alive the policy of the 1984 AT&T breakup.
    And what we're doing here is we're going back to the 
conditions before, slowly, but gradually and without stopping, 
going back to the conditions before the 1984 breakup, just 
without any deregulation to protect consumers, and I think that 
is not a good thing.
    Senator Franken. Thank you. Mr. Cohen, you confirmed that 
Comcast talked with T-Mobile in or before 2010 about spectrum. 
Presumably, those meetings are subject to the same non-
disclosure agreements that any 2011 talks were subject to.
    So can you confirm that you talked to them before you made 
this deal in 2011?
    Mr. Cohen. I mean, talk to them in 2011, I honestly don't 
know when the discussions with T-Mobile that Mr. Dotson 
referenced publicly ended.
    Senator Franken. Well, he made them in 2010, he made those 
remarks. He said in 2010.
    Mr. Cohen. Correct. But I don't know when those discussions 
ended. That's what I'm saying.
    Senator Franken. But you don't know when your spectrum 
discussions with T-Mobile ended.
    Mr. Cohen. I don't know that, off the top of my head, 
correct. I can get that information to you.
    Senator Franken. I would really like to have that, because 
you said you talked to everyone you could talk to before making 
this agreement. T-Mobile seems to be kind of, ``Who'd you talk 
to,'' and this is like a big----
    Mr. Cohen. I'm in a difficult position. It's not like all 
of our discussions were in 2011. We talked over a long period 
of time to multiple players in the market before we ended up 
making this deal Verizon Wireless.
    Senator Franken. I know. But I am asking you specifically 
about T-Mobile and I feel that you are getting--I just want to 
know if, before you made this deal with Verizon, you talked to 
Sprint and to T-Mobile about this, and you were willing to 
confirm that you had talked to T-Mobile at least in 2010 or 
before then.
    Mr. Cohen. Only because I was limiting my confirmation to 
Mr. Dotson's public comments, which relieves me of any 
obligation under the NDA, and that's why I made the 2010 
reference.
    But the bottom line is before we entered into this 
transaction with Verizon Wireless, we talked to virtually 
everyone in this space.
    Senator Franken. Virtually everyone. All right. Well, the 
point is that T-Mobile did not say they had talked to you. They 
said they had talked to cable. And so you felt that it was fine 
for you to disclose that you had talked to T-Mobile, but now 
you cannot tell me, with this very, very important deal, 
whether you were trying to make a deal with T-Mobile, who would 
be one of two likely suspects for this.
    You cannot tell me whether they were one of the players 
that you were trying to sell this spectrum to, spectrum that is 
worth an awful lot of money, and you cannot even remember 
whether in 2011 you talked to them.
    Mr. Cohen. I can't remember when the discussions with them 
stopped. I can remember that--I can remember that we engaged in 
discussions with them before we made the deal with Verizon 
Wireless.
    Let me say this. I know the discussions stopped by the--at 
the time AT&T and T-Mobile announced their deal. I don't 
remember when that was either. That was sometime in 2011, I 
believe.
    Senator Franken. Fair enough. Good. Thanks. I really 
appreciate your testimony. And my time has run out. Thank you.
    Senator Kohl. Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman.
    I want to thank all the witnesses for being so cooperative 
and forthright and straightforward in your responses today.
    Mr. Rule, you have qualified your answers by saying that 
you had--I think I am quoting you--restricted access to 
information. I wonder if you could tell us what facts or other 
information you would need to know to further evaluate the 
legal and factual issues here.
    Mr. Rule. I think that there are a lot and there are a lot 
of issues that I think the Department is exploring and should 
explore. But there are two things that one would like to know 
if you're trying to judge this.
    The first is you'd actually like to see the agreements. I 
understand why they're not available and I'm certainly not 
criticizing the parties, because that's typical in these sorts 
of arrangements. And I will also say that these guys are very 
well represented by people who are well known in the antitrust 
bar. So I'm sure they did a good job.
    Senator Blumenthal. ``These guys'' meaning, just for the 
record?
    Mr. Rule. Everybody on both sides with me----
    Senator Blumenthal. Swayed your arm in one direction and 
not the other.
    Mr. Rule. Right. But I don't want to leave the folks to my 
left out either. But I'm sure that the people to the right of 
me, Verizon and the cable companies, their agreement was well 
vetted and well considered in terms of the way it was 
structured.
    But, frankly, you would want to look at that to sort of 
confirm what my view is based on what I've seen publicly, that 
this really doesn't materially change their incentives.
