October 31, 2011 6:16 PM
Here, I'm referring to the private antitrust cases filed by Sprint and C Spire (formerly Cellular South) seeking to enjoin the AT&T/T-Mobile merger. It's Halloween, the night on which the dead are said to be able to walk the earth. While the private antitrust cases are not officially "dead", they are (for now) some stuck between the world of the living and the realm of the dead.
A week ago, the court heard oral arguments on AT&T's Motion to Dismiss these private cases. Most news reports correctly noted the court's skepticism as to the viability of these cases--outside of the DoJ's own suit to enjoin the acquisition of T-Mobile by AT&T.
But, it doesn't take a psychic, a medium, or a Ouija
board to understand that these cases are effectively among the many "dead" cases that still haunt the courts. Why?
Well, putting aside any of the court's skepticism and the many difficult legal standards these claims must survive, let's just consider whether the court, the public, or even the plaintiffs, stand to win by moving the cases forward. The answer is fairly simple.
If the government wins its case, the private cases become irrelevant because both the government and the private plaintiffs are seeking the same relief--judgment enjoining AT&T, DT, and T-Mobile from consummating the proposed transaction. On the other hand, if the government loses, both private cases will fall as well.
At the court's first hearing (on the U.S. v. AT&T case), Sprint told the court that if the government lost its case, Sprint would not proceed with its own case. While C Spire had not filed at that point, it is clear that C Spire's "injury" claims are simply too speculative to survive, or (even worse) rely on the court accepting a "regulatory evasion" theory (in other words, that even though the conduct feared by C Spire--e.g
., the post-merger firm will raise roaming rates--can
be addressed by the FCC, the post-merger firm will also be better able to evade
So, if you're out tonight and run into these claims, fear not. Shifting metaphors, these are two turkeys that won't make it past Thanksgiving.
If anyone is interested, here are my notes on the court's questions regarding the "vertical" claims (i.e., those that the competitors, as opposed to the government, could bring) from last week's hearing.
Continue reading The Walking Dead
October 21, 2011 11:22 AM
Who knew what Hu knew, and when did he know it? The "who"/"Hu" is, of course (for you merger mavens), Victor "Hu" Meena, CEO of C Spire Wireless
--the company formerly known as Cellular South, Inc. (Digression: I'm not sure adding "spire" to a letter is ever really a good sign. When I was at CompTel, we had a member named ACSI (American Communication Services, Inc.), which changed its name to "e.spire Communications." You know what happened? It ex-pired--declared bankruptcy just 3 years later. According to the pleadings, "c spire" was looking to con-spire with AT&T not to engage in facilities-based service competition; not good, but name-appropriate. See, AT&T Motion to Dismiss, at 1 (p.7 of 18) Lesson: if you want a new name, stay away from "spire"--it's just bad juju.)
The "what", of course, was that Hu knew that C Spire was going to get the Apple iPhone 4S
in the coming weeks. So, why is the "when" so important? Why is it any of my business, or yours? Well, if C Spire was just "some company", we
wouldn't care--and even if we did--it would be none of our
But C Spire is our
business . . . for several reasons. First, we support
C Spire. In fact, in 2010, we gave C Spire over $161 million in "high cost" subsidies--subsidies that the FCC has decided to no longer make available to wireless companies under the "equal support" rule (which provides wireless carriers with the same support as wireline carriers operating in rural areas even though they don't have equal costs). [For total sum of high cost support for 2010, by company, see Tables
3.22, 3.23, 3.25, 3.27, 3.28, 3.29, 3.30].
Second, Mr. Meena used the time of our Congress
to explain why
the AT&T/T-Mobile merger would have the effect of "foreclosing" access to desirable handsets from smaller regional carriers. And, finally, about a month ago--on September 19th--C Spire decided to use our
judicial resources to press a merger concern (that it cannot get timely, affordable access to popular devices) that it certainly knew to be specious at the time of filing
. See, e.g.
, para. 26.
So, here's our
question, "when did Hu know he was getting the newest iPhone at around the same time as AT&T, Sprint, and Verizon? I'm guessing it was probably for several months--given C Spire's description of how difficult it is for smaller carriers to get the attention of device manufacturers. Was it 5 months ago? Around the time Hu implored the Senate that--if the merger is approved--no one would ever make desirable devices available to small, regional carriers?
