The DOJ lawsuit against the AT&T/TMobile merger has many serious flaws that will make it difficult for the DOJ to meet its burden of proof in court that this merger is anti-competitive.
- Court cases are precedent, fact, and merit driven, and DOJ's case is much weaker in those critical dimensions than most appreciate or reports indicate.
- (See DOJ's release here and the DOJ's complaint here.)
Importantly, if the DOJ ultimately cannot prove this merger is anti-competitive in a court of law, that official legal decision would make it legally difficult for the FCC to block the merger on competition grounds under the FCC's public interest standard, especially given that the merger would bring more broadband speed more quickly to more Americans, and create jobs, which the FCC's claims are their top public interest priorities.
- Simply, the precedents, facts, and merits are friends of the proposed AT&T-T-Mobile deal.
I. Summary of Top Ten Flaws in DOJ's Case
- The DOJ's own facts don't support its national relevant market definition.
- The DOJ arbitrarily gerrymandered its market definition to exclude real and relevant market competition in a large geographic segment of the nation.
- The DOJ's arbitrary national market definition completely ignores ~10% of their supposed "national" market.
- Implying #4 T-Mobile is the only important "maverick" competitor, essentially ignores how #3 Sprint also has many "maverick" attributes and capabilities that would survive the merger.
- The DOJ is arbitrarily ignoring its own longstanding precedent of defining the wireless market locally without any justification for this fundamental change.
- The DOJ is also trying to move the goalpost on what is an acceptable level of market concentration.
- The FCC's competitive facts do not support the DOJ's market definition or conclusion.
- The DOJ ignores and dismisses obvious market efficiencies.
- The DOJ's charge the merger will substantially lessen competition in "product variety and innovation" completely ignores the plethora of facts from the handset, mobile OS and App markets to the contrary.
- Maybe most importantly, the DOJ complaint ignores the explosion of market facts that show how dynamic and fast-changing the mobile marketplace has become.
II. The Top Ten Serious Flaws in DOJ's Case
First, the DOJ's own facts don't support its national relevant market definition.
The DOJ's entire case rests on DOJ's factually unsupported and contrived assertion that the relevant market is a national mobile wireless telecommunications services market when most of the market data/evidence the DOJ presents in its own complaint is local market based.
- Moreover, the combined local market shares DOJ presents in the top 100 markets vary wildly by local market, from a combined low of 17.4% in Toledo to a combined high of 65% in Baton Rouge -- an extremely wide range of almost 4 times more from low to high.
- If the DOJ's national market conclusion was factually sound, that what really drives this market is the national pricing plans of competitors' offerings, why do the market shares of the top 100 local markets not show any perceptible statistical regression to some sort of national mean?
- Shouldn't the data the DOJ chooses to present in order to make its case, at least statistically resemble their proposed conclusion?
- It will be obvious to the court that competition in these local markets must be driven by local market factors that are completely different from "national pricing plans" that the DOJ claims determine the market's overall competitive dynamics, e.g. the amounts and types of spectrum available, the market's population density, its legacy wireline footprints and brand, the number of retail locations, among other local market factors.
Second, the DOJ arbitrarily gerrymandered its market definition to exclude real and relevant market competition in a large geographic segment of the nation.
Equally damning to the DOJ's case is that as it tries to assert that the market is national, the DOJ is omitting the large part of the Nation that is not in the top 100 markets.
- It appears that DOJ has excluded this critical evidence and made no mention of this large segment of the Nation in its analysis, because these critical facts strongly undercut the DOJ's assertion of a national market and their de facto conclusion that the merger would be effectively anti-competitive in all local markets of the nation.
How can the DOJ logically and legitimately claim that this merger threatens rural wireless competitors when it excludes from its analysis any discussion or combined market share data for rural markets?
- It appears the DOJ has excluded that local market data because it undermines their national market definition assertion, and because the combined shares in smaller markets are generally much smaller than in larger markets because of the competition from regional and rural competitors.
- A fair judge will naturally be suspicious of selective market facts that exclude relevant facts that most refute the DOJ's market definition and anti-competitive conclusion.
Third, the DOJ's arbitrary national market definition completely ignores ~10% of their supposed "national" market.
- The DOJ will have a hard time proving that value competitors Metro PCS and Leap Wireless, which serve 200 million Americans, and regional competitors like U.S. Cellular and Cellular South with significant local market shares, are irrelevant to this analysis, conclusion and case.
- And if the DOJ truly believes they are competitively irrelevant, why does the DOJ local market data include them at all? They can't have it both ways.
Fourth, implying #4 T-Mobile is the only important "maverick" competitor, essentially ignores how #3 Sprint also has many "maverick" attributes and capabilities that would survive the merger.
