Archives For doj

What Does the Stock Market Tell Us in the Aftermath of the Failed AT&T / T-Mobile Merger?

Josh Wright —  20 December 2011

In the wake of the announcement that AT&T and T-Mobile are walking away from their proposed merger, there will be ample time to discuss whether the deal would have passed muster in federal court, and to review the various strategic maneuvers by the parties, the DOJ, and the FCC.  But now is a good time to take a look at what the market is predicting — and what that has to say about the various theories offered concerning the merger.  In prior blog posts, we’ve examined the stock market reaction to various events surrounding the merger — and in particular, the announcement that the DOJ would challenge it in federal court.

For a brief review, there are two primary theories that the merger would reduce competition and harm consumers.  Horizontal theories predict that the post-merger firm would gain market power, raise market prices and reduce output.  On these theories, Sprint and other rivals’ stock prices should increase in response to the merger; thus, if the DOJ announcement to challenge the merger reduces the probability of the post-merger acquisition of market power, Sprint stock should fall in response.  We know that it didn’t.  It surged.   That is consistent with a procompetitive merger because the challenge increases the probability that the rival will not face more intense competition post-merger.  Thus, Sprint’s surge in reaction to the DOJ announcement is consistent with the simple explanation that the merger was procompetitive and the market anticipated more intense competition post-merger.

Of course, as AAI and others have pointed out, Sprint’s stock price surge in response to the merger challenge was also consistent with “exclusionary” theories of the merger that posit that the post-merger firm would be able to foreclose Sprint from access to critical inputs (in particular, handsets) required to compete.  Richard Brunell (AAI) made this point in the comments to our earlier blog post, relying upon the fact that Verizon’s stock fell 1.2% (compared to market drop of .7%) to emphasize the applicability of the exclusion theory.   The importance of Verizon’s stock price reaction, the argument goes, is that while Sprint has to fear exclusion by a combined ATT/TMo, Verizon does not.  Thus, proponents of the exclusion theories assert, the combined surge in Sprint stock with Verizon’s relative non-movement is consistent with that anticompetitive theory.

Not so fast.  As I’ve pointed out, this conclusion relies upon an incomplete exposition of the economics of exclusion and one that should be difficult to square with your intuition.  If Verizon has nothing to fear from the post-merger firm excluding Sprint, it should greatly benefit from the merger!   Consider that if the exclusion theories are correct, Verizon gets the benefit of free-riding upon AT&T’s $39 billion investment in eliminating or weakening one of its rivals.   Surely, the $39 billion investment to exclude Sprint and other smaller rivals — as the exclusion proponents argue is the motive for merger here — provides considerable benefits to Verizon who doesn’t pay a dime.  Thus, rather than holding constant, Verizon’s stock price should fall significantly in response to the lost opportunity to appropriate these exclusionary gains for free.  Verizon’s stock non-reaction to the announcement that DOJ would challenge the merger was, in my view, inconsistent with the exclusion theories.   In sum, the market did not appear to anticipate the acquisition of market power as a result of the merger.

We now have a new event to use to evaluate the market’s reaction: AT&T and T-Mobile abandoning the merger.   It appears that, once again, Sprint’s stock price surged in reaction to the news (and now up about 8% in the last 24 hours).  Again, Verizon doesn’t move much at all.

Stock market reactions and event studies — and I’m not claiming I’ve done a full blown event study here,  just a simple comparison of stock price reactions to the market trends — produce valuable information.  They are obviously not dispositive.  The market can be wrong.  But so can regulators.  And as my colleague Bruce Kobayashi said in an interview (which I cannot find online) in Fortune Magazine evaluating the market reaction to the Staples-Office Depot merger in light of the FTC’s challenge: “It boils down to whether you trust the agencies or the stock market. I’ll take the stock market any day.”

Markets provide information.  The information provided here gives no reason to celebrate the withdraw on the behalf of consumers, or even the ever-present “public interest.”  Celebratory announcements to the contrary should be read with at least a healthy dose of skepticism in light of information above (and see also Hal’s excellent post) that the market did not anticipate the merger to facilitate the acquisition of market power via the combination of AT&T and T-Mobile or through the exclusion of Sprint.   Media reports that the merger was a “slam-dunk” in terms of the economics or that this is a tale of dispassionate economic analysis defeating the monopolist lobbying machine are misleading at best.   More importantly for the future, abandoning this merger does not repeal the spectrum capacity constraints facing the wireless industry, the ever-increasing demand for data, or the dearth of alternative options (despite the FCC’s claims that non-merger alternatives abound) for acquiring spectrum efficiently.

