Assurance Wireless, owned by Sprint, delivers Lifeline cell phone service to low income Americans.

Low income Americans may soon be able to obtain substantial discounts on broadband Internet service as part of an expansion of the Lifeline program, which currently provides subsidized landline and cell phone service.  The Federal Communications Commission is considering the future of the program, which currently focuses on basic telephone service, but could soon be expanded into broadband.

But before that can happen, the Lifeline program itself must undergo a comprehensive review process, according to FCC Chairman Julius Genachowski.

The FCC admits the program is overdue for reform. Recent investigations found billions in potential savings from the elimination of significant waste, fraud, and abuse.

The most costly problems appear to be coming from the recently introduced subsidized cell phone program, which hands out free or extremely low-cost cell phones to poor Americans, paid for by other ratepayers as part of the “Universal Service” surcharge.  Recent audits found many recipients double-dipping or worse, signing up for free cell phones for individual family members while already receiving a separate landline discount.  Under FCC rules, Lifeline recipients are supposed to receive a single subsidy per household, either for cell phone or landline service, not both.  But in several cases, informal audits found families with multiple cell phones, some handed out to children.

The FCC only recently decided to create an Accountability Database to track Lifeline program benefits.  Scammers have used loopholes to sign up those unqualified to participate, and some customers have obtained cell phones from multiple providers, a violation of the rules. Ratepayers could save nearly $2 billion annually once ineligible accounts are closed and the double-dipping has been stopped.  Some of those savings can be used to help defray the costs of Lifeline broadband, a potential new program that could deliver basic broadband service to low income households for around $10 a month.

Currently, a handful of cable and phone companies offer a similar service to those families who qualify for subsidized school lunches.  The FCC is analyzing data collected by providers like Comcast to help build a model program not affiliated with any single provider.

Genachowski said the program will not only help defray the costs of broadband service, but also get low-cost computers and training into the hands of needy families.

One of the most commonly-reported reasons why consumers do not adopt broadband service is its relatively high cost.  Most low-income broadband programs deliver basic 1-3Mbps service, but only to families with school-age children.

[flv]http://www.phillipdampier.com/video/FCC Lifeline.flv[/flv]

The FCC produced this video explaining the Lifeline program, who is eligible, how it works, and how to sign up.  (8 minutes)

Verizon Communications has held no talks with Netflix about a possible acquisition, despite frenzied media reports to the contrary.

Deal Reporter, a trade publication, was the source of the original rumor, but Bloomberg News reports the story is premature after talking with two sources who should know.

The rumored takeover did wonders for Netflix stock, which jumped more than six percent on the news.  That’s a boost the streaming and DVD-rental service needed after a year of public relations missteps and subscriber losses.

Verizon’s recent move towards launching its own streaming entertainment service outside of its FiOS fiber-to-the-home service areas made the rumor more credible, but other analysts think Verizon’s interest is on different company that shares Netflix’s love of the color red.

“Verizon’s not interested in Netflix, they see Redbox as a much better fit,” Sam Greenholtz, an analyst with Telecom Pragmatics in Westminster, Maryland, who has consulted for Verizon and was briefed by its employees about its plan, told Bloomberg.

It’s not the ubiquitous network of Redbox kiosks Verizon is after, it is the content distribution deals the company has with Hollywood studios.  Those deals are becoming quite lucrative for production companies — so lucrative in fact Time Warner’s chief entertainment mogul has cut back on his personal bashing of Netflix.  With Amazon, Time Warner’s own HBO Go, and Verizon entering the online video fray, Netflix CEO Reed Hastings declared there is now an “arms race” among the behemoths to dominate online viewing, and jack up licensing fees.

Hastings sees only the deepest-pocketed players as having a chance to make a stand in the online streaming marketplace, because content costs are increasing dramatically.  Hastings says Verizon and Amazon are bit players because they don’t offer a deep catalog of content and their offerings are more difficult to view on the family television set.