    Senator Blumenthal. And those agreements will be reviewed 
by the Department of Justice.
    Mr. Rule. They'll definitely be--yes. I'm sure the 
Department has seen them in complete unredacted form. They've 
probably seen drafts of them and so forth.
    The second thing that I'd like to see and I think would 
answer a lot of questions are planning documents, quite 
frankly, of both companies, but particularly of Verizon 
Wireless, because--and of the cable companies, because part of 
what the opponents are charging in terms of hoarding and other 
things is at odds with what Verizon has said, that this is 
going to be molded or folded into their network and they're 
going to make the investment so that they can deploy this 
spectrum in a sort of rational plan moving forward.
    If they are right about that, it strikes me that that 
suggests that sort of some of these hoarding concerns and 
everything else are off to one side. I believe, based on my 
experience representing companies, but also being at the 
Department of Justice, that the Department will get to the 
bottom of that. They'll understand what was motivating Verizon 
Wireless, whether Verizon Wireless really wanted to use this 
spectrum to enhance their ability to produce wireless services, 
or whether they're just buying it to warehouse it and keep it 
out of the hands of others.
    Senator Blumenthal. And all that information in the form of 
documents and testimony, interviews and so forth, would be 
freely available to whatever government agency was reviewing 
these issues.
    Mr. Rule. Correct. But it won't be available to me.
    Senator Blumenthal. We are talking about the government 
agencies.
    Mr. Rule. That's true. And I'm sure and I have a great deal 
of faith that they will chase down all the appropriate alleys. 
It's just that if you're a third party who were trying to look 
at this on the outside in a few days, I don't have access to 
that.
    I can speculate about what they'll find, but since I'm not 
involved, not representing the parties, I don't know.
    Senator Blumenthal. But a full evaluation of this deal 
would really depend on an examination of those kinds of 
material, that kind of information, testimony, interviews, 
documents, all of the stuff that you review as an antitrust 
enforcer, that the FCC could review in evaluating motive, 
purpose, effect, and so forth, even though many of these 
documents and those materials are not available to this 
subcommittee.
    Mr. Rule. That is correct. And, again, my experience both 
being somebody who has represented companies that had to spend 
a lot of money to sort of respond to that, but, also, being at 
the government, is that they are very thorough and I trust that 
they will be very thorough here.
    And I think it's pretty clear the kinds of things they'll 
want to look at. I think they'll also get their economists 
involved, because as I mentioned in my testimony, two of the 
more interesting filings are the competing declarations of the 
economists, Judith Chevalier, I guess, for the opponents and 
Michael Katz for the companies. And the government will engage 
in that and probably look at a lot of data.
    But, again, I have a lot of confidence that they'll do a 
thorough job.
    Senator Blumenthal. And the reasons that those documents 
are not available to the Committee would be the proprietary 
information that they include or--as now a private antitrust 
lawyer, maybe you could explain that.
    Mr. Rule. Sure. A lot of the documents that the government 
gets are highly confidential. The Hart-Scott-Rodino Act, in the 
wisdom of Congress, limits significantly the use to which the 
government can put the information and to whom they can 
disclose it.
    Senator Blumenthal. And part of the reasons--excuse me for 
interrupting--is, very simple, Hart-Scott-Rodino review occurs 
before the transaction actually goes forward so that it can be 
stopped before the eggs have to be unscrambled, so to speak.
    Mr. Rule. Correct. And the thought was in the 1970s when 
the Act was passed, because it has turned out to be very common 
to all of us, at the time, it was kind of a radical idea, but 
the notion was that if businesses were going to be subjected to 
those kinds of investigations, that really has to go to the 
most sensitive, competitively sensitive confidential 
information in order to answer the questions that you've 
raised, that the government had to guarantee the 
confidentiality of that material.
    And that's why it's so limited in terms of who the 
government can disclose it to. I'm sure they'd love to disclose 
it to this Committee and others. That sometimes would make 
their lives easier. But the fact is the law prevents them from 
doing that.
    Senator Blumenthal. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Blumenthal.
    Mr. Berry, critics of this deal are concerned that, as they 
see it, Verizon Wireless and AT&T own the large majority of the 
spectrum best suited for wireless, especially given the 
exploding demand for spectrum created by smart phones and other 
mobile devices.
    They believe Verizon Wireless' acquisition of this large 
amount of spectrum will only make the situation worse and that 
we are in danger of creating a duopoly in the wireless market.
