Verizon: Capacity crunch coming to big cities next year

Verizon and Comcast defend their spectrum deal to the Senate, with Verizon calling for more spectrum and Comcast dismissing the notion that competition would suffer.

Verizon and Comcast were at the Capitol today to defend their deal.
Daniel Terdiman/CNET

Verizon Communications, in justifying its planned acquisition of spectrum from the major cable providers, said today its wireless arm could suffer from a capacity shortage in its bigger cities as early as next year.

"We will need this spectrum in a number of significant markets by 2013, so there is no time to lose in making this spectrum available," said Randal Milch, general counsel for Verizon, in prepared remarks.

Verizon and Comcast, hoping to avoid the pitfalls that ended up killing the AT&T-T-Mobile deal, made their best case during a Senate hearing today. At stake is Verizon's ability to tap into a valuable swath of spectrum, enabling it to continue building out its 4G LTE network.

Comcast executive David Cohen, meanwhile, dismissed the notion that their cross-selling agreement would spell the end for Verizon's Fios television and Internet service, and argued the deal would actually spark competition and continued investment.

The deal, however, has run into opposition from Verizon's union, as well as consumer interest groups and media watchdogs, who are argue the deal will hurt competition and lead to higher prices for consumers. Verizon's competitors, meanwhile, are already asking regulators to halt the deal.

The companies needed to win some allies in the Senate, which has some influence over how the Federal Communications Commission and Justice Department will ultimately proceed. The proceedings also give the two companies a chance to make the case in a public setting, while also giving critics a chance to voice their opposition.

"We've heard a lot about the 'spectrum crisis,' but today I'd like to point out we face an equally large competition crisis," Free Press adviser Joel Kelsey said during prepared remarks to the Senate's subcommittee on antitrust and consumer rights.

There are a few similarities between Verizon and AT&T's respective attempts at closing their acquisitions. Both companies are using the looming spectrum capacity crunch as the focal point of their arguments in justifying the deal.

Verizon's situation is slightly different. While Verizon is acquiring spectrum from the cable consortium, made up of Comcast, Time Warner Cable, Bright House Networks, and Cox Communications, for $3.6 billion, it isn't acquiring any companies. But several cross-selling agreements, including a deal for Verizon to sell cable service and the cable providers to sell wireless service, have sparked concerns.

Comcast was clear with that point.

"There is no merger here," Cohen said. "Not one competitor will be removed from the marketplace."

In fact, Cohen said, the deal is expected to promote competition and compel rivals into catching up. He also noted that the deal allows both Verizon and the cable companies to offer services already offered by the likes of AT&T, Dish Network, Google, Apple, and Microsoft.

Critics also say that the deal would give Verizon a large stash of spectrum at a time when most of the spectrum is controlled by the two largest wireless players in the industry, the other being AT&T.

But Verizon argues that the spectrum held by the cable companies is wasted because they have no intention of putting it to use. Cox attempted to use its spectrum to build a wireless network, but had to fold the operation because of the difficulties of such an endeavor.

Verizon warned the senators that the spectrum crunch would hit soon, and would start hurting customers who expect a consistent level of service.

Milch said there was a lot of "ill-informed noise" about the deal.

Verizon and Comcast both argued that the concerns over Verizon dropping its Fios service held little weight. Both noted that Verizon has poured a significant amount of capital into the fiber-optic deployment for Fios, and that it would make little sense for the telecommunications company to drop such an investment. Milch said Verizon would continue to compete in markets where Fios exists.

In running through the deal, Verizon and Comcast said the cross-selling arrangement would allow the two sides to act as retail agents for each other, with cable services sold at Verizon Wireless stores, and wireless service offered through cable retail channels. In both cases, agents would be paid a fee if they sold a service. Such a deal wouldn't mean the two sides were colluding on services or prices, the companies said.

Still, consumer groups worry the alliance would mean a consolidation of power in the wired broadband business, with much of it in the hands of the cable providers. Kelsey called for regulators to again halt another major deal.

"The DOJ and FCC showed immense analytical skill and political courage in rejecting the AT&T/T-Mobile merger," Kelsey said. "If that was the down payment on future competition, preventing this proposed transaction should be the next installment."