“The competitor we fear most is HBO Go,” Hastings said. “HBO is becoming more Netflix-like and we’re becoming more HBO-like. The two of us will compete for a very long time.”

HBO Go is part of the cable industry’s TV Everywhere project, delivering online video services to authenticated cable-TV subscribers.  Although HBO Go is typically included for free with an HBO subscription, the premium movie channel’s price has increased dramatically in the last three years.  In many areas, a monthly subscription for HBO now runs just shy of $15 a month.

CNN Money pondered whether Netflix can ultimately stay independent in a country where vertically and horizontally integrated super-sized entertainment companies control programming, distribution, and the Internet providers consumers use to access the content.  Netflix may still be an acquisition target:

Verizon. On the one hand, Verizon appears to be showing stronger interest in Redbox, which is planning to launch a streaming-video service in May 2012. On the other hand, Redbox is likely to face the same onerous licensing costs that plague Netflix, and Verizon might be better off buying a company experienced in licensing streaming rights. And besides, by hinting of a Redbox deal, Verizon can push down Netflix’ price – making a deal that much cheaper.

But if a Verizon deal makes sense on the face of it, it could become problematic over time. The two companies’ cultures are incompatible. Netflix takes risks that often (but not always) pay off, and builds its products around the customer’s experience. Verizon is risk-averse and builds its strategies on wringing fees from customers. If Netflix members staged a revolt over of the subscription fiasco, imagine how they’d react if Verizon raised fees further or demanded Netflix users sign up with its Internet service.

Microsoft. Netflix could give Microsoft the popular online service it’s never been able to build on its own. The Xbox has gone from gaming console to a well-received smart TV device, and integrating Netflix’ streaming-video service could put it ahead of Apple and Google. Plus, Reed Hastings could bring Microsoft a seasoned executive who instinctively understands where digital content is going.

Google. If the search giant can buy a phone maker, why not a video service? At $42.6 billion Google’s cash stockpile is 116 times the size of Netflix’s. Google already owns the only other digital-video property that has been embraced by the masses: YouTube. Combining the best features of both could lead to the only site you’d need to visit to get your video fix. Google’s recent comments on a controversial anti-piracy bill, however, could strain relations with studios that Netflix must license from.

Apple. As with Google, Apple’s $45 billion in cash will not only buy Netflix but sign many content deals and still leave tens of billions in the coffers. Thanks to iTunes, Apple has longstanding relationships with TV and movie studios, which could secure better terms for Netflix. And like iTunes, Netflix could spur enough sales of Apple devices that Apple doesn’t need to worry about making the profit that Netflix investors expect today.

Amazon. For as long as Netflix has been around, someone has been suggesting a merger with Amazon. Consumers have been buying DVDs from Amazon for years, and with IMDB, the best single film database on the planet, finding and researching movies to watch would be a cinch. The catch has been that owning Netflix’s mailing facilities would open it up to taxes in many states. But that may change now that Netflix seems ready to sell off its shrinking DVD-rental business.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Bibb on Verizons Possible Bid for Netflix 12-12-11.flv[/flv]

Porter Bibb, managing partner at Mediatech Capital Partners LLC, talks about Verizon Communications Inc.’s possible offer for Neflix Inc. and the outlook for the streaming video industry. He was widely cited as one of the primary sources of the Verizon acquisition rumor.  He speaks with Jon Erlichman on Bloomberg Television’s “Bloomberg West.”  (5 minutes)

"Hey, we're #19!"

The United States may be a leader in many things, but broadband isn’t one of them. The country has now fallen two more positions — to 19th place, behind South Korea, Sweden, Denmark, the United Kingdom, and even Iceland, since the Berkman Center for Internet and Society released its last rankings in 2009.

In 2004, President George W. Bush complained about the U.S. falling to 10th place, which he declared was “ten spots too low.”

Now eastern Europe and former Soviet Republics in the Baltics threaten to overtake the United States, and countries in southeast Asia already have.  Innovation in the United Kingdom, Australia and New Zealand means deploying fiber to the home service to the vast majority of the population.  Innovation in North America means conjuring up new pricing schemes to raise prices on broadband service and engage in competition-busting mergers and acquisitions.