    What is your opinion?
    Mr. Berry. Thank you, Mr. Chairman. I think we're very 
dangerously close to a duopoly already. You have 73, 75 percent 
of all the spectrum under one gigahertz, which has really 
unique propagation values and allows for deployment of services 
at lower cost owned by two companies. They own well over 80 
percent of the EBITDA in the wireless world.
    So it truly is, as the cable companies found out, a very 
difficult place to enter in as a new entrant. And that's what 
concerns me greatly now, is because if someone like Comcast and 
the cable companies cannot find a way into the wireless 
ecosystem with their substantial resources and literally green 
field spectrum that could be used immediately, then you should 
expect very few new entrants into the wireless world will be 
available.
    Senator Kohl. All right. Professor Wu, Mr. Kelsey, Mr. 
Berry, and Mr. Rule, in the event that this deal would go down, 
do you believe that there are any conditions either the Justice 
Department or the FCC should place on this deal, should they 
decide to approve it?
    Who goes first? Mr. Kelsey.
    Mr. Kelsey. I'll go first. Thank you for the question, 
Senator.
    We haven't seen any conditions, any proposed conditions 
that would mitigate the long-term harms that this transaction 
would cause. In a consolidated market--in a market as 
consolidated as the telecom market, I think the behavioral 
conditions have a short shelf life. They sunset. In the long 
term, harms to competition remain.
    So if there are any conditions that are considered, I think 
you'd look at structural conditions, spectrum divestitures from 
Verizon, foreclosing the ability of these companies to enter 
into the joint marketing arrangements in areas where they 
compete head to head and where their wireline infrastructures 
overlap.
    But that really seems like a band-aid. This market has a 
competition problem and consumers need a long-term solution. 
And so I think it would be much cleaner for the FCC to outright 
deny the transaction in favor of more competition and promote a 
more equitable distribution of the very finite spectrum we 
have.
    Senator Kohl. Thank you very much.
    Mr. Wu.
    Mr. Wu. All my answers, Mr. Chairman, stem from the 
fundamental fact that spectrum is the public's property. It's 
the property of the citizens of the United States, and we have 
special duties to oversee that this asset is used properly.
    I agree with Mr. Kelsey that probably the best thing to do 
would be to stop the sale of the spectrum, in particular. But 
if it is to be used, I'd put just two types of conditions if 
the sale is to go forward, two types of conditions to be 
imposed by the Federal Communications Commission.
    First of all, Verizon has promised--the centerpiece of all 
its filings is that it's actually going to use this spectrum, 
put it to use, it's not going to warehouse it. Well, if that's 
true, then the Commission should put some teeth into that 
promise--sorry, that's not the right metaphor. But it should 
somehow make sure that promise is carried out and put in some 
safeguards against warehousing, including, I think, maybe one 
of the best ones would be allowing unlicensed use of that 
spectrum if it's not put to use by a certain amount of time.
    Second, this is something that the competitive carriers 
have been talking about, there needs to be oversight or 
conditions on roaming and handset exclusivity. We cannot allow 
the prospect of parallel exclusion by AT&T and Verizon, the two 
biggest carriers, putting roaming rates up at such a level that 
competitive carriers don't have a chance.
    With more spectrum, the possibilities of the abuse increase 
and the Commission should pay attention to that.
    Thank you.
    Senator Kohl. Mr. Berry.
    Mr. Berry. Yes, sir. Mr. Chairman, thank you.
    As I had mentioned in my opening statement, we believe 
there should be spectrum divestiture, especially after a 
thorough review at the FCC, with a new spectrum screen, and 
identify those areas where we can more efficiently and 
effectively utilize that spectrum for competitors in the 
marketplace.
    Commercially reasonable roaming agreements, requirements 
that are permanent. This spectrum is being taken now to the 
market. There will be four competitors that will not now come 
into the marketplace, which we viewed as potential roaming 
partners.
    Now, Verizon is going to lease their spectrum, i.e., allow 
Comcast to sell their devices as an agent. So Comcast is coming 
into the wireless market as a competitor, but only as an MVNO, 
and no one will be able to roam on the MVNO arrangement of 
Comcast. Verizon will control that wholeheartedly.
    The last thing is affordable back-haul, because, yes, you 
can have a very effective, efficient network if you have access 
to back-haul, and we haven't even mentioned the fact that 
Comcast owns over 20,000 Wi-Fi hot spots, i.e., offload 
opportunities between here and New York, very important for the 
wireless industry to stay competitive.
