Results tagged “merger guidelines”

December 31, 2011 3:54 PM

The Year of "The Whale"

Well, here it is: New Year's Eve 2011, and--in case you haven't been reading along--over the past several months, I kind of took to calling Sprint "the Whale" in one of my blog posts based on their disproportionate (to their size in the market) influence in Washington (everything they do is "crazy big").  So when it came time to recognize a regulatory "player of the year", I have to give props where they're due, and congratulate the Whale.

Whether you like it or not, and whether by skill or luck, you have to give the Whale credit . . . of all the big telecom players/issues considered this year, the Whale pulled a clear-cut victory on their priority issue when AT&T and DT announced they were abandoning their deal to allow AT&T to acquire T-Mobile.  This doesn't happen much, and you have to recognize that this is no easy feat.  For this alone, 2011 was the year of the Whale, and 2012 will, by virtue of the Whale's win in 2011, by no means be the year of the consumer

Not taking anything away from Sprint's achievement, the coordinated actions of the DoJ and the FCC, did ensure that AT&T was never going to get an opportunity to defend itself on the merits in front of an impartial arbiter.  This is because, once it becomes clear that the regulator (which has much broader authority to deny the merger than that conferred on federal judges under Section 7 of the Clayton Act) has made up its mind to deny a merger, a court has a lot less incentive to even try an antitrust case. 

Consider that a U.S. District Court--under its Section 7 analysis--can only prevent the merger if it finds that it will lessen competition.  The FCC, on the other hand, seems free to ignore the analytical framework the court is bound by, and the FCC does not have to approve a merger unless the parties convincingly demonstrate that the merger "promotes" the public interest.  Thus, the FCC always holds the final cards. 

In cases like the DoJ/AT&T case--where DoJ seeks a permanent injunction (equitable relief that requires a longer trial/discovery period than traditional "extraordinary" merger relief, such as preliminary injunctions and temporary restraining orders, courts might well be much more likely to include the regulator in the process early, so as to avoid "wasting time."  Unfortunately, administrative/judicial efficiency can come at the cost of the merging parties' due process rights.

So, Congratulations! are in order for Sprint this New Year's Eve, and, looking forward, I would say that the way the "2 layer" merger review process (Justice/FTC + Regulatory Agency review) was exploited this year by the Agency, will possibly tee up this issue for legislative elimination in 2012. 

Happy New Years! to all my readers.  Thanks for taking the time to read my blog--I'm grateful for every "unique" view that I get--so tell all your friends!  Best wishes to all for a safe and successful 2012!

September 19, 2011 12:50 PM

Should the Merger Guidelines Come With Guidelines?

I said before that the genius of Sprint's gambit was that--if they could successfully convince the Antitrust Division to accept and endorse a national market with four participants as the starting point for the Division's analysis--Sprint was (by those terms) guaranteed a three firm oligopoly for advanced broadband wireless services, no matter the outcome of the case.  The very act of the Department challenging the acquisition would have this effect.  Why?

The general answer is that the Department's Complaint is based on an application of the 2010 DoJ/FTC Merger Guidelines, which are a less-structured revision of the 1992/1997 Merger Guidelines.  While Guidelines can provide a useful way of learning competitive conditions in most (unregulated) industries, they cannot yield a comprehensive competitive analysis of an industry like mobile wireless telecommunications services.  The Guidelines simply do not take into account the degree of interdependence between regulation of critical, government-controlled inputs (like access to spectrum), differing network technologies and deployment cycles, the diversity of services and devices supported by any single network, and the massive capital intensity of the wireless industry.  

Even more specifically, though, the Guidelines don't instruct the enforcement agency to consider the effects of its decision--to challenge or approve the transaction--on future competition in an industry already heavily dependent on the decisions of another government agency.  But, let's back up before things get too confusing.

The Scarcity of Spectrum and the Need for a Spectrum Regulator

Ideally, the FCC, the NTIA, or some other government agency would act as the "central banker" of spectrum.  The spectrum "central banker" could forecast demand, try to free up supply in advance of anticipated demand, and hopefully have some success in at least mitigating situations of shortage or surplus.  

This role would balance the needs of government, and the various commercial users of spectrum so that resource scarcity could be somewhat removed from a competition analysis.  In the event a firm wanted to exit an industry, the "spectrum banker" could act as a purchaser of last resort.  This agency could purchase, hold or re-auction unused spectrum, and would have to be able to oversee the sale of an ongoing business in a manner designed to maximize spectrum utility, and the value created by the exiting firm.  One benefit of such an agency would be to allow competition agencies to make decisions based on competitive factors alone.

The Effect of Enforcement of the Guidelines on the Guidelines' Analysis


The Guidelines are supposed to explain what effect a combination of firms will have on consumers in the market for the good or service that is the subject of the transaction.  A proper Guidelines analysis is supposed to consider the effect that barriers to entry will have on the likelihood of future entry if prices were to increase.  When a market is characterized by high barriers to entry, the agency must give careful attention to a merger between firms in that market, because competition lost will not be quickly replaced by new entry.  So far, so good--in fact, if you search "barriers to entry" and "merger guidelines", you'll get tons of results.

The problem, though, is that barriers to exit have the effect of raising barriers to entry.  For our merger, this is the blind spot in the Guidelines' analysis.  If you search "merger guidelines" and "barriers to exit", you don't really get anything (at least not in the first five pages of results that I looked through).  

The result is what I would call the Guidelines' version of the "Heisenberg Principle."  Said differently, in cases where markets already have high barriers to entry, the failure to account for action pursuant to the Guidelines will, further raise barriers to exit, and thus future entry, than markets with otherwise low barriers to entry.

What Is the Significance of a "Barrier to Exit" in the DoJ v. AT&T/DT Suit?

Well, put yourself in the shoes of Deutsche Telecom.  You've invested billions of dollars in the U.S. mobile wireless market to develop spectrum, deploy infrastructure, innovate, create jobs, and add wireless capacity.  Now you would like to cash out. 

Continue reading Should the Merger Guidelines Come With Guidelines?