But a USA Today editorial this week also places much of the blame on corporate influence inside Washington, which has promulgated legislative policies that favor telecommunications companies and throw customers under the bus.

“The simple answer is that other countries have policies that promote competition and innovation,” the editors write. “In contrast, policies here have allowed a few dominant players that control the least interesting parts of the broadband landscape (the cables and the wireless spectrum) to dominate.”

Indeed, a series of telecommunications laws enacted by Congress, combined with short-sighted policies at the Federal Communications Commission, have allowed a handful of super-sized players to own and control broadband service in America, resulting in providers establishing non-competing fiefdoms that avoid head-on competition.

The worst policy of all allowed broadband providers to keep competitors from reaching customers over existing broadband networks.  During the days of dial-up, you could purchase Internet access from the phone company, a large provider like MSN or AOL, or thousands of smaller regional and local service providers.  Simply dial a local access number and you were connected to the provider of your choice.  Now, U.S. law gives broadband network operators the right to restrict these independents from selling service over their networks.  Comcast need not sell anything other than Comcast Internet.  Frontier Communications can make a killing selling its own DSL service, while protecting that revenue from other Internet Service Providers who might sell the service over Frontier’s network for half the price.  Time Warner Cable voluntarily allows Earthlink and a handful of other companies to sell cable broadband service over its infrastructure, but at prices equal to or higher than what Time Warner charges itself.

Broadband providers argue that allowing competitors to sell service on their network would discourage future investment and rob shareholders a return on investments already made.  Today, major cable operators and phone companies are falling all over themselves denying they are in anything but the broadband business.  It has become an enormously lucrative enterprise, more profitable than television or telephone service.

USA Today compares the broadband landscape back home with that in South Korea — perennially the world’s fastest, and considerably less expensive than what North Americans pay for service:

South Korea has made broadband a national priority, mandating deployment and in some cases giving private companies incentives to build out. It has also prevented major players from monopolizing their businesses, encouraging competition and innovation. In South Korea, consumers can get broadband service from a cable or telecom company. But they may also choose among myriad independent providers that are given access to the physical infrastructure. This competition keeps prices down and the quality of service high.

[…] But over time, cable and telecom companies worked the courts and Congress to make sure that this competitive world would never come to be [in the United States]. […] Wireless is a bit better. But the market has remained a near duopoly, with none of the smaller players emerging as a strong competitor to AT&T and Verizon.

The same open network concept has fought its way forward in Canada (where Bell has worked furiously to sabotage the business plans of independent providers) and in the United Kingdom, Australia and New Zealand where all three governments have decided the best solution would be to scrap the ancient landline network and start fresh with an open-to-all-comers fiber to the home service.

Back home in the States it is business as usual with increasing broadband prices and the looming prospect of usage-limiting schemes designed to cut capital costs, monetize broadband usage, and stop cord-cutting.

The opposing point of view comes courtesy of dollar-a-holler, corporate-backed think tank The Heartland Institute, who is stuck quoting notorious industry-funded studies and think tanks like the Discovery Institute and the Technology Policy Institute:

The idea that European and Asian countries are lapping America in the race for broadband speed and penetration is a fallacy created with statistics comparing “persons” instead of “households.” Once you make that correction, the USA is firmly planted among the top of industrialized nations, as economist Scott Wallsten pointed out when he was a staffer at the Federal Communications Commission in 2009.

And as tech researcher Bret Swanson of Entropy Economics points out, if you measure Internet usage by gigabytes used per month — a better measure of the speed and utility of networks — the USA has nearly lapped Western Europe once and Asia twice.

Heartland Institute: "By not disclosing our donors, we keep the focus on the issue."

If you measure how many mouse clicks customers in New York make on a Thursday afternoon, we could be number one as well!  Gigabytes used per month does not measure the speed or price of service on broadband networks, considerations that actually do impact broadband rankings.

