Keeping Low-Income Consumers in Mind While Reviewing the Verizon Spectrum Buy

Back in December 2011, Verizon Wireless and some of the largest cable TV companies in the US announced a transaction in which Verizon will pay the cable companies $3.6 billion for wireless spectrum. With that spectrum, Verizon can build what amounts to another LTE network parallel to its current 4G network at 700 MHZ. In areas where its current spectrum holdings overlap with the cable companies’, Verizon will have a total of 60 MHz of spectrum, which would be enough to build mobile broadband networks with three times the capacity it has on LTE today. In addition to the spectrum transaction, the deal includes side agreements allowing Verizon Wireless and the cable companies to market and sell each other’s services. Verizon will offer cable-TV products in its retail stores and receive a percentage of revenue for every cable customer it signs up, while cable companies will receive fees for each wireless customer they sign up.

In February and again on March 26, the Benton Foundation joined a number of public interest advocates (1) asking the Federal Communications Commission to block the deal. Paramount for Benton is the disproportionate effect the deal will have on low-income users. Bills for basic services make up a greater proportion of the paychecks of low-income users, so any price hikes would have a disproportionate impact on them. As the FCC recently found, if quality voice service is not affordable, low-income consumers may subscribe to voice service at the expense of other critical necessities, such as food and medicine, or may be unable to purchase sufficient voice service to obtain adequate access to critical employment, health care, or educational opportunities. And if low-income consumers initially subscribe to phone service, but intermittently lose access because they cannot consistently pay for the service, many of the benefits for individuals and the positive externalities for the economy and society will be lost.

With the reduced competition for wireless, pay-TV, and wireline broadband services resulting from this deal, there’s less hope that competitive market forces will check the prices these companies can charge for their services. After the transactions, there will be no possibility that the cable companies will enter the wireless market, and it is unlikely that Verizon will build out new landline or fiber infrastructure in the covered markets. Furthermore, the joint agreements between the companies will give them a formidable advantage that will make it difficult for any existing competitors to continue their service, much less for new competitors to enter the market.

These concerns are heightened for low-income, wireless subscribers. Low-income consumers are more likely to be wireless-only telephone subscribers, more likely to get Internet access through their wireless phones, and, for those low-income households that are cable or satellite video subscribers, less likely to have the wired broadband service that makes it possible to switch to streaming video services like Netflix.

The FCC has recently undertaken a modernization of its Lifeline program, which reduces the monthly telecommunications bills for low-income households. However, the FCC’s efforts -- which rely heavily on a healthy, competitive communications marketplace -- could be wasted, Benton believes, if this deal is allowed. Benton and our public interest allies reminded the FCC that in its Lifeline order, the FCC adopted the goals of ensuring the availability of voice service for low-income Americans and the availability of broadband service for low-income Americans. Moreover, the FCC found that voice service is only available to low-income consumers to the extent that it is affordable and broadband to be “available” to a low-income consumer, a broadband network (or networks) must have been deployed to the consumer, and the broadband service offered over the network must be affordable and provide a sufficient level of robustness (e.g., bandwidth) to meet basic broadband needs. Lifeline subscribers will be heavily impacted by hikes in wireless prices as the program supports a uniform flat-rate reimbursement.

The ability of low-income users to access communications services depends at least as much on a healthy marketplace as a well-functioning program like Lifeline, and the anti-competitive spectrum transfers, technology ventures, and marketing arrangements proposed by this transaction would widen the digital divide. It would be inconsistent both with the public interest and the interests of economically-vulnerable communities for the FCC to allow these transactions to proceed.

1. The Benton Foundation joined Public Knowledge, Media Access Project, the New America Foundation Open Technology Initiative, Access Humboldt, Center for Rural Strategies, Future of Music Coalition, National Consumer Law Center, and Writers Guild of America, West in opposing the deal.

The Benton Foundation is a nonprofit organization dedicated to promoting communication in the public interest. These comments reflect the institutional view of the Foundation and, unless obvious from the text, are not intended to reflect the views of individual Foundation officers, directors, or advisors.