This will be a very interesting space to watch as the agencies deal with what will undoubtedly be other attempts to consolidate spectrum assets — especially in light of the FCC Report and the framework it lays down for evaluating future mergers.

In antitrust, doj, economics, federal communications commission, wireless
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My New Empirical Study on Defining and Measuring Search Bias

Josh Wright —  3 November 2011

Tomorrow is the deadline for Eric Schmidt to send his replies to the Senate Judiciary Committee’s follow up questions from his appearance at a hearing on Google antitrust issues last month.  At the hearing, not surprisingly, search neutrality was a hot topic, with representatives from the likes of Yelp and Nextag, as well as Expedia’s lawyer, Tom Barnett (that’s Tom Barnett (2011), not Tom Barnett (2006-08)), weighing in on Google’s purported bias.  One serious problem with the search neutrality/search bias discussions to date has been the dearth of empirical evidence concerning so-called search bias and its likely impact upon consumers.  Hoping to remedy this, I posted a study this morning at the ICLE website both critiquing one of the few, existing pieces of empirical work on the topic (by Ben Edelman, Harvard economist) as well as offering up my own, more expansive empirical analysis.  Chris Sherman at Search Engine Land has a great post covering the study.  The title of his article pretty much says it all:  “Bing More Biased Than Google; Google Not Behaving Anti-competitively.” Continue Reading…

In antitrust, business, doj, federal trade commission, truth on the market , , ,
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Was the Whirlpool/Maytag Merger Anticompetitive After All?

Steve Salop —  2 November 2011

One of the most controversial merger policy decisions during the Bush administration was the DOJ’s failure to bring a complaint against the Whirlpool/Maytag merger.  Indeed, the decision was even criticized by Carl Shapiro, the economic expert retained by the DOJ on the case.   Jonathan Baker and Carl Shapiro summarize this conclusion as follows:  “The March 2006 decision by the DOJ not to challenge Whirlpool’s acquisition of Maytag was a highly visible instance of underenforcement.”   Orley Ashenfelter, Daniel Hosken and Matthew Weinberg have now posted a working paper that estimates the price effects of the merger.  Using scanner data, the authors compare the prices of Whirlpool and Maytag appliances to price changes in the appliance markets most affected by the merger to other markets less or not affected.  They find large significant price increases for clothes dryers and dishwashers, but not for refrigerators and washing machine.

In antitrust, doj, economics, merger guidelines, mergers & acquisitions
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Google, Vertical Integration, and Beer

Josh Wright —  20 October 2011

First, Google had the audacity to include a map in search queries suggesting a user wanted a map.  Consumers liked it.  Then came video.  Then, they came for the beer:

Google’s first attempt at brewing has resulted in a beer that taps ingredients from all across the globe. They teamed up with Delaware craft brewery Dogfish Head to make “URKontinent,” a Belgian Dubbel style beer with flavors from five different continents.

No word yet from the Google’s antitrust-wielding critics whether integration into beer will exclude rivals who vertical search engines who, without access to the beer, have no chance to compete.  Yes, there are specialized beer search sites if you must know (or local beer search).  Or small breweries who, because of Google’s market share in search, cannot compete against Dogfish Head’s newest product.  But before we start the new antitrust investigation, Google has offered some new facts to clarify matters:

Similarly, the project with Dogfish Head brewery was a Googler-driven project organized by a group of craftbrewery aficionados across the company. While our Googlers had fun advising on the creation of a beer recipe, we aren’t receiving any proceeds from the sale of the beer and we have no plans to enter the beer business.

Whew.  What a relief.  But, I’m sure the critics will be watching just in case to see if Dogfish Head jumps in the search rankings.  Donating time and energy to the creation of beer is really just a gateway to more serious exclusionary conduct, right?  And Section 5 of the FTC Act applies to incipient conduct in the beer market, clearly.  Or did the DOJ get beer-related Google activities in the clearance arrangement between the agencies?