Mr. Wallsten is a familiar favorite go-to-guy for The Heartland Institute.  He’s also the choice of Time Warner Cable, who paid him $20,000 for a 2010 essay: “The Future of Digital Communications Research and Policy.”

There is big money to be made writing corporate-funded research reports.  Bret Swanson knows that very well, having been involved with the Discovery Institute, a “research group” that delivers paid, “credentialed” reports to telecommunications company clients who waive them before Congress to support their positions.  Swanson is also a “Visiting Fellow” at Arts+Labs/Digital Society, which counted as its “partners” AT&T and Verizon.

The gentleman from Heartland also quotes from the misnamed “Progressive Policy Institute,” which counts among its funding partners, AT&T.

It would have been probably easier (but ineffectively transparent) to simply quote from AT&T and Comcast directly.

The Heartland Institute, unsurprisingly, believes letting existing broadband providers deliver service exactly the way they want is the best option:

The digital economy — one of the only vibrant economic sectors left — doesn’t need more government “investment” or regulation. It needs only for government to butt out and let the market work the magic that continues to bring us the marvels of the modern age.

That magic will cost you $50 a month and rising.  If some providers have their way, while the rest of the world abandons usage caps, American providers can’t wait to slap them on, reducing the value of your service even further.

Haven't we been here before?

History is best ignored when a Wall Street Journal columnist frames an argument in favor of strengthening the hegemony of Ma Bell, and darn ‘ole past precedent gets in the way of the writer’s “facts.”

Gordon Crovitz is a media and information industry adviser and executive, including former publisher of The Wall Street Journal, executive vice president of Dow Jones and president of its Consumer Media Group.  But today he’s unofficially, unabashedly AT&T.

In a column published this week, Crovitz hosts a whine and cheese festival on behalf of poor and abused AT&T, whose multi-billion dollar takeover of T-Mobile is in tatters. Crovitz places the blame squarely on the government for ruining everything:

How soon we forget the risks of overregulation: Last week, the Federal Communications Commission flexed the same muscle it once used to quash market forces in the phone industry to quash market forces in the wireless industry.

Today’s AT&T, a spinoff from the original, needs more spectrum to catch up with market leader Verizon, also a Ma Bell descendant, to support iPhones, Androids and other devices that feature video and sophisticated apps. It wants to buy T-Mobile, a division of a German company, which doesn’t have the resources to compete in the United States on its own. But the FCC decided to apply antitrust theory from the industrial era and claims to know better than wireless companies how they should operate their businesses.

AT&T’s proposed acquisition is best understood as a private-sector solution to a government-created problem. The FCC has not been able to get Congress to approve auctions to reallocate spectrum to wireless from less valuable uses. AT&T wants T-Mobile’s bandwidth so it can extend the latest fourth-generation network to 97% of the country from 80% and improve its spotty service in congested areas.

Under laws dating to the 1920s, the FCC gets to decide if a merger is in the “public interest,” a vague standard for top-down decision making. Government is the last institution in this era of fast technological innovation to act as if it has the information and power to dictate how change happens.

Crovitz apparently prefers AT&T and its phone pal Verizon Wireless dictate how “change happens,” because the two companies control the vast majority of wireless telecommunications in the United States.  Both also charge near-identical prices for near-identical levels of service.  AT&T & VZW are completely comfortable with that status quo, especially if disruptive competitor T-Mobile is dealt with in the usual industry manner (merger/buyout).

There is nothing vague about the FCC report that condemns the merger of AT&T and T-Mobile for the anti-competitive monstrosity it represents.  In hundreds of pages Crovitz evidently never read, a careful and credible argument against the deal was laid out for all to examine.  That evidence is far more persuasive than AT&T’s heavily-redacted filings the public was not authorized to see (for ‘competitive reasons’), and a multi-million-dollar-a-holler public relations distortion strategy based on hollow promises.