    And, of course, interoperable standards. Every customer 
wants to know, wherever they are, whenever they make a call, it 
ought to be able to go through, and we agree with that.
    Senator Kohl. Thank you.
    Mr. Rule.
    Mr. Rule. Thank you, Mr. Chairman.
    I, first off, want to clarify that I'll defer to others on 
what the FCC should do, and let me just focus on what DOJ might 
do.
    From the perspective of DOJ and the antitrust laws, there 
first ought to be a determination that there is a violation of 
law, and then any fix, if you will, should flow from that.
    With respect to spectrum, again, as I've said, I question 
whether or not they're going to be able to prove that that's a 
violation. But if they did, then one would think that either 
they would prevent that deal from going through or they might 
require that Verizon Wireless not acquire all of it.
    But, again, that depends on what they conclude in 
concluding that the deal would lessen competition.
    With respect to the collaboration agreements, again, that 
really depends on the agreements themselves. Those, though, are 
pretty easy to fix and to the extent that the government sees 
that there are problems that create bad incentives in terms of 
keeping these two companies independent and competitive in 
their relative spheres, then the government can ask the parties 
to change the agreements in that way.
    So, again, it depends on what the agreements say and how 
the government--if the government concludes any particular 
feature of those agreements violates the antitrust laws.
    Senator Kohl. Finally, Mr. Milch, do you accept all of 
these conditions?
    [Laughter.]
    Mr. Milch. Surprisingly, no, Mr. Chairman, I don't. Let me 
explain. I won't go to the suggestion that it should simply be 
denied outright. I don't think that there is any basis for 
that.
    However lugubrious people feel at the moment, the Telecom 
Act of 1996 was a spectacular success and has produced 
unbelievable public good and will continue to do so.
    As for the notion of teeth in the build-out requirement, 
the spectrum at issue is already subject to the AWS substantial 
service requirements that were put on it when it was auctioned. 
No party has shown that those have not been complied with. And 
to the extent that they want to provide new or novel things, 
that's inconsistent with the Commission build-out rules, which 
Verizon is not seeking to change.
    It will be subject to whatever the build-out requirements 
were. We're getting it, obviously, many years later than we 
would have originally, but we will stick to the timeline that 
the FCC has already put on for the build-out.
    As for interoperability of handsets, back-haul and roaming, 
it's a very complete regulatory agenda that Mr. Berry has put 
forward. He puts it forward very ably on every transaction that 
comes around, and it's--in fact, he's very successful.
    The FCC has dealt with every one of these or is dealing 
with them. It has issued roaming rule. It is looking at back-
haul. Just today, it issued a notice of proposed rulemaking on 
interoperability at Mr. Berry's request.
    So all of these issues are squarely teed up at the FCC, and 
that is the appropriate place to deal with them, not in the 
middle of a license transaction.
    Mr. Berry. With his help, we might be able to move some of 
those even a little faster in the future.
    Senator Kohl. Do you want to make one follow-up?
    Mr. Wu. Just one comment. With respect, I think the current 
build-out requirements can't be considered effective given the 
fact that in the--first of all, they are 15 years long. And 
second of all, given the fact that they didn't prevent cable 
from sitting on this spectrum for multiple years, which 
everyone was complaining about.
    So it's clear that the current requirements are not good 
enough and, at the minimum, that's what the Commission should 
do is speed up this build-out.
    Senator Kohl. Very good.
    Senator Lee.
    Senator Lee. At the conclusion of and in response to my 
last round of questioning, Mr. Kelsey made a pretty articulate 
plea, a pretty articulate statement regarding the value of your 
spectrum holdings, Mr. Milch. I just wanted to know if you 
wanted a chance to respond to that.
    Mr. Milch. Thank you, Senator. Spectrum does have different 
propagation and other qualities. There is no doubt about it. 
However, the FCC has a very well-established approach to 
dealing with this issue.
    It has a spectrum screen, which, as ably said, below which 
there is a presumption that there is no competitive harm and 
above which it deserves further look.
    If there is a--the whole reason that the value proposition 
has been put forward with this weighting, which is a very 
arcane and mysterious formula that's been proposed, is because 
the existing rules, which have been set out and upon which 
businesses rely to do their business, defeat the effort to stop 
this transaction, because there are no competitive effects 
under the rules that are in place right now.
