November 4, 2011 3:03 PM
I kind of feel like I'm the guy that made it all happen. All I have to do is to call the Sprint/C Spire antitrust cases against AT&T/DT/T-Mobile "The Walking Dead
" on Halloween, and what happens? Two days later, the court issues an order
that really turns these cases into the legal equivalent of zombies, by dismissing all but a fraction of one of Sprint's claims, and preserving C Spire's equally-weak claims. Doh!
To be fair, though, after applying the law evenly and giving plaintiffs every benefit of the doubt--the court allowed all adequately-pled claims to move forward; notwithstanding the poor prognosis for these surviving claims. Now, just what "move forward" means is anybody's guess, but I'll again make some intrepid predictions.
Sure, some of you might say that because the court did not dismiss the private cases in their entirety as I predicted at the beginning of the week, I should be eating at least a little crow--maybe the feathers of the claims that are still left--and that's fair. So, if you want to make fun of me, please do. I'm not so important that I can't take a little abuse. But, since I never get comments, please do me a favor and submit them in the "comments" section--it'll be fun.
Now that we've seen the court's order, let's look at what's left of the private case claims, and try to guess what happens next.Sprint
Sprint still maintains a small portion of its argument that the merger will injure them in the input market for handsets. Sprint contends that AT&T's acquisition of T-Mobile will increase AT&T's incentive and ability to use its post-merger buying power to coerce handset/operating systems vendors to disadvantage Sprint by foreclosing access to the most desirable handset models. Sprint is allowed to try to prove its theory that AT&T's incremental increase in its buying power (as a result of the merger) will cause AT&T to not just get lower prices for itself, but to disadvantage
: Ouch! Almost the worst imaginable, because if you were at the oral argument on October 24th, you would have heard the court incredulously ask Sprint, "are you saying AT&T and Verizon control
Apple and Google?" By allowing only this claim to survive, the court pits Sprint not against AT&T, but against the handset vendors. Why do I say this?
Because in order for this claim to succeed, Sprint needs to get a handset vendor to agree with it in court. After committing over $20 billion in handset spend over the next 3 years to one vendor (Apple), do you really think Sprint is going to get a vendor to alienate AT&T and Verizon by making such a statement?
But let's just consider the facts as they stand. Handsets are a worldwide market. T-Mobile is a wholly owned subsidiary of Deutsche Telecom: a company with 128 million mobile subscribers today (more than either AT&T or VZ). Hasn't Sprint already seen the "horror" of a competitor with superior buying power?
Moreover, assuming T-Mobile stays a wholly-owned subsidiary of Deutsche Telecom (which recently combined procurement operations with France's Orange
), T-Mobile becomes an even bigger threat (under Sprint's theory) as it will have more handset buying power than AT&T, Verizon, and Sprint combined (the joint DT/Orange procurement group will represent 286 million mobile customers). Sprint is thus in the difficult position of asserting that AT&T--with an estimated post-merger customer base of around 130 million mobile customers--is a more dangerous buyer with T-Mobile, than T-Mobile is with DT and Orange. Are you buying?C Spire
The court clearly viewed C Spire's complaint as the better-pled complaint, in that it allowed more of C Spire's handset-related claims to stand, and the court allowed C Spire's roaming injury allegation to stand (that a portion of C Spire's customers are GSM-based and buy roaming from AT&T and T-Mobile now, but will be left with only AT&T post-merger). Prognosis
: On the handset claims, C Spire has essentially the same problems as Sprint, but made worse by the fact that C Spire only has 875,000 customers. U.S. Cellular, Leap, and MetroPCS all have multiples of this number--making these firms (as well as the larger firms) much more attractive to handset vendors. After all, is it really unnatural, or anticompetitive, that a Sears or WalMart might be able to carry a larger inventory selection (for any product) than a small town general merchandiser? For an AT&T, with or without T-Mobile, the defense is as simple as "don't hate me 'cuz you ain't me."
C Spire's surviving roaming claims are even less attractive than Sprint's "monopsony" claim. Instead of pitting C Spire against its own vendors (as the surviving Sprint claim does), this claim pits C Spire against its regulator
. You see, in order to prove that the proposed acquisition could harm C Spire's access to a regulated service, C Spire will have to produce some evidence that the regulator can't effectively regulate
AT&T's obligation to offer roaming.What's Next?
Well, considering that the DoJ was well aware of all of these vertical claims, and chose to include none in its complaint, we have to believe the private cases are on the slow burner. Why?
First, the court didn't schedule a status conference on discovery and case management until 5 weeks after its order came out--December 9th. Coincidentally, this status conference occurs two days after the parties to the DoJ case have identified all of their witnesses (by December 7th). (see scheduling order
, para 11).
It's highly unlikely that the court will require AT&T to defend on two fronts--and indulge discovery on these unique (from the DoJ complaint) claims--until after the February 13th trial ends. Before these claims will go to trial, we'll know the outcome of the DoJ case--most likely rendering these claims moot, either way.
It seems like a good time for Sprint to consider that, if it really wanted to help DoJ, how effective a witness it will be as an interested party in a related case vs. simply folding a losing hand.
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