In alcohol, antitrust, beer, clearance, doj, federal trade commission, google, musings
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DOJ Antitrust to Close Field Offices

Josh Wright —  18 October 2011

The DOJ has announced that it will close 4 Antitrust Division Field Offices.  From the DOJ press release:

Consolidate Antitrust Division field office space in Atlanta, Cleveland, Dallas and Philadelphia into the Chicago, New York and San Francisco field offices as well as the division’s Washington, D.C.-based section.   Ninety-four positions will be reassigned to the remaining field offices and to the Washington, D.C., section in order to provide additional staffing resources to larger investigations.   A savings of nearly $8 million is expected.

The field offices are a significant part of Division’s criminal enforcement efforts (amongst other things).  While the consolidation plan offers relocation to the 94 lawyers and staff willing to move to Chicago, NY, San Francisco or to Washington, there are quite a few career Division lawyers who have no interest in doing so.   The Washington Post reports:

But career antitrust lawyers affected by the plans said they were caught off guard, and they think the plans will result in de facto layoffs as colleagues decide to quit because they are unable or unwilling to move to another city.  “There aren’t a lot of people who’ve been with the division a long time who can pick up and move,” said an antitrust attorney based in the Philadelphia office. “Many people have families and spouses with jobs where they’re already located. And there’s no assurances that in two years there won’t be further cuts, and then we’ll lose a job we picked up and moved for.”  Veteran antitrust attorneys from all four targeted offices contacted The Federal Eye and asked not to be identified for fear of retribution.

I suspect there will be a lot more written about this in the days and weeks to come.

In antitrust, cartels, doj
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ABA Roundtable Discussion Tomorrow on the AT&T/T-Mobile Merger

Geoffrey Manne —  26 September 2011

As I have posted before, I was disappointed that the DOJ filed against AT&T in its bid to acquire T-Mobile.  The efficacious provision of mobile broadband service is a complicated business, but it has become even more so by government’s meddling.  Responses like this merger are both inevitable and essential.  And Sprint and Cellular South piling on doesn’t help — and, as Josh has pointed out, further suggests that the merger is actually pro-competitive.

Tomorrow, along with a great group of antitrust attorneys, I am going to pick up where I left off in that post during a roundtable discussion hosted by the American Bar Association.  If you are in the DC area you should attend in person, or you can call in to listen to the discussion–but either way, you will need to register here.  There should be a couple of people live tweeting the event, so keep up with the conversation by following #ABASAL.

Panelists:
Richard Brunell, Director of Legal Advocacy, American Antitrust Institute, Boston
Allen Grunes, Partner, Brownstein Hyatt Farber Schreck, Washington
Glenn Manishin, Partner, Duane Morris LLP, Washington
Geoffrey Manne, Lecturer in Law, Lewis & Clark Law School, Portland
Patrick Pascarella, Partner, Tucker Ellis & West, Cleveland

Location: 
Wilson Sonsini Goodrich & Rosati, P.C. 1700 K St. N.W. Fifth Floor Washington, D.C. 20006

For more information, check out the flyer here.

In antitrust, doj, mergers & acquisitions, telecommunications, truth on the market, wireless , , , , , ,
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Exclusion Still Doesn’t Explain Verizon’s Stock Price Non-Reaction to the DOJ Challenge Announcement (Correcting AAI’s Letter to the WSJ Editor)

Josh Wright —  18 September 2011

Yale’s George Priest authored an op-ed in the WSJ on September 6th in which he raised a few of the arguments discussed here at TOTM over the past several weeks regarding the proposed AT&T / T-Mobile merger.  For example, we’ve focused upon the tension between the DOJ complaint’s theories of competitive harm (coordinated and unilateral effects) and the reaction of Sprint’s stock price.  Along these lines, Priest writes:

If the acquisition would lead to increased prices and lower quality products as the Justice Department has claimed, Sprint would be better off after the acquisition. Sprint would be able to add subscribers, not lose them, because of AT&T’s higher prices and lower quality. Sprint would oppose the acquisition—as it has—only if it thought that the merger would put it in a worse position by increasing the competitive pressures that it already faces.