    If there is to be some new set of rules, if the Commission 
were to want to look at the spectrum screen again, that 
certainly is something that's within its power to do in a 
separate proceeding. I would note, however, that in such a 
proceeding, the denominator of the spectrum screen, that is, 
the amount that's available to be used, would likely increase, 
not decrease, because we are finding that there is much more 
available broadband spectrum than is currently being counted.
    Indeed, just today, the Commission decided that it was 
going to start a proceeding to see if one of the satellite 
companies could reuse its 40 megahertz of spectrum that is now 
used for satellite for broadband. And there are other pockets 
of such spectrum which are available for broadband use.
    Senator Lee. So you do not necessarily disagree with those 
who are suggesting that the spectrum screen ought to be 
revised.
    Mr. Milch. No. I do not believe the spectrum screen is 
deserving of revision, certainly not in the middle of a license 
proceeding, Senator. But I also would point out that we would--
that if such a spectrum screen were to be revised, an 
appropriate spectrum screen would include more spectrum and not 
less. So it would actually decrease Verizon Wireless' share of 
the spectrum.
    Senator Lee. Such that the ratio between the numerator and 
the denominator under the new spectrum screen analysis would, 
in fact, be lower.
    Mr. Milch. Yes, sir. That's what we believe.
    Senator Lee. Is the precedent, by the way, for the FCC 
coming up with a spectrum screen, a new spectrum screen or 
something analogous to that in the middle of a transaction 
without going through the notice and comment process first?
    Mr. Milch. I can't give you a complete answer, but I would 
note that the same argument was made very recently in a deal 
between AT&T and Qualcomm. The FCC declined to change its 
spectrum screen. The exact same sort of requests were made, and 
it declined to do so in the middle of a license transaction.
    Mr. Berry. Senator, if I can respond to that, because they 
did address the issue on the spectrum screen, saying that it 
should reflect four National competitors in the AT&T/Qualcomm. 
But specifically, the spectrum screen is not a product of an 
NPRN, a notice of public rulemaking or inquiry.
    Verizon itself argued for a change in the spectrum screen 
when they bought Alltel, and that was during the middle of a 
negotiation, and there's dozens of examples on record where the 
spectrum screen, after the spectrum cap was removed, was 
modified and changed during the ongoing proceeding, and it's 
happened from AT&T and Verizon, and many of our carriers, also.
    When it is to your advantage, you want it changed to your 
advantage. When it's not, you want it held the way it is.
    Senator Lee. And it was imposed initially without a notice 
of proposed rulemaking.
    Mr. Berry. My understanding is that that is a tool that the 
FCC used and developed over a period of years after the 
spectrum caps were eliminated.
    Mr. Milch. That is true, Senator. It is a tool. And I would 
point out that the spectrum screen changes because more 
spectrum becomes available or goes off the market. So that's 
one of the reasons it changes.
    It's a flexible tool that allows the denominator to grow 
and shrink depending on what's available or not available.
    So we believe that it should remain a flexible tool. That 
doesn't mean, however, that you would have a clear rule about 
the spectrum screen and then change it in the middle of a 
license proceeding.
    People may go to the FCC and argue about whether they ought 
to have a different view on what the spectrum screen is. But as 
party to the Alltel transaction, I can tell you, Senator, the 
result of that was the imposition of the spectrum screen and 
significant divestitures as a part of that because they went 
above the spectrum screen.
    Senator Lee. Before I run out of time, Mr. Milch, I want to 
ask you. Can you comment about Verizon's need for additional 
spectrum and tell us whether you agree with Mr. Berry's claims 
about unused spectrum and what Verizon might be doing to ensure 
that excess spectrum is being put to good use?
    Before you do that, I want to commend you on a very 
effective use of the word ``lugubrious.''
    [Laughter.]
    Senator Lee. I didn't expect to use that word today or to 
hear it in the context of the 1996 Telecommunications Act. So 
good job.
    Mr. Milch. Thank you, Senator. I'm going to get a lot of 
ribbing for that, Senator. Thank you very much.
    [Laughter.]
    Mr. Milch. Yes. Thank you for the opportunity. As I pointed 
out with my chart earlier, Verizon Wireless is the most 
efficient user of spectrum in the Nation. So we very much 
disagree with the notion that there is any warehousing going 
on.
    In the mobile world, them's fighting words, and it's not 
true about Verizon Wireless. We invest more than anyone else, 
we utilize--we have the most efficient network, and we take all 
sorts of steps, from an engineering perspective, to further 
increase the use of our spectrum that we do hold as quickly as 
we can.
