October 31, 2011 6:16 PM

The Walking Dead

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 such regulation).

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. 

Happy Halloween--Boo!

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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.


Handsets

The court seemed to view the claims that the merger would disadvantage the plaintiffs' ability to gain access to handsets with the most skepticism.  For example, the court asked plaintiffs whether the court has to consider that the handset industry is highly competitive.  The court also asked plaintiffs to explain what was so bad about exclusives. 

The naked implication in the complaints that the AT&T-iPhone distribution agreement was at all anticompetitive was met with surprise (given the lack of factual allegations that this agreement harmed consumers) by the court, which noted Verizon's ability to thrive without an iPhone during the relevant "exclusive" period.  The court specifically asked whether the iPhone agreement was a "prior bad act."  At another point, the court incredulously asked if plaintiffs were alleging that AT&T and Verizon would (post-merger) be able to control Apple and Google?

The biggest problems the court identified were that the complaint would seem to have the court accept--without factual support--that 1) exclusives were bad, and 2) the merger would increase the number of and length of exclusives (assuming exclusives were sufficiently established to be anticompetitive).

Roaming

Again, this was another issue where the court had a question as to whether the merger would immediately eliminate alternatives for the plaintiffs in this case.  For example, Sprint used neither AT&T nor T-Mobile as a roaming vendor, so the court questioned how Sprint could be harmed. 

Plaintiffs countered that, at some point, all carriers would be on the same standard--4G--and that this merger would potentially reduce a roaming partner for them.  However, the court was well prepared--and noted that T-Mobile had no plans to migrate to 4G, so this theory wouldn't work.  The court also seemed uncomfortable that roaming was a regulated service, and the complaint--if to be successful--relied on the court accepting the notion that the regulators would never effectively regulate. 

Backhaul

Plaintiffs allege that the post-merger firm will purchase less backhaul from competitive sources.  This loss of revenue to the competitive backhaul industry will cause competitors to go out of business, and thereby injure plaintiffs by eliminating alternative suppliers that could otherwise limit the ability of AT&T and Verizon to raise prices.  Plaintiffs also allege that, because AT&T and Verizon have a dominant share of the backhaul market in their incumbent states, absent competition, each firm will have the incentive to raise prices in their incumbent states.

The court seemed to not know what to do with this claim, because the complaints provided no factual support as to how, or how likely, it would be for competitive backhaul providers to exit the market as a result of this merger.  Similarly, the court seemed puzzled by the theory that--with less demand (by the elimination of T-Mobile) and more capacity--prices for backhaul in areas served by competitors would increase (and not decrease). 

Finally, because geographic markets and number of competitors in the market were not explained with specificity, the court would also have the problem of having to assume "regulatory evasion"--that the FCC would not regulate prices where it could--in perpetuity.
 

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