The market—though not the Obama administration—understands this point. On the day that the Justice Department announced its opposition to the acquisition, Sprint’s share price rose 5.9%, reflecting investors’ belief that Sprint will be in a better competitive position without the acquisition.

As we’ve pointed out, Sprint’s stock price reaction is simply not consistent with the DOJ theories.  To find a theory of harm more consistent with the market reaction, critics of the merger have abandoned the DOJ’s theories in favor for a new one — that the merger will facilitate future exclusion of rivals from access to critical inputs like backhaul or handsets.

The AAI’s Rick Brunell makes this point in our comments.  The basic point is that under an exclusion theory Sprint benefits from the challenge to the merger because it prevents its future exclusion.   Brunell also argued in that comment that Verizon’s stock price movement supported exclusion theories of the merger, pointing out that its stock price fell 1.2% (with a .7% drop in the S&P 500) upon announcement of the challenge.

We challenged the economic logic of Brunell’s claim that Verizon’s non-reaction was consistent with exclusionary theories in a follow up post.  Put simply, assuming the merger will result in successful exclusion of rivals in the future, Verizon would be a gigantic winner from its successful completion:

The relevant economics here are not limited to the possibility that post-merger AT&T would successfully exclude Verizon.  Think about it: both Verizon and the post-merger firm would benefit from the exclusionary efforts and reduced competition.  However, Verizon would stand to gain even more!  After all, it isn’t paying the $39 billion purchase price for the acquisition (or any of the other costs of implementing an expensive exclusion campaign).  Thus, an announcement to block the would-be exclusionary merger — the one that would allow Verizon to outsource the exclusion of its rivals to AT&T on the cheap — wouldn’t happen.  Verizon stock should fall relative to the market in response to this lost opportunity.  The unilateral and coordinated effects theories in the DOJ complaint are at significant tension with the stock market reactions of firms like Sprint (and its affiliated venture, Clearwire).  The exclusion theory predicts a large decrease in stock price for Verizon with the announcement.  None of these comfortably fit the facts.  Verizon more or less tracks the S&P with a slight drop.  What about the smaller carriers?  Take a look at the chart.  MetroPCS barely moved relative to the market (in fact, may have increased relative to the market over the relevant time period); Leap is down a bit more than the market.  Here, with the smaller carriers there is not a lot of movement in any direction.  But, contra NB’s comment (“Verizon, a larger and far more significant competitor, had its stock drop sharply in that same period you show Sprint “surging”. MetroPCS’s stock also dropped.”), Verizon’s small fall relative to the market is nowhere near the magnitude of the positive effect on Sprint and Clearwire.

In other words, contra Brunell and other proponents of the exclusion theory, its not just that Verizon has “nothing to fear” from exclusion but that it has much to gain from it.  If the merger is likely to exclude Verizon’s rivals at a price tag of at least $39 billion paid with its chief competitor’s dollars, the announcement of a challenge should have resulted in a substantial loss for Verizon not one barely detectable beyond market trends. Excluding rivals and gaining market power with other people’s money is good work if you can get it.  If proponents of the exclusionary theory believe exclusion is worth $39 billion for AT&T and is the purpose of the merger, surely they also believe it is worth something quite significant to Verizon who would reap the benefits of exclusion and get it for free.

Unfortunately, AAI (through Brunell) ignores this point in a Letter to the Editor to the WSJ filed in response to Priest’s op-ed:

Mr. Priest ignores the fact that Sprint would be harmed if the merger enhanced AT&T’s (and Verizon’s) ability to exclude Sprint from the market (or raise its costs) through increased control over the best handsets, roaming and backhaul services that Sprint needs to compete effectively in the market, as Sprint alleges in its own lawsuit challenging the merger. Sprint also benefits, from the merger’s demise, as a potential acquirer of T-Mobile.

Mr. Priest also ignores the stock-price movement of Verizon, AT&T’s chief rival, which has no reason to fear exclusion from the market, and would be harmed the most if the merger made AT&T a more efficient competitor. In the two days following the merger announcement in March, Verizon’s stock price jumped 3.1% (compared to the S&P 500′s increase of only 1.1%), while in the two days after the Justice Department’s suit was announced, Verizon’s stock fell by 1.2% (compared to a .7% drop in the S&P 500). Verizon has not opposed the merger.

