A couple of quick thoughts on the DOJ’s filing to block AT&T/T-Mobile

Geoffrey Manne —  31 August 2011

As Josh noted, the DOJ filed a complaint today to block the merger.  I’m sure we’ll have much, much more to say on the topic, but here are a few things that jump out at me from perusing the complaint:

  • The DOJ distinguishes between the business (“Enterprise”) market and the consumer market.  This is actually a good play on their part, on the one hand, because it is more sensible to claim a national market for business customers who may be purchasing plans for widely-geographically-dispersed employees.  I would question how common this actually is, however, given that, I’m sure, most businesses that buy group cell plans are not IBM but are instead pretty small and pretty local, but still, it’s a good ploy.
  • But it has one significant problem:  The DOJ also seems to be stressing a coordinated effects story, making T-Mobile out to be a disruptive maverick disciplining the bigger carriers.  But–and this is, of course an empirical matter I will have to look in to–I highly doubt that T-Mobile plays anything like this role in the Enterprise market, at least for those enterprises that fit the DOJ’s overly-broad description.  In fact, the DOJ admits as much in para. 43 of its Complaint.  Of course, the DOJ claims this was all about to change, but that’s not a very convincing story coupled with the fact that DT, T-Mobile’s parent, was reducing its investment in the company anyway.  The reality is that Enterprise was not a key part of T-Mobile’s business model–if it occupied any cognizable part of it at all– and it can hardly be considered a maverick in a market in which it doesn’t actually operate.
  • On coordinated effects, I think the claim that T-Mobile is a maverick is pretty easily refuted, and not only in the Enterprise realm.  As Josh has pointed out in his Congressional testimony, a maverick is a term of art in antitrust, and it’s just not enough that a firm may be offering products at a lower price–there is nothing “maverick-y” about a firm that offers a different, less valuable product at a lower price.  I have seen no evidence to suggest that T-Mobile offered the kind of pricing constraint on AT&T that would be required to make it out to be a maverick.
  • Meanwhile, I know this is just a complaint and even post-Twombly pleading standards are lower than standards of proof, but the DOJ does seem t make a lot out of its HHI numbers.  In part this is a function of its adoption of a national relevant geographic market.  But (as noted above even for most Enterprise customers) this is just absurd.  As the FCC itself has noted, consumers buy cell service where they “live, work and travel.”  For most everyone, this is local.
  • Meanwhile, even on a national level, the blithe dismissal of a whole range of competitors is untenable.  MetroPCS, Cell South and many other companies have broad regional coverage (MetroPCS even has next-gen LTE service in something like 17 cities) and roaming agreements with each other and with the larger carriers that give them national coverage.  Why they should be excluded from consideration is baffling.  Moreover, Dish has just announced plans to build a national 4G network (take that, DOJ claim that entry is just impossible here!).  And perhaps most important the real competition here is not for mobile telephone service.  The merger is about broadband.  Mobile is one way of getting broadband.  So is cable and DSL and WiMax, etc.  That market includes such insignificant competitors as Time Warner, Comcast and Cox.  Calling this a 4 to 3 merger strains credulity, particularly under the new merger guidelines.
  • Moreover, the DOJ already said as much!  In its letter to the FCC on the FCC’s National Broadband Plan the DOJ says:

Ultimately what matters for any given consumer is the set of broadband offerings available to that consumer, including their technical characteristics and the commercial terms and conditions on which they are offered.  Competitive conditions vary considerably for consumers in different geographic locales.

  • The DOJ also said this, in the same letter:

[W]ith differentiated products subject to large economies of scale (relative to the size of the market), the Department does not expect to see a large number of suppliers. . . . [Rather, the DOJ cautions the FCC agains] striving for broadband markets that look like textbook markets of perfect competition, with many price-taking firms.  That market structure is unsuitable for the provision of broadband services.

Quite the different tune, now that it’s the DOJ’s turn to spring into action rather than simply admonish the antitrust activities of a sister agency!

I’m sure there is lots more, but I must say I’m really surprised and disappointed by this filing.  Effective, efficient provision of mobile broadband service is a complicated business.  It is severely hampered by constraints of the government’s own doing — both in terms of the government’s failure to make available spectrum to enable companies to build out large-scale broadband networks, and in local governments’ continued intransigence in permitting new cell towers and even co-location of cell sites on existing towers that would relieve some of the infuriating congestion we now experience.

This decision by the DOJ is an ill-conceived assault on innovation and progress in what may be the one shining segment of our bedraggled economy.

Geoffrey Manne

Posts

http://laweconcenter.org/

8 responses to A couple of quick thoughts on the DOJ’s filing to block AT&T/T-Mobile

  1. 

    I just updated to include the link to the DOJ’s letter (Ex Parte Submission, technically), inadvertently omitted from the original. The link is: http://www.justice.gov/atr/public/comments/253393.htm.

  2. 

    “I’m sure, most businesses that buy group cell plans are not IBM but are instead pretty small and pretty local, but still, it’s a good ploy.”

    I’m not sure that is true. Remember that businesses ranging from academic medical centers (e.g. Baylor Medical in Houston) to national/multinational law firms (e.g. DLA Piper) will get a cell/data plan for all their employees who are issued smartphones. This can add up to hundreds of people, often going across state lines.

    Indeed, really small and local businesses, like solo practice physicians and lawyers, or restaurants and bars, rarely require employees to have constant email contact but instead operate on a more hourly wage model in which employees’ time off is genuinely off the clock, without the obligation to carry a Blackberry.

  3. 

    On a non-substantive point, nice use of the word maverick-y.

  4. 

    Disappointed you should be but “surprised” you should NOT be! Antitrust is government regulation and the Antitrust Division of the DOJ is a regulatory agency. Bake in some incorrect theories of “competition” and some macho talk about “vigorous enforcement” and what drops out is rather inevitable.

    Dom Armentano
    Vero Beach, Florida 32963

Trackbacks and Pingbacks:

  1. Quality, broadband, and spectrum: What the DOJ’s AT&T/T-Mobile lawsuit misses-Financial News | Coffee At Joe's - September 14, 2011

    [...] then the merger would create essentially a duopoly with Sprint as a small third firm. But, as Geoff Manne points out, there are two dimensions on which that’s not the correct market definition — there are [...]

  2. Quality, broadband, and spectrum: What the DOJ’s AT&T/T-Mobile lawsuit misses « Knowledge Problem - September 1, 2011

    [...] then the merger would create essentially a duopoly with Sprint as a small third firm. But, as Geoff Manne points out, there are two dimensions on which that’s not the correct market definition — there are [...]

  3. A couple of quick thoughts on the DOJ’s filing to block AT&T/T-Mobile - August 31, 2011

    [...] [Cross posted at Truthonthemarket] [...]