C Spire has about 900,000 customers. Let's say their average cost for the iPhone 4S is around $300
(in between the $200 and $400 versions). Let's further assume that C Spire would have to commit to purchasing a not-unreasonable 250,000 units. That's a lot of phones, and a pretty big investment by C Spire--at around $75 million.
I have no experience in the wireless service business, or the device manufacturing business, but I'm guessing that a deal like that would take a few months to work out. After all, the device manufacturer and the service provider have to work out an acceptable price, and unit commitment, that would make a C Spire-specific production run profitable for both parties. Moreover, this was no small commitment by C Spire--probably half, or more, of its USF subsidies for a year. A deal like this does not get done overnight. So what's the point?
Well, C Spire has to convincingly support their theory of merger-specific harm in front of the court on Monday afternoon. By then, I'm guessing C Spire or AT&T will have provided the court with supplemental information pursuant to Rule 15(d) of the Federal Rules of Civil Procedure
. Come Monday afternoon, C Spire should expect to be asked when Hu knew about the iPhone, and why are they continuing to press what they have already demonstrated to be an unconvincing theory of harm?
[Since this is my last post before the oral arguments on AT&T's Motions to Dismiss, let me "keep it real"--because no one (not even AT&T) is going to tell you--but the private cases can only be dismissed. Why do I say this?
Because when a business has legitimate concerns about concentration (and possible anticompetitive consequences) resulting from a merger among its input providers, then getting the government to challenge the merger is the name of the game--period. Seriously; that's the best you can do as a potential "victim".
Let's think about it. Imagine you own a car company, and all the tire manufacturers want to merge to monopoly. Well, you can't sell a car without tires, and a tire monopoly could probably eat an additional $500 to $1000 more out of each vehicle sold. So you are really invested in getting the government to stop that merger.
But, here's the deal--and we all know it: if the government doesn't win, then you aren't going to win, either. So why would any rational interested party ever sue on a merger, after the government has already filed to enjoin the transaction? I've never even heard of such a thing . . . until now. Why waste the cash?
Each plaintiff would be working with the same set of facts and the same legal precedent. The trials are always before a judge, and never before a jury. On the same set of facts, you'd get the same judge as every other plaintiff, and you'll get the same verdict when the judge applies the same law to the same facts. Duuh?!!
I'm sorry if this is a "spoiler" for you, but I hope you've enjoyed the "Whale" series as well as this post. Thank you for reading at all. -Jonathan
October 19, 2011 12:06 PM
We all have bad days, or even bad weeks; that's just the human condition. You know what I'm talking about, right Coco
? As a late friend of mine best put it, "sometimes your horse is supposed to lose.
" But, let's say that you lost a whole lot . . . like, maybe close to all of your credibility . . . in just 6 or 7 weeks? You'd probably wonder whether it was bad luck, or something you
were doing--perhaps even suffering the consequences of hubris
(in the Greek tragedy sense of the word).
Well, this is exactly the problem encountered by our friend Sprint (a/k/a "the Whale"). On August 31st, Sprint's credibility was at its apex--when they convincingly "sold
" their version of the AT&T/T-Mobile merger story to the Antitrust Division of the U.S. Department of Justice. About a week earlier, on August 23rd, your humble blogger outlined a coherent merger strategy
for Sprint, giving Sprint's prior statements every benefit of the doubt and allowing it to keep its public voice consistent without being any worse off.
Did Sprint take my advice? Of course not! But let's look at what Sprint actually did in the subsequent several weeks (post 8/31) and you tell me whether they are victims of bad luck, or are suffering something akin to the proverbial tragedy that follows hubris? Hubris or Bad Luck?
