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Two Winners on Deck to Join FCC

Yesterday, the Senate held confirmation hearings on the nominations of Jessica Rosenworcel (testimony here), and Ajit Pai (testimony here) to fill two FCC seats--one of which is vacant, and another will become vacant upon the adjournment of the present Congress.  I have had the privilege to work with both nominees, and this is probably the last time I can respectfully refer to either by their first names (instead of "Commissioner").  I can't think of two better candidates, or more deserving people to serve on the Commission. Sometimes even Congress gets it right.

I worked with Ajit as a colleague at the Antitrust Division.  He's got a great sense of humor, and is a truly committed public servant.  Plus, he's a super-smart lawyer.  I like Ajit a lot, I've worked with him personally, and I'm very proud of him.  He'll do a wonderful job for the public and I really look forward to seeing him make a positive difference at the Commission.

As far as Jessica goes, I've known her for more than 10 years--though I've never "worked with" her in the sense that we both got paid by the same employer--I have worked with her in my capacity as an attorney representing competitive carriers.  Whether as a staff attorney, or a legal advisor to Commissioner Copps, Jessica was always fair, patient, and willing to hear you out.  

She made sure she understood your arguments, even if she didn't agree, and was never dismissive no matter how small the party or their issue of concern.  She is also a super-smart lawyer, and has exceptional political instincts, which will make her seem a lot more like a "veteran" commissioner than most people just stepping into the job.

Both candidates acquitted themselves well in the face of questioning by the Senate Commerce Committee.  Don't believe me?  Then watch it for yourself here.

Finally, Ajit--you did great, brother, and I mean that sincerely. But, on the "speaking truth to power", "keeping it real" front, there's no question that Jessica laid it down and picked it up. 

Check out the hearing at about the 1:08 point where both are asked the same question by Sen. Blunt (R-MO)--about whether the FCC staff or the Chairman released the "staff report and analysis" as part of the Wireless Telecommunication's Bureau order granting AT&T and DT's joint request to withdraw their license transfer applications. See previous blog for background.  Jessica could have hedged, but instead she laid down the stone cold truth.  I love that!

Even My Boring Blogs Are Worth Reading

I'll be the first to admit that not everything I write is some kind of jewel that's just going to draw everybody in and make salient, compelling points in a hilariously entertaining fashion.  Truth be told, sometimes I don't even try.  While I always write about subjects that hold some interest for me (and try to make points that other people aren't talking about), sometimes I write about things that seem to only interest me.

One of those times was about 6 weeks ago, in a post entitled "Should the Merger Guidelines Come with Guidelines?  The point of the post was that the Guidelines don't really account for barriers to exit (which increase barriers to prospective entry), especially when merger enforcement could exacerbate already-high entry barriers by adding "barriers to exit", which would not otherwise exist.  Does anyone even follow the reasoning that the agency--by undertaking an enforcement action--can change the original characteristics of the market on which its action is focused?  I didn't think so.

BUT, if you did read the whole post, you would have seen this quote "Perhaps China Telecom, Carlos Slim, SingTel, or some other prolific foreign telecom investor, will, at some point, come to DT's rescue?" (emphasis added)   If you read this far, then you wouldn't have been at all surprised to see this story from Bloomberg a couple days ago, announcing that China Telecom plans to enter the U.S. market sometime in 2012.  Interestingly, the President of China Telecom Americas does not rule out entering on an own-facilities basis, noting that "money is not a problem."

So, on the off chance that the government and AT&T are unable to work out a satisfactory compromise that allows AT&T to expand output, protects consumers and rewards DT's substantial investment, it looks like all hope might not be lost for DT.  I write this for you 4 readers that did read that post.  Rest assured, I'm doing my best to provide a thorough analysis of all potential consequences of government actions--even unintended consequences.

If you're one of my few readers . . .  thank you . . . and please give your friends this message: "Telecomsense: Just Shut Up and Read It!"

Sprint's (Busted) Gambit: The Whale No Litigate

In chess, a gambit is only a gambit (which implies a strategy with a chance of success) if it is not obvious to your opponent.  Bluffs don't work unless you can convince the target: 1) that you believe you have the winning hand, and 2) the other players don't know you don't have the winning hand.  The point here is that the Whale can have a great strategy, but even the Whale can blow it if he appears reckless, or insincere.

On Wednesday, everything the Whale did was "crazy big" (emphasis on crazy).  On two separate occasions--once in the courtroom and once in the press room--Sprint betrayed its gambit, and essentially forfeited any chance of success.

Courtroom Caprice

In the courtroom, it would be too generous to say that the Whale took crazy risks.  A "risk"--no matter how "risky"--contains the potential for reward.  Lottery tickets are risky, yet real people win lotteries every day--you can win.  Sprint's courtroom strategy was the equivalent of a legal "suicide bomb", damaging not only Sprint's claims, but its separate antitrust case, and that of Cellular South.

Let's set the stage.  As everyone knows, on August 31st, the DoJ filed a complaint to enjoin AT&T from acquiring T-Mobile, because, the complaint alleged, the acquisition would tend to substantially lessen competition for mobile wireless services in violation of Section 7 of the Clayton Act.  

Sprint filed an almost identical complaint a week later. Sprint also asked the court (both cases were assigned to the same judge) to allow it to participate in the trial planning/discovery procedures the with the government's case.  If successful, this would be a big winner.  It would give Sprint the ability to string case out over a much longer period of time, and give it a more controlling role in the case.  Unfortunately, no court has ever joined a private plaintiff with the government in a merger injunction case (even for pre-trial purposes). This was a no win bet.