Event studies of stock-price movements are notoriously inconclusive. However, the data here are entirely consistent with investors’ expectation that the merger will result in less price and quality competition in the industry and higher costs for AT&T’s smaller rivals, all to the detriment of consumers.

If you are keeping score at home: Priest 1  -  AAI 0.  Once again, the exclusion theories don’t seem to hold up to these data.  On the other hand, the DOJ theories are embarrassingly confronted by the response of the rival’ stock price surging upon the announcement of a challenge.  For what its worth, I agree with Brunell that event studies are not dispositive of a merger’s likely effects — though query what data available to predict merger outcomes are?  But event studies and stock-price movements produce valuable information.  In this case, financial market responses cut against the the exclusionary theory favored by AAI and Sprint and the conventional DOJ theories.

In antitrust, doj, economics, exclusionary conduct, merger guidelines, mergers & acquisitions, telecommunications, wireless
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Why Did Sprint Pile On the DOJ’s AT&T / T-Mobile Suit?

Josh Wright —  6 September 2011

So, the AT&T / T-Mobile transaction gets more and more interesting.  Sprint has filed a complaint challenging the transaction.  I’ve been commenting on the weakness of the DOJ complaint and in particular, its heavy reliance on market structure to make inferences about competitive effects. The heavy dose of structural presumption in the DOJ complaint — especially in light of the DOJ / FTC’s new Horizontal Merger Guidelines which stress reducing that emphasis because it is grounded in outdated economic thinking in favor of analysis of actual competitive effects — reads more like a 1960s complaint than a modern post-2010 Guidelines approach.

There is a question that jumps out here.  What does Sprint get for jumping into full litigation mode rather than free-riding upon the DOJ’s case?  They could certainly free-ride and retain some influence over the DOJ case with economic submissions.   The DOJ is not a passive plaintiff.  This is the DOJ of “reinvigorated” antitrust enforcement.  There is an even more obvious cost to getting involved.  The conventional antitrust wisdom requires skepticism of private suits by rivals for the reasons I discussed here.   Rivals often have a financial incentive to sue more efficient competitors.  Various substantive and procedural stands of antitrust attempt to minimize the costs of providing rivals with generous remedies and a private right of action under the antitrust laws.  Suffice it to say, a rival suit doesn’t get the same attention as one brought by the DOJ or FTC.

So why do it?

I think the answer is pretty clear.  There are at least two important inferences to draw from Sprint’s complaint.

The first is that it is a sign that the DOJ’s structure-based complaint is pretty weak sauce.  David Balto described the complaint as missing “the red meat.”   Its heavy on reliance on outdated structural presumptions, strays far from the intellectual foundations of the new Merger Guidelines, doesn’t acknowledge efficiencies, and has been embarrassingly shown up by the market reaction.   I certainly agree with Balto that the DOJ complaint isn’t the agency’s best work.  So, apparently did the market  — with Sprint’s stock price surging instead of the decline predicted by various theories of competitive harm posited in the complaint.

Sprint, by filing this claim, reveals its view that the DOJ is not likely to prevail on the merits on those claims.   Or at a minimum that Sprint’s involvement increases the likelihood.  Given the skepticism about rival suits, I’m skeptical.  To reconcile these views one must read the Sprint complaint.  It heavily pushes an “exclusionary theory” of the merger (i.e. “vertical effects”) omitted by the DOJ in its own complaint.  The basic theory is that the post-merger firm will deprive rivals from access to backhaul or handsets.  I’ve argued that the exclusionary theory doesn’t fare much better in explaining the market reaction to the DOJ’s challenge.  But it at least has going for it that it can explain the Sprint’s stock price reaction: if the merger successfully prevents exclusion, it should improve outcomes for rivals.  The problem is that this explanation doesn’t square too nicely with the market reaction of other rivals likely to suffer from exclusion (smaller carriers) and big guys like Verizon who would benefit from watching AT&T bear the full cost of excluding rivals (an expensive strategy) while it reaped the benefits.