Playing Catch-Up With Verizon Wireless?  Hardly.

AT&T hardly needs to “catch up” with Verizon Wireless.  Both companies own wireless spectrum they have warehoused for “future use.”  As a backdrop to the merger, FCC Chairman Julius Genachowski has already indicated the agency is hard at work carefully re-allocating spectrum to make more room for wireless services.  The “bandwidth crisis” AT&T talks about is a convenient argument for a merger, until you realize T-Mobile’s mostly-urban wireless network won’t help AT&T achieve its goal of rural wireless expansion.  T-Mobile has never provided service in rural America and never will.

Crovitz attempts to leverage Verizon Wireless’ recent deal with America’s largest cable companies as an argument for the AT&T and T-Mobile merger, suggesting that deal was a game changer.  What goes unsaid is the fact AT&T could have pursued that deal for themselves.  Did they?  No.  Despite AT&T’s public relations spin, the proposed merger with T-Mobile is much more than a spectrum acquisition. As the FCC and the Justice Department have argued, this merger is about ridding AT&T of a competitor willing to offer more services at lower prices.  That forces AT&T to respond in kind to compete, and consumers have benefited greatly from that competition. Verizon Wireless is hardly competition at all considering both companies price services nearly identically.  Beyond that is Sprint, already saddled with the financial albatross Clearwire and questions about its long term viability in a duopolistic wireless market.

Crovitz is wrong on his other “facts” as well:

Deutsche Telekom is hardly short on cash.  The company has plenty of resources and could bolster T-Mobile USA to compete if it saw fit.  It doesn’t, preferring to focus on its more lucrative European markets.  Instead of selling the operation on the open market to other players, which could include foreign providers interested in competing in the high-priced American market, it elected to be courted by AT&T.

Overconfident AT&T

Henry De Lamar Clayton, Jr.: Author of the Clayton Act

The merger illustrates AT&T’s unparalleled level of overconfidence it could deal with regulators and consumer groups who would certainly object to the deal.  The company has since spent millions it could have used to improve its network on campaign-contribution-fueled support building on Capitol Hill, a shameless dollar-a-holler astroturf campaign that pays off non-profit groups to sing the deal’s praises, and an expensive ad campaign to sucker Americans into thinking reduced competition will somehow deliver lower prices and better service.

Even former Republican FCC Chairman Kevin Martin would have likely paused over such an obvious monopoly-building operation.  The Obama Administration’s FCC chairman — Julius Genachowski —  while often too timid for our tastes, at least knows when it is time to join the chorus of opposition.

The FCC doesn’t pretend to tell AT&T how to run its business.  It does, however, serve the public interest by providing checks and balances to unfettered corporate power.  While the Wall Street Journal‘s world view of capitalism would have been favored by the most egregious robber barons, history has taught us that when big corporations get a stranglehold on vital industries, the entire economy can suffer.

Crovitz would have us ignore the massive corporate abuses of 100 years ago that eventually provoked Congress into trust-busting legislative reform, breaking up the monopolies and oligopolies that presided over the railways, early telecommunications networks, and industrial raw materials like oil and steel.  Restrained competition brought monopoly prices and blockades against would-be competitors.  What was true then is still true now, only the technology has changed.

In 1911, the economy was powered in part by railroads, which transported goods and raw materials.  Telecommunications networks like the telegraph and early telephone helped conduct business and coordinated the movement of goods.  In 2011’s growing digital economy, telecommunications increasingly represents the railroads, telegraph, and telephone all combined-into-one.  Some of America’s richest tech companies depend on broadband and communications to fuel demand for their products.  Allowing AT&T to control the largest part of that pipeline could be disastrous to everyone but that company and their shareholders.