As noted in an earlier blog post, courts are very skeptical of antitrust complaints brought by competitors claiming to be seeking to protect "competition" and "consumers."  Accordingly, the Supreme Court has held that private merger litigants must assert that they (vs. the general public) will suffer a specific injury resulting from the merger.  

On the other hand, plaintiffs are not joined in litigation unless it is efficient for the courts to try their claims together because they are alleging common injuries as the result of the same event, or conduct (i.e., oil tanker negligently leaks oil, and multiple commercial fishermen lose business).  In other words, to be joined with another plaintiff you have to be alleging substantially the same injury as a result of the same alleged illegal conduct of the defendants.  Sprint did exactly that on Wednesday.

Does anyone see the problem here?  For Sprint to maintain standing in its own antitrust case, they have to allege a unique, personal injury resulting from the merger.  But, to be joined with the DoJ, even for discovery purposes, they have to be alleging the same injury as the result of the merger--otherwise they just bog down the government's case. 

Obviously, Sprint can't satisfy both standards, which is why this tactic was so reckless. So, in the process of losing a meretricious motion, and effectively conceding its separate companion case, Sprint also destroyed whatever credibility it may have had as a witness for the government. 

Why do I say this?  After all, Sprint's lawyers aren't Sprint, so how could an ill-conceived legal strategy hurt Sprint's value as a witness?  Well, it can't, really.  This is the part where Sprint's CEO took over.

Investors Need to Know the Truth

At an "investors' conference" on Wednesday, Sprint's CEO notified investors (and, it would seem, the rest of the world) that Sprint was only kidding when it said mergers that exceed the "HHI" concentration numbers in the antitrust analysis contained in its complaint were illegal. it presented to the government and the FCC were illegal.  Fair enough--it's his (and his shareholders') credibility to squander as he chooses. 

But then Mr. Hesse went on to clarify, on behalf of the United States, that the government wasn't all that committed to the HHI thresholds listed in its complaint.  Said differently, the elimination of T-Mobile as a "maverick" competitor wouldn't be nearly as threatening to competition--in the view of the United States--if a nice firm like Sprint were the purchaser. 

Rather, Mr. Hesse explained, the government would only be concerned when the other two of the largest three firms attempted to acquire T-Mobile.  You see, as Mr. Hesse clarified, the problem the government has with the AT&T merger, is unrelated to its allegations that the market is national and the number of participants would decline from 4 to 3.  The government must be so excited to have a company that brags about not needing spectrum, to explain why they would be the perfect firm to take T-Mobile's capacity off the market. 

Requiem

I guess we have to conclude that Sprint's real concern was that if AT&T got any of the capacity it needed, AT&T might become more efficient and put downward pressure on prices.  While I never drank Sprint's Kool-Aid on their opposition to the merger being motivated by concerns for the "public interest", I did drink the Kool-Aid on Sprint's Gambit.
 
The game was going as well as it could have for them, but they couldn't just help the "public interest" by being a witness--they had to be a "playa."  Instead of waiting to see if Justice won, and then coming in as a savior for poor little T-Mo, they couldn't wait. 

It's a proverb that you can get a lot done in Washington if you don't care who gets the credit.  Unfortunately for Sprint, they could not abide this proverb.  They had to be the Whale, the big boy in Washington, so they couldn't resist revealing themselves before the game was played out.  In doing so, they busted what could have been a beautiful gambit.
 

House Merger Hearing: Regulatory Complaints Dominated Merger Concerns

Yesterday, the Subcommittee on Intellectual Property, Competition, and the Internet of the House Judiciary Committee held a hearing on the effects of the proposed AT&T/T-Mobile merger.  The CEOs of AT&T and Deutsche Telecom both testified, as did several other parties who either opposed or supported the proposed merger.  

"Vertical" issues (how the post-merger firm could limit access to inputs needed by competitors) dominated the questioning.  However, this being a "horizontal" merger, the witnesses for the merging parties had to keep referring the questioners to FCC proceedings.

Earlier this week, I published a post that referred to most arguments opposing the merger as being essentially frustrations over regulatory complaints that are best resolved by the FCC--as opposed to merger-specific concerns that would not be exist, absent the merger.  The Rural Cellular Association ("RCA") witness, for the most part, made me look like a psychic.


Continue reading House Merger Hearing: Regulatory Complaints Dominated Merger Concerns

The Commission's Wireless Competition Conundrum: "Neutral" Is Not an Option

Since 1997, Congress has required the Federal Communications Commission to file annual reports that measure whether certain industries, such as mobile wireless services, are "effectively competitive."  Every report the FCC has issued since 1997 has found the wireless market "effectively competitive," until 2010, when the Commission failed to make any finding at all for calendar year 2009. See 2010 Report.

While it is not difficult to understand a bureaucracy's fear of commitment--making no judgment on one matter in the present seems to preserve all options for future matters.  There are now news reports, though, that the FCC might take the same "neutral" stance with respect to wireless competition that it took last year.  This time, though, that course destroys, rather than preserves, options, and the Commission must reconsider its fear of commitment.

The article notes that the Commission may be afraid of finding the wireless market to be "effectively competitive" for fear of limiting its options in reviewing the proposed AT&T/T-Mobile merger.  If this report is correct, the Commission's reasoning is both specious, and dangerous to its present agenda regarding spectrum policy and incentive auctions--an issue that Chairman Genachowski has been aggressively, and correctly, pursuing since the beginning of the year.  

 
Continue reading The Commission's Wireless Competition Conundrum: "Neutral" Is Not an Option