Thus, I think the second lesson is that its pretty clear that Sprint views the omission of these exclusionary theories as a critical weakness in the DOJ’s complaint — critical enough to take the relatively rare step of filing a separate private challenge.  Given large increase in Sprint’s stock in reaction to the news of challenge — its got a lot at stake here and its willing to spend some of that rather than free-riding on the DOJ challenge for the chance to prove it is right.  I remain skeptical; but its an interesting development nonetheless.

In antitrust, doj, economics, merger guidelines, mergers & acquisitions, technology, telecommunications, wireless
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Why Is Sprint’s Stock Surging Upon the Announcement of the DOJ’s Challenge to the Proposed AT&T / T-Mobile Merger?

Josh Wright —  31 August 2011

Basic economic theory underlies the conventional antitrust wisdom that if a merger makes the merging party a more effective competitorby lowering its costs, rivals facing this more effective competitor post-merger are made worse off, but consumers benefit.  On the other hand, if a merger is likely to result in collusion or a unilateral price increase, the rival firm is made better off while consumers suffer.  In the latter case — the one the DOJ complaint asserts we are experiencing with respect to the proposed AT&T merger — marketwide coordination or reduction of competition resulting in higher prices makes the non-merging rival better off.

Basic economic theory thus generates a set of clear testable implications for the DOJ’s theory of the transaction:

  • (1) events that the merger more likely should have a negative impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the likelihood the firm will face a more efficient, lower-cost rival in the future);
  • (2) events that make a merger less likely should have a positive impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the reduced likelihood that the merger will face the more efficient competitor in the future)
  • (3) by similar economic logic, events that make an anticompetitive merger more likely to occur should result in increase non-merging rivals’ stock prices (who will benefit from higher market prices) while events that make an anticompetitive merger less likely should decrease non-merging rivals’ stock prices.

The DOJ complaint clearly stakes out its position that the merger will be anticompetitive, and result in higher market prices.  Paragraph 36 of the DOJ’s complaint focuses upon potential post-merger coordination:

The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. … Any anti competitive coordination at a national level would result in higher nationwide prices (or other nationwide harm) by the remaining national providers, Verizon, Sprint, and the merged entity. Such harm would affect consumers all across the nation, including those in rural areas with limited T-Mobile presence.

Paragraph 37 of the DOJ complaint turns to unilateral effects:

The proposed merger likely would lessen competition through elimination of head-to-head competition between AT&T and T-Mobile. … The proposed merger would, therefore, likely eliminate important competition between AT&T and T-Mobile.

If the DOJ’s allegations are correct, one would expect the market price for prominent non-merging rivals such as Sprint to fall upon today’s announcement that the DOJ will challenge the merger.   This is because the announcement decreases the likelihood that an anticompetitive merger will occur, and thus deprives the opportunity for non-merging rivals to enjoy the increased market prices and margins that would follow from post-merger collusion or unilateral price increases.

The NY Times Dealbook headline suggests otherwise: “Sprint Shares Surge on AT&T Setback.”  Geoff highlighted several of the DOJ’s claims in the report.  As the case unfolds, I think an important question to ask is how many of those allegations are consistent with the following data showing the market reactions of Sprint and Clearwire stock prices today.   I’ve included Clearwire both because Sprint owns a majority share in it and because of its recent announcement of plans to enter the 4G LTE space.

I’ve not run a full-blown event study here, obviously.   But the positive jump for Sprint (Blue Line) & Clearwire (Green Line) today in response to the announcement is hard to miss.  How many of the statements in the DOJ complaint, press release and analysis are consistent with this market reaction?    If the post-merger market would be less competitive than the status quo, as the DOJ complaint hypothesizes, why would the market reward Sprint and Clearwire for an increased likelihood of facing greater competition in the future?  The simplest alternative hypothesis is that the merger is likely procompetitive and rivals are enjoying a premium for the increased likelihood that they will avoid more intense competition in the future.  Is there a reason here to reject that simple hypothesis?   Will the market reaction induce the DOJ to revisit its priors?

In antitrust, doj, economics, federal communications commission, merger guidelines, mergers & acquisitions, technology, wireless
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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.

In antitrust, business, doj, error costs, merger guidelines, mergers & acquisitions, technology, telecommunications , , ,
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