April 8, 2014 3:06 PM
In Comcast's public positioning of its proposed acquisition of Time Warner Cable, executives of both companies have chosen to characterize the merger more by what it's not
than by what it is
. So, we know that the merger is not
going to result in any significant efficiencies, because it's not
going to reduce consumer prices
for cable (even an unconstrained monopoly reduces prices when costs decline).
We also know that the merger is not between two competitors, because--as the companies make it a point to tell us--they don't compete
. TWC's CEO says
, "[w]hether you're talking about broadband or video, we don't compete with one another." Comcast's CFO goes as far to state
, "[w]e don't compete in one single zip code."
Doesn't it kind of seem like they're trying just a little too hard to sell the notion that the combined service territory
of Comcast and TWC is not relevant
(because, you know, they don't compete)?Product Market Definition
The last time the DoJ's Antitrust Division ("Government" or "DoJ") looked at a Comcast acquisition, it determined--based on documents from Comcast--that Comcast's "joint venture" (as it was structured at the time) with NBC-Universal would reduce competition in the "video programming distribution" market. See Comp. Impact Stmt. (CES
). The Government seemed especially concerned at the ability of post-merger Comcast to destroy nascent competition from online video distributors. CES
at C and D.
Based upon the Government's concerns in the previous Comcast acquisition, and DoJ's focus on cross-elasticity of demand in defining a relevant product market, let's focus on some recent information
from the Leichtman Research Group to get some valuable insights into how the Government might define a relevant product market.
Consider that, among multi-channel video providers, cable companies lost
1.7 million customers in 2013. But, AT&T and Verizon added
1.5 million MPVD subscribers last year. The Leichtman numbers
show that customers are not so much "cutting the cord" (only 105k customers stopped buying from an MPVD in 2013) as they are switching MVPDs--but customers are choosing MVPDs that are also broadband providers
. Very high percentages (according
to AT&T, well over 90%) of both cable and telco MPVD subscribers are also broadband customers. The Leichtman data confirm this for Comcast and TWC, as well.
Purchasing video service from another broadband provider, allows the customer to purchase services they want from the MPVD, but also purchase services directly from an online vendor, like Netflix. In its earlier analysis of the significant competitive effect of online video distributors, the Government referred to this practice as "cord-shaving." CES
, at C.2(b).
Given consumer behavior, it seems likely that the Government will focus on a broadband market--of a sufficient speed to facilitate a competitive MPVD service--as the primary relevant product market. Because it is this market in which the traditional "hypothetical monopolist" test would yield the greatest supply substitution responses. For all practical purposes, we should consider broadband providers offering service at 10-15Mbps as participants in the "MVPD-bandwidth" market.Geographic Market Definition
If one's primary concern was to look at the area over which the post-merger firm might be able to reduce competition, then that territory would be (at least) the total number of MVPD-bandwidth broadband customers in each geographic market served by Comcast or Time Warner Cable. Within this total subset of homes passed will also include the majority of the customers capable of being served by AT&T and Verizon.
What is difficult to figure out from publicly available data is what percentage of MVPD-bandwidth homes will be served within that area by Comcast, Time Warner Cable, AT&T, and Verizon. For our purposes, just to get a ballpark idea of the type of numbers we would be looking at, we are going to use a datapoint from the Leichtman 1Q 2014 Research Notes
that the number of FiOS and U-Verse addressable homes stands at 41 million, giving the companies a video market penetration rate of 26%.
Let's further assume--and this is a generous assumption toward Comcast--that AT&T and Verizon compete with Comcast and TWC in 70% of their combined service territory, but that all of AT&T and Verizon's customers were won in this territory. This would give us a total denominator of about 59 million homes passed (that could receive MVPD quality broadband).Market Shares
To get useful MPVD-broadband numbers, we are going to work with the Leichtman numbers we used earlier, but, because it is impossible to tell from the telco broadband
numbers how many AT&T and Verizon broadband customers are actually U-verse and FiOS customers, we are going to use MPVD customers
as a proxy, in order to allow us to get some ballpark market share numbers.