History Repeats Itself

In 1914, the Clayton Act was passed to put a stop to increasing anti-competitive activity and abusive market tactics.  Amazingly, the problems being solved a century ago are back with a vengeance today, all thanks to the endless drumbeat for deregulation, which has fueled mergers, acquisitions, and increased concentration of market power.  That Act cracked down on:

• Price discrimination: selling products and services at different prices to similarly situated buyers;
• Tying and exclusive-dealing contracts: sales on condition that the buyer sign exclusive contracts that force an end to dealing with the seller’s competitors;
• Corporate mergers: acquisitions of competing companies to reduce competition; and
• Interlocking directorates: Boards of directors of competing companies, packed with common members.

Today’s laissez-faire attitude towards government checks and balances helped provoke the Great Recession, corporate scandals of epic proportions, and a revolving door in Washington where regulators end up working for the companies they used to regulate. Just ask former FCC chairman Michael Powell. Three years ago he worked for us.  Today he works for Big Cable’s largest lobbying group — the National Cable & Telecommunications Association.  FCC Commissioner Meredith Attwell Baker went to work for Comcast shortly after green-lighting their super-merger with NBC-Universal.

It’s All About the Money. Always.

The only thing stopping AT&T from providing wireless nirvana to rural America is its own unwillingness to spend money on behalf of customers to upgrade its network.  The company claims it didn’t see the value of spending nearly $4 billion needed to deliver expansive 4G service, but suddenly had no trouble at all finding nearly ten times that amount to purchase T-Mobile USA.

Did AT&T suddenly win PowerBall?

AT&T saw crushing a competitor Job #1.  Central Idaho’s 4G service could wait.

Crovitz later notes AT&T “was unusually blunt” criticizing the FCC report, a classic case of protesting too much.  The company got caught with its rhetorical pants down, with a series of evolving arguments for a deal that never made the first bit of sense once you began to dig deeper into their case.

In the end, Mr. Crovitz wants you to blame Big Government for AT&T’s pervasive dropped-call problem that its competitors don’t seem to have.

It’s not the company that owns and runs the network, it is that Obama and his nasty henchmen at the FCC who are responsible!  Who knew?

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg FCC Says ATT Failed to Show Public Benefit of Merger 11-30-11.mp4[/flv]

Bloomberg News reports the FCC found AT&T failed to demonstrate any real public benefit of its merger with T-Mobile USA.  (2 minutes)

Comcast, Time Warner Cable, and Bright House Networks sold AWS spectrum in areas shown here to Verizon Wireless, virtually guaranteeing the cable industry will not compete in the wireless phone business.

Two years ago, Cox Communications was hungry to get into the wireless phone business.  It announced it was launching “unbelievably fair” wireless — an oasis in a wireless desert of tricks and traps on offer from competing wireless companies.  No more expiring minutes, the option of affordable flat rate service, and no hidden fees or surcharges were all supposed to be part of the deal.

“Our research found that value and transparency are very important to consumers when choosing a wireless service plan, but they are not finding these qualities in the wireless plans offered today,” Stephen Bye, vice president of wireless said back in 2010, introducing the service. “Total loss of unused minutes as well as unforeseen overage charges on bills are just two examples of what our customers have told us is just unfair.”

Those same issues still exist for wireless customers today, but Cox won’t be a part of the solution.  The company announced this past May it was exiting the competitive arena of wireless and would simply resell Sprint service instead.  Last month, it announced it wouldn’t even bother with that, and will transition its remaining wireless customers directly to Sprint.

What changed Cox’s mind?  The cost of building and operating a wireless network to compete with much larger national companies.  It simply no longer made sense to build a small regional wireless carrier and rent the rest of your national coverage area from other providers, who set wholesale prices at a level high enough to protect them from would-be competitors.

The lesson Cox learned first has now been taught to America’s largest cable operators Comcast and Time Warner Cable (and its sidekick Bright House Networks).

All three cable operators have effectively signed a non-aggression treaty with Verizon Wireless, agreeing to sell their unused wireless spectrum acquired by auction in 2006 at a 50% markup to Big Red.  In return, Verizon will market cable service to wireless customers.  It’s the ultimate non-compete clause so wide-reaching, Verizon stores will soon be selling Time Warner Cable right next to Verizon FiOS, something unheard of in the telecommunications marketplace.

