A regulatory ‘compromise’ between Verizon and trade association INCOMPAS to set prices for business data services is effectively an anticompetitive agreement that’s designed to protect Verizon’s existing high rates for ethernet connections while providing a competitive boost to Verizon Wireless, Sprint, and T-Mobile in the emerging market for 5G wireless services.
Private agreements among competitors to set prices or service terms are generally prohibited by U.S. antitrust law because they often lead to higher prices. But the same type of agreement is generally legal when it’s used to persuade the government to do the price setting, even if its sole purpose is to eliminate competition, because the agreement then falls into the category of “political activity” protected by the First Amendment. The Verizon-INCOMPAS agreement falls into the political category, because it was submitted to the Federal Communications Commission in the agency’s proceeding to impose new price regulations on business data services (or “BDS,” which includes ethernet-based data connections to businesses and cell towers).
Verizon and INCOMPAS (a trade association whose members include Sprint and T-Mobile) have billed the agreement as an industry compromise that reflects a “middle ground,” because Verizon is an incumbent BDS provider where it still provides telephone service and INCOMPAS represents non-incumbent BDS providers. But Verizon’s efforts to restructure its business model by shedding its wireline assets (including FIOS) while focusing on its wireless business and acquiring internet edge providers (e.g., AOL and Yahoo) belie the notion that Verizon is ‘compromising’ on its declining (wireline) BDS services. The agreement instead reflects the union of Verizon’s strategic interests with Sprint and T-Mobile, the other nationwide wireless carriers whose business models are focused primarily on mobile services.