1.) September 6th. Sprint files its own Complaint
seeking to enjoin the AT&T/T-Mobile merger. Sprint also sought to be included, for discovery purposes, as a party in the United States' case--a request the court denied
? Yes. Given that the DoJ had already filed, Sprint had nothing more to gain by filing its own case. It was an unnecessary and reckless risk. The best they get is a few days of headlines, the worst is that Sprint's credibility comes under scrutiny, as their claims get dismissed. Consequences
. Filing a private merger suit alone is risky enough; no one has ever won this bet. But seeking joinder with the government, even for discovery purposes? As explained in an earlier post
, this tactic was contradictory, absurd, and doomed Sprint's private standing. Moreover, even before Sprint's Complaint was filed, one of its allegations of harm (concerns over a failure to get access to popular handsets) had started to unravel by the announcement that Sprint would get the new iPhone
at the same time as AT&T and Verizon.
2.) September 22nd. Sprint says
only Sprint could buy T-Mobile. Sprint "clarified" that the government is less concerned with the loss of T-Mobile as an alleged fourth "national" competitor than it is with the identity of the "national carrier" acquiring T-Mobile. Sprint contends it is an acceptable acquirer, and AT&T is not. One wonders if the government ever thinks, "with a complainant like this, who needs defendants?"Hubris
? You bet. I'm guessing both the United States and Sprint's lawyers could have done without Sprint revealing its self-serving motives for opposing the merger. Moreover, there is no evidence that the government agrees with Sprint's "clarification." Consequences
. Obviously, this little "clarification" by Sprint, purporting to disclose the "true concerns" of the government is more than a little contradictory to Sprint's economic arguments opposing the proposed acquisition on "consumer protection" grounds. Worse still, it may have focused the attention of investors on whether Sprint really had the kind of money to buy T-Mo, causing a more general scrutiny of Sprint's financial health.
3.) September 29th. Three weeks earlier, according to its Complaint, the proposed acquisition posed an imminent threat to raise Sprint's costs for a critical input--wireless backhaul. Yet, according to early reports
regarding the results of the first stage of a nationwide RFP for upgraded, high capacity backhaul, the most competitive carriers (by share of spend) were AT&T, Comcast, and Time Warner Cable. Curiously, AT&T wholesale was identified as the lowest cost provider. The same source
noted Sprint's prediction that it "will end up with '25 to 30 significant backhaul providers." Hubris
? No, just bad timing. Sprint might reasonably view its intention to obtain a cheaper, higher capacity infrastructure for its network to be information that they should disclose to their shareholders. Consequences
. This was a publicly-announced "admission against interest." In its Complaint, Sprint alleges that a "unique" harm it will suffer as the result of AT&T's proposed acquisition of T-Mobile is that AT&T and Verizon will control a duopoly in the market for backhaul transmission, and have a greater incentive and ability to increase prices, pari passu.
While Sprint never explained how this theory made sense, Sprint's actual
recent experience directly contradicts this allegation.
4.) October 7th. Sprint hosts an "Analysts' Day" and explains its optimistic future, with no reference to the proposed acquisition, or (curiously) any real discussion of the iPhone (click here
for presentation). Press reports
suggest that analysts were a little upset (to put it lightly) by what they perceived as a lack of financial information regarding Sprint's future 4G plans. While a little harsh, the Journal
probably best captured reaction to Sprint's big analyst call, "[i]t's not good when they laugh
? Yes. The analysts and reporters, for whom the presentations were developed, would likely consider an underestimation of their questions to be a bit grating. Worse still would be if the guests thought that Sprint was being less than candid with them. If Sprint expected the analysts to accept a "faith-based" approach toward its strategy discussion, it was wrong. Consequences
. Aside from financial market consequences, the presentation will not help Sprint's plea for a permanent injunction in its antitrust case. Sprint makes no mention of the merger, and describes a generally optimistic view of its future--especially with regard to its recent performance versus both AT&T and T-Mobile--and its ability to reduce future roaming costs and cost per unit (the remaining allegations of harm in its antitrust complaint). Tragedy: The Toll of Hubris?
Oral argument on AT&T's Motion to Dismiss Sprint's private antitrust case will be heard next Monday, the 24th. It is not at all unreasonable to expect a decision as early as the 31st. Given this likelihood, coupled with the outbreak of corporate hubris preceding Halloween, should Sprint's executives be considering costumes based on prominent figures in Greek tragedy?