It’s a win for Verizon Wireless, which accumulates additional wireless spectrum and peace of mind knowing the cable industry will not enter the wireless communications business.  Cable companies get to profit from their purchase of the public airwaves and see the potential of a dramatic reduction in customer poaching, as cable and phone companies stop fighting each other for customers.  Ultimately, it means customers could eventually pay the cable or phone company for all of their telecommunications services from television and broadband to wired and wireless phone service.  What consumers enjoy in one-bill-convenience may eventually come with higher rates made possible from reduced competition.

Verizon Wireless' currently unused AWS spectrum favor the east coast, but not for long.

Verizon will pay $3.6 billion to Comcast, Time Warner and Bright House Networks for the spectrum.  The deal has stockholders cheering because that payment represents a tidy profit for cable operators who did absolutely nothing with the spectrum they purchased five years ago.  It also makes AT&T even more intent on completing its own spectrum merger with T-Mobile USA.

The agreement has concerned consumer advocates because it seems to signal Verizon is content making money primarily from its wireless business, and will repay the favor from the cable industry by pitching phone customers on cable service.  That could ultimately spell big trouble for Verizon’s stalled FiOS fiber-to-the-home network.  Verizon may find it easier and cheaper to end its aggressive entry into Big Cable’s territory by simply reselling traditional cable television products.  It can still market wireless products and services to cable subscribers and not endanger the new atmosphere of goodwill.  Rural broadband, where cable never competes, could be served through wireless spectrum, for example.

For now, Verizon says it intends to continue competing with its FiOS network, but the company stopped deploying the service in new areas nearly two years ago.

The deal will go before regulators at the Justice Department and the Federal Communications Commission for review.  What will likely concern them the most is the appearance of collusion between the cable companies and Verizon.

“A flag is raised when two rival networks move to start selling each other’s services,” a person familiar with the concerns of federal antitrust officials told the Washington Post. “They lose their desire, impetus, to compete. That is a big antitrust flag.”

Mark Cooper, the director of research for the Consumer Federation of America, expressed serious concern as well.

“Verizon was supposed to be the great competitor for Comcast in the video space, while Comcast has been looking for a wireless play to match the Verizon bundle,” he said. “The deal signals bad news for consumers, who can expect higher prices for video, fewer choices and higher prices for wireless.”

Who owns what

Four years into the deal, consumers may not know what company they are dealing with, as cable operators will be able to market Verizon Wireless service under their own respective cable brand names.

The deal is also trouble for lagging Clearwire, which had been providing wireless broadband service to both Comcast and Time Warner Cable.  Under the agreement, both cable companies will end their relationship with Clearwire, which is particularly bad news for the wireless company because of its ongoing financial distress.  Sprint, which has heavily invested in Clearwire, may ultimately find itself with an investment gone sour, troubling news for the third largest wireless company manning the barricades against a nearly-complete duopoly in wireless service between AT&T and Verizon Wireless.

Cable stock cheerleader Craig Moffett from Sanford Bernstein seems thrilled with the prospect.  In a research note to his Wall Street clients, Moffett says AT&T could benefit from the Verizon pact with Big Cable by ending up in a “more duopolistic industry structure without paying for it.” If the FCC approves the non-aggression pact, the deal “would amount to an unmistakable step towards the duopolization of the U.S. wireless market, inasmuch it would leave T-Mobile, once again, stranded without a 4G strategy.”

Cable investors, he adds, are likely to be excited the cable industry won’t spend billions of dollars in capital building a wireless venture, and instead has agreed to work with competitors to cross-sell products and services.  With little competitive pressure, prices won’t be falling anytime soon.

That’s great news for investors, even if it is “unbelievably unfair” for consumers.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Verizon to Buy Wireless Spectrum for 3-6 Billion 12-2-11.flv[/flv]

Bloomberg News explains the deal and its implications in the wireless industry spectrum battle.  (2 minutes)