So, we can see that the result of this merger, for anyone that has to depend on getting content, carriage, or online video distribution to these 60 million households will be looking at a market that goes from "moderately concentrated" to "highly concentrated" under the DoJ Horizontal Merger Guidelines at Section 5.3
The competitive effects on both MPVD rivals like AT&T, RCN, and Verizon, as well as online video distributors like Netflix, are likely to be significant in terms of their ability to get competitive programming. Add to this the fact that Comcast will also control 12 major regional sports networks, and it is easy to see how the post-merger firm could restrict output of the most inelastic, and "linear," of linear programming to broadband and online video competitors.
This last effect is, potentially, disastrous for the future deployment of more MVPD-bandwidth broadband in the area that would be served by the combined Comcast-TWC, because it eliminates what is potentially the biggest source of pent-up consumer demand for MVPD-quality broadband as a substitute for traditional MVPD bundled service--online access to regional sports programming.
How do we know the significance of real-time sports programming to the value of the broadband Internet? Because the first truly linear, all HD, over-the-top channel--the WWE Network--has attracted almost 700,000 customers paying $10/month, in only 6 weeks
If the DoJ and the FCC value the availability of MVPD-bandwidth broadband throughout the Comcast-TWC territory, then Comcast might have a reason to worry. But, commenters on the political left
have conceded Comcast's powerful influence over the government; so, Comcast probably does have a decent chance of moving forward with this acquisition. Unfortunately, it just postpones the day when consumers can choose to buy only the video content they want from the vendors they want.
September 20, 2013 2:47 PM
Earlier this week Prof. Susan Crawford
[of "net neutrality" fame] wrote an editorial
that appeared in Bloomberg's online edition. The editorial generally sticks to her by-now-familiar shtick that the FCC needs to, you know, do more net neutrality stuff. But, this time her generally annoying undertone of school-marm-ish sanctimony became an uncomfortably strident ad hominem overtone.
By now, if you pay any attention to telecom policy debates, you know that Prof. Crawford believes that cable is one big, evil monopoly [generally true] and that really good "net neutrality" regulations are urgently necessary [in order to avoid a massive chain reaction of events that would result in Skynet
becoming self-aware in August of 1997]. Prof. Crawford is also a political animal, having served as President Obama's technology policy adviser.
The reason that I mention her political background is because it's part of the modern political tradition that being an extremist in defense of [your opinion vs. that of the other guy] is no vice. Just as background, this notion comes from Ms. Crawford's political forbearer, Barry Goldwater,
who said something similar as a candidate in the 1964 Republican Presidential primary contest [he didn't win].
Lucky for you, though, I--like many Americans--have transcended politics [read: became disenfranchised], and adhere to the more pervasive opinion (among normal people not employed by cable "news" channels) that it's not cool to be harsh toward other people when you're just talking about political stuff. So what was Prof. Crawford's uncool move in the editorial? This:
Leibowitz himself pooh-poohed that notion [that antitrust laws are sufficient to protect competition in Internet access] in 2007, when he pointed out that a high-speed Internet access provider "with monopoly power in a local market might use that power to block or degrade some applications or content that compete with applications or content the broadband company itself provides." Antitrust law, Leibowitz added, "would not prevent such a scheme except after a 'rule of reason' analysis" which would be "drawn out, uncertain, and expensive" -- leading him to conclude that antitrust law "is not necessarily well-suited to protecting" consumers' interests.
[Protip: if you ever see a big block quote in an online article--with no links--there's a good chance the quote is being misrepresented.]
She first mentions former FTC Chair Jon Leibowitz
in an earlier paragraph that begins with a sentence noting that AT&T's Jim Cicconi [in a Media Institute speech
] recommended that the FCC leave competition policy to the antitrust agencies (DoJ and FTC). The very next sentence reads that Leibowitz "agreed" that the FTC (vs. the FCC) should deal with privacy issues, while noting that Leibowitz is now representing AT&T, and other large ISPs. See what she's doing here? Raises point she disagrees with, then says Liebowitz "agreed" on a completely different point. Misleading? You think? But probably just an accident . . .
Until you get to the paragraph highlighted above, here we find out that Leibowitz is a traitor to his own regulatin' heart, right? Well, no. The only reason you would think this is because in an earlier paragraph we learned that Leibowitz agreed with Cicconi . . . err, at least on privacy stuff. But still, Leibowitz is "selling out" his high falutin' big government ideals to big business, right? No! This quote is from a concurring statement
he released as an FTC Commissioner after voting to adopt an FTC staff report recommending that the agency NOT adopt net neutrality rules!
