DoJ’s Paper Tiger at Odds with Some Wireless Industry 10Ks

by Mike Wendy on September 7, 2011

At last week’s press conference announcing the DoJ’s move to block the AT&T / T-Mobile merger, Acting Assistant Attorney General, Sharis Pozen noted:

Here, the antitrust division conducted an exhaustive investigation.  We conducted dozens of interviews of customers and competitors.  We reviewed millions of AT&T and T-Mobile documents.  The conclusion we reached is clear.  Any way you look at this transaction it is anticompetitive…Our goal is to preserve price competition and innovation in this important industry.

So, where’s the smoking gun?

Well.  Umm.  There ain’t any.

Though some supporters of the DoJ’s action are quick to point out that the complaint is merely an “outline of the case, not the proof of the case,” all the agency could basically offer to sell the complaint to the public was one internal document by an unidentified AT&T employee noting how the company once ostensibly changed technology because of T-Mobile; a handful of self-serving statements made by T-Mobile itself about its “maverick-ness” in the marketplace; and some textbook antitrust theories.

I’d imagine that after all the hard work performed by Justice that they’d at least be able to find one smoking-gun e-mail that reads something like this:

“Gee, Ratso.  When we take out T-Mobile, imagine all da’ tings we can do wit our customers?  Like raise prices, impair services, thwart innovation and basically rule da’ roost.  Hee, hee.  We’ll be rich!  Dose poor bastards won’t even see it comin’!”

But no.  T’ain’t in the complaint.

Maybe there’s a reason for that?

If they indeed interviewed numerous competitors, the agency must have been cognizant of statements made by at least two of them to the SEC – statements, which clearly contemplate mergers / consolidation in the industry (among a host of other competitive factors), but which also note that competition will in fact increase, not decrease, as a result.

Take a look at this from Verizon’s recent 10K:

We compete primarily against three other national wireless service providers: AT&T, Sprint Nextel Corporation and T-Mobile USA. In addition, in many markets we also compete with regional wireless service providers, such as US Cellular, Metro PCS and Leap Wireless

…We expect competition to intensify as a result of continuing increases in wireless market penetration levels, the development and deployment of new technologies, the introduction of new products and services, new market entrants, the availability of additional spectrum, both licensed and unlicensed, and regulatory changes. Competition may also increase if smaller, stand-alone wireless service providers merge or transfer licenses to larger, better capitalized and more experienced wireless service providers.

And this, from Sprint’s recent 10K:

We compete with a number of other wireless service providers in each of the markets in which we provide wireless services, and we expect competition to increase as additional spectrum is made available for commercial wireless services and as new technologies are developed and launched. As competition among wireless communications providers has increased, we have created pricing plans that have resulted in declining average revenue per subscriber for voice and data services…

…Mergers or other business combinations involving our competitors and new entrants, including new wholesale relationships, beginning to offer wireless services may also continue to increase competition. These wireless operators may be able to offer subscribers network features or products and services not offered by us, coverage in areas not served by either of our wireless networks or pricing plans that are lower than those offered by us, all of which would negatively affect our average revenue per subscriber, subscriber churn, ability to attract new subscribers, and operating costs…

…We expect competition to intensify across all of our business segments as a result of the entrance of new competitors or the expansion of services offered by existing competitors, and the rapid development of new technologies, products and services…

Sure, you can pick through these 10K’s and find each company kvetching about the various, unique difficulties and challenges they face.  The market isn’t perfect.  But each – as well as the other marketplace players in their 10K’s, too – concede in great detail that the industry competes.  And vigorously at that.

Though the complexion of the marketplace will change if the merger goes through, the competitive dynamic will remain.  Increased competition – not less – will result.

The DoJ’s complaint holds this against AT&T and T-Mobile.  Thankfully (I guess), the agency’s paucity of evidence adducing clear harms to competition makes its suit to block the merger look less like a robust “enforcement action” and more like a paper tiger.

Don’t consumers win when competition increases?  When new services, offerings and technology come online?

Yes.

Unless, of course, you’re the DoJ, and it’s competitors (namely Sprint) – not competition – that you’re really seeking to protect.

Notes Yale law professor, George Priest, in yesterday’s Wall Street Journal:

If the acquisition would lead to increased prices and lower quality products as the Justice Department has claimed, Sprint would be better off after the acquisition. Sprint would be able to add subscribers, not lose them, because of AT&T’s higher prices and lower quality. Sprint would oppose the acquisition—as it has—only if it thought that the merger would put it in a worse position by increasing the competitive pressures that it already faces.

The market—though not the Obama administration—understands this point. On the day that the Justice Department announced its opposition to the acquisition, Sprint’s share price rose 5.9%, reflecting investors’ belief that Sprint will be in a better competitive position without the acquisition.

A $3.50 per share company could use more than a paper tiger to defend it.  It could actually compete better instead of crying to regulators.

 

 

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