    The notion that we have somehow warehoused this goes 
directly against all the facts that are on the record.
    Senator Lee. Thank you very much.
    Senator Kohl. Thank you very much, Senator Lee.
    And, Senator Blumenthal, you have the last crack at it.
    Senator Blumenthal. Thank you. While we are on the subject 
of linguistics, I want to compliment Mr. Cohen on the use of 
the word ``optionality,'' which probably has not been uttered 
with great frequency in these halls. I had not expected to hear 
``lugubrious'' in the context of antitrust law, but some might 
say that it could be applied to enforcement from time to time.
    I want to just briefly explore an area which I think is 
important to the future of this agreement, assuming it goes 
forward, and it relates to the value of the marketing 
agreements to the respective parties, and so it is relevant to 
the antitrust issues here. And that is the potential sharing of 
information, consumer information, and the security measures 
that will be applied to that information.
    And I know that you are aware of the importance of this 
area. It may not be one that you are prepared to address today. 
And so if you wish to comment on it in more detail in a written 
submission, I would be perfectly happy to accept it in that 
way.
    But, essentially, the focus of my interest is in protecting 
consumer information that is obtained by virtue of the 
agreements and the shared marketing and so forth and the 
keeping of that information confidential or notifying consumers 
in the event that it is shared or sold or exchanged with other 
companies as part of agreements that may not be encompassed by 
this direct agreement.
    So if you wish to comment on that area, I would welcome it.
    Mr. Cohen. I will comment quickly, and we can provide a 
much more detailed response. I think you have to break the 
agreements down. Let's do the easy one, which is the reseller/
MVNO agreements. Once they go into effect, those customers that 
we will market to and that we will sell the service to over the 
Verizon Wireless network are our customers, and, in fact, no 
customer information would be shared with Verizon Wireless. 
They are integrated into our system and they would be just like 
our regular customers.
    In the marketing agreements, and this is--Mr. Milch can 
help me or correct me, but the structure of these agreements is 
that if we sell--if we, Comcast, sell a quad-play, for example, 
and we sell a Verizon Wireless product with an Xfinity triple 
play, the wireless customer is a Verizon Wireless customer. 
They are not a Comcast customer.
    It's an artificial quad-play. They get a Verizon Wireless 
bill. They're a Verizon Wireless customer. We don't get access 
to their customer information once we've sold them the service 
and vice versa. If Verizon Wireless, in a Verizon Wireless 
store, sells a quad-play with a triple-play Xfinity plus a 
Verizon Wireless phone, the Xfinity triple play customer is a 
Comcast customer. And it's no different than when Best Buy 
sells a Comcast--an Xfinity triple play in the Best Buy store.
    Verizon Wireless and Best Buy do not have access to that 
customer information. So it's structured in the traditional way 
that agency agreements are structured to protect the very 
privacy concerns that the Senator is concerned about.
    Mr. Milch. And I would only add, Senator, that there is a 
very comprehensive set of rules in the FCC governing both cable 
information, customer proprietary network information on the 
telco side. All those rules are going to be respected 
throughout this effort.
    On Verizon's part, we have a very well-documented privacy 
policy that's available to all of our customers, who will be 
our customers, and all of our activities under these agreements 
will be governed by our privacy policies, which, by the way, we 
extend to our agents if they are acting on our behalf.
    Senator Lee. Thank you. Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much, Senator Lee and Senator 
Blumenthal.
    In closing, I would just like to say that this hearing 
today, which has been very interesting--and I would note that 
no one has left in the audience and we have been at this for 
two and a half hours, which I think is testimony to the 
expertise and the vigor that you have brought to this 
discussion, and we appreciate your being here.
    The hearing demonstrates that these agreements between 
Verizon Wireless and the four cable companies have potentially 
far-reaching consequences for competition in the wireless phone 
and cable industry. We will continue to examine these issues 
carefully.
    While this Subcommittee does not have the power to block or 
alter these deals, we very much hope and we expect that the 
regulators at Justice and the FCC will carefully examine the 
record from today's hearing and our witnesses' testimony as 
they decide whether or not to approve these deals and in what 
form.
    We thank you all for being here. This hearing is closed.
    [Whereupon, at 4:34 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submission for the record 
follow.]
                            A P P E N D I X

              Additional Material Submitted for the Record


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