You see, the FTC staff undertook a very thorough examination of the Internet access market and the concerns of people like Prof. Crawford, and concluded
that because the market for Internet access was becoming more competitive, it was not necessary for the agency to adopt any specific net neutrality rules. Then-Commissioner Leibowitz made the above statements to make the point that if market conditions changed, he could see circumstances where the antitrust laws may not provide a timely, effective remedy.
So, why does Prof. Crawford try to cite "good" Jon Leibowitz against his present clients? Well to show that both of them are full of crap now, of course! Not cool, you say? No, and not persuasive either. If this is what the defense of net neutrality has come to, Prof. Crawford, let it go: keeping your soul is more important.
Trust me, Professor: no one wants Skynet to become self-aware by 1997
, but even if people don't understand your points, or disagree with you, don't make them the "bad guy" just because they don't agree with you and don't share in the urgency of your mission. Policy-related issues deserve a spirited debate among influential leaders that includes a thoughtful examination of the facts, not a call for everyone to jump on the bandwagon and agree with one person's vision.
November 16, 2011 3:13 PM
Last week, the U.S. District Court for the District of Columbia, released its opinion
granting the Antitrust Division of the U.S. Department of Justice a preliminary injunction preventing H&R Block ("HRB") from acquiring the stock of "2SS Holdings, Inc.", the maker of TaxACT, a digital "do it yourself" ("DDIY") tax preparation software.
Since this news was released on November 2nd, many have speculated, opined and hypothesized--without basis--that this decision does not bode well for AT&T's acquisition of T-Mobile USA from Deutsche Telecom. According to just about everyone, the impact was decidedly positive for the DoJ's chances to win its case against AT&T/T-Mobile if it goes to trial next February in Judge Huvelle's courtroom.
The simplified reasoning was that because the government had just prevailed on its most recent horizontal merger challenge, it will likely prevail on its next horizontal merger challenge in the same district. These stories were the predictable result of a well-known human behavioral bias, known as the "error of recency
"--the notion that humans tend to overweight the value of recent actions. While the "hot hand fallacy" and the "gambler's fallacy" were identified with respect to how humans approach "random" (i.e
., "unrelated") events over 300 years ago, these biases continue to persist
What is interesting, though, is that the "hot hand fallacy" infected all major stories reporting, or commenting on, the event. The result was that the "legitimate" news stories (e.g
) were remarkably similar to the interest group blogs
. But, since no one has yet attempted to offer any perspective on the HRB case (unaffected by the error of recency), let's look at how the two cases might be perceived differently by a different court, with a different set of facts.Market DefinitionHRB
This is perhaps the most obvious difference between the two cases. The HRB case was, strategically, much more of a traditional horizontal merger case. The basic strategy in a horizontal merger case is for the plaintiff to seek to define the markets (product and/or geographic) very narrowly, and for the defendants to seek the broadest possible market definition. For example, if the alleged market was soft drinks, defendants would want to argue that all non-alcoholic beverages, including tap water, should be included in the product market.
It would not be going too far to say that HRB was all about product market definition. In fact, the court devoted more than half of its opinion to evaluating each party's claims regarding the properly-defined product market. Only if the court agreed with the DoJ's contention that DDIY software was a discreet product market, would the government have been able to show sufficiently high concentration numbers to make its case that this merger would lessen competition.
Defendants, on the other hand, were arguing that the market also included professionally-assisted tax preparation, and (fatally) consumers that file their tax returns without any assistance. The court found this definition impermissably broad, because the inclusion of "pen and paper" filers distorts the market because these filers were not purchasing any product or service, but merely performing a legally-compelled "chore."
