October 19, 2011 12:06 PM

Even Whales Get the Blues . . .

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.

Hubris?  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."

Hubris?  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?

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