Ultimately, the court found the DoJ most persuasively defined the relevant product market. After adopting "DDIY" as the product market, the concentration numbers were substantial. The market leader, Intuit, had around a 62% market share, with HRB and 2SS coming in second and third with approximately 15.5% and 13% shares, respectively. Now, let's compare the market definition facts of the AT&T case.AT&T/T-Mobile
Unlike the HRB merger, there are unlikely to be many, if any, novel proposed market definitions presented by this proposed wireless acquisition versus any of the many others for which the DoJ has alleged the same product and geographic markets it is alleging in the present complaint. Competitive Effects--HRB vs. AT&T/T-Mobile
Contrary to the assumptions of some commenters, however, mergers are not evaluated solely on concentration numbers. The HRB court, relying on U.S. v. Baker Hughes
, explained that "[t]he Herfindahl-Hirschman Index cannot guarantee litigation victories." Opinion at 53 of 86 (internal citations omitted). So let's compare the alleged anticompetitive effects of both proposed mergers.
First, we have to recognize that under the worst case for AT&T/T-Mobile, almost every geographic market starts with much lower concentration numbers--and smaller increases in concentration due to the merger--than in HRB. The higher initial concentration numbers, and the greater changes in concentration in HRB, make it easier to understand how the simple removal of one vigorous competitor (the court eschewed the term "maverick") could have an anticompetitive effect.
Second, consider also that the DDIY tax preparation market was a differentiated product market, in which the proposed acquiring/acquired firms were each other's closest substitutes. Thus, it was fairly easy to understand the DoJ's unilateral effects theory--that HRB could raise the price on its "high end" DDIY services and still capture lost sales through its ownership of the "low end" acquired brand.
On the other hand, it is unclear whether any true "differentiation" exists in the wireless mobile telecommunications service market. Unlike in HRB, the government has not alleged that retail consumers perceive AT&T and T-Mobile to be each other's closest substitutes. Thus, it seems unlikely that this merger will provide the post-merger firm with the opportunity to execute a unilateral price increase.The Effects of H&R Block on the AT&T/T-Mobile Merger
Did you really think I'd try to answer that question? I have no idea. It's obvious that the facts of the HRB merger made it into a more traditional battle over a narrow vs. broad product market. On the other hand, from the beginning the AT&T/T-Mobile merger has been about competitive effects. All we really know is that, while it's a gamble to try to predict the outcome of a case based on oral arguments, it's an odds-against bet to try to predict the outcome of one case based on the near-term results of an unrelated case.
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?
September 19, 2011 12:50 PM
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?
July 14, 2009 3:36 PM
Competitive subscription TV providers are, most often, confronted with a blizzard of "no"s, or, even worse, a blizzard of "nose" when they ask if they can buy sports programming in a "high definition" format from the vertically-integrated owner of that local sports programming. Most regional sports programming (most college sports, and all professional sports except football) is owned by a regional programming company that is usually affiliated with a large cable TV company. The vertically-integrated sports programmers (big cable) are always fighting with competitive subscription TV providers (telco--ILEC and CLEC, competitive cable overbuilders, and satellite). The major source of contention is access to the "feeds" of local sports content (both "regular" and "high def"). Incumbent cable operators, who do not compete with one another, routinely make all proprietary programming available to other cable incumbents.
A good example of how vertically-integrated video providers can use their programming market power to reduce consumer welfare is described in the FCC complaint filed last week by Verizon against Madison Square Garden L.P. ("MSG"), and Cablevision. MSG is owned by Cablevision, and MSG owns the exclusive rights to produce and exhibit games of important local sports teams, such as the NY Knicks, NY Rangers, NY Islanders , NJ Devils, and the Buffalo Sabres. Providers of subscription TV in the NY metro area, and upstate and western New York, believe that the high definition feeds of these events are competitively significant. Every provider of subscription TV services that is offered the "high-def" format purchases it, and every other provider of subscription TV services wants to buy it.
In its complaint, Verizon claims that MSG is violating Section 628 of the Communications Act, which prohibits vertically-integrated distributors of satellite programming from acting in an unfair, or anticompetitive manner. Verizon contends that Cablevision is in violation of the Act because it refuses to sell Verizon its "high def" feed for sporting events, for which MSG owns the rights. Cablevision's response is that, because it transmits the "high def" feed to its distribution points via fiber (vs. satellite) transmission, it is not required to deal at all (much less, fairly) with any other programming distributor. This post is NOT about Verizon's complaint at the FCC.
Continue reading The Blizzard of Yaahhhs: Is Aspen Skiing A Lift Ticket To Fair Programming Terms?