DOJ's case depends in large part on DOJ convincing the court to ignore the competitive existence and capabilities of Sprint, which has: ~50m customers, maverick pricing plans, industry-largest spectrum portfolio, and innovative technology leadership in partnering with ClearWire and LightSquared.
- To mangle metaphors here, the DOJ has to convince the court that the Sprint "elephant in the room" is really "chopped liver."
Fifth, the DOJ is arbitrarily ignoring its own longstanding precedent of defining the wireless market locally without any justification for this fundamental change.
The DOJ has reviewed about a score of wireless mergers over the last decade and has evaluated them all on a local by local market basis, not a national market basis.
- The DOJ complaint is silent on why it has changed this longstanding procedure and precedent.
- If market conditions somehow have changed sufficiently to make it appropriate to define the market dramatically differently than the DOJ has defined it in repeated consent decrees approved by courts in the many legal and court precedents before this merger, then the DOJ must be able to successfully defend their fundamental change in precedent and procedure before this court.
- A core element of justice is equal treatment under the law. Without any explanation or justification to date, it appears the DOJ has made an arbitrary and capricious decision to gerrymander a selective ~90% "national" market" to capture this particular merger.
- A core element of fairness is that players in the game have the certainty that the goalposts won't move as the player approaches the goal line.
- DOJ must be able to conclusively prove that it is treating the AT&T/T-Mobile merger no differently than it treats all other mergers the DOJ reviews.
Sixth, the DOJ is also trying to move the goalpost on what is an acceptable level of market concentration.
Context matters for fairness and equal treatment under the law.
The DOJ complaint effectively gerrymandered a selective market definition to arrive at the claim that this would be a 4-to-3 merger when in most large local markets it would be a 6-to-5 or 5-to-4 merger.
- This could be another arbitrary and capricious problem for the DOJ because the DOJ is silent on why the DOJ would approve an ostensible 2-to-1 satellite radio merger of XM-Sirius, or a 3-2 consolidation of search engines in Microsoft-Yahoo as competitive, but conclude definitively that somehow an ostensible 4-3 AT&T/T-Mobile is so anti-competitive that it did not even consider remedies to cure it that DOJ has successfully employed in many previous wireless mergers?
- Moreover, the court will probably want to know why this merger should be treated differently and more harshly than the alleged 3-to-2 Oracle-Peoplesoft merger that was approved by Federal Court.
Seventh, the FCC's competitive facts do not support the DOJ's market definition or conclusion.
The FCC's latest wireless competition report shows that ~90% of Americans have a choice of five wireless competitors.
- How can the DOJ credibly claim that this is a 4-to-3 merger for ~90% of the national market when the U.S. Government's most recent official data shows that it would be a 5-to-4 merger for 90% of the country?
Eighth, DOJ ignores and dismisses obvious market efficiencies.
The DOJ complaint's entire treatment of efficiencies constituted only one sentence:
- "The defendants cannot demonstrate merger-specific, cognizable efficiencies sufficient to reverse the acquisition's anticompetitive effects."
The companies should have a field day in court "demonstrat[ing] merger-specific cognizable efficiencies" of this merger:
- Bringing 4G LTE broadband to 55 million Americans who otherwise would not get it;
- Upgrading T-Mobile's 33m customers to 4G service that T-mobile would not have been able to provide on its own;
- Combining compatible GSM networks that can be integrated easily, seamlessly and cost-effectively;
- Creating scale and scope that financially justifies investment neither company could do alone;
- Correcting inefficient spectrum deficits in key markets; and
- Providing a host of other cognizable efficiencies.
In court, DOJ will not get away with asserting "because we say so" that there are no cognizable efficiencies.
- The DOJ will have the burden of proof to justify why the court should ignore all the efficiencies the companies can easily present and enumerate.
- Facts matter.
Ninth, DOJ's charge the merger will substantially lessen competition in "product variety and innovation" completely ignores the plethora of competitive facts from the handset, mobile OS and App markets to the contrary.
Americans have more handset choice than most anywhere in the world -- over 600 handset choices.
OS providers (Apple, Google-Android, RIM, Symbian) manufacturers (Apple, Samsung, LG, Nokia, Motorola, etc. are driving fantastic product variety and innovation in handsets.
- It is a huge reach for DOJ to prove that this merger will substantially lessen competition in product variety or innovation, because that dynamic has long not been practically controlled or driven by wireless providers.
Tenth, and maybe most importantly, the DOJ complaint ignores the explosion of market facts that show how dynamic and fast-changing the mobile marketplace has become.
The reality of technological convergence is that new competitive pressures are coming from virtually every direction: customer demand; integrated platform ecosystems: Apple, Google, Facebook, Microsoft-Skype, Amazon; device, hardware and accessory suppliers; applications providers and developers; cloud computing models; big box stores; etc.
At core, DOJ will be trying to convince the court that this is their father's wireless market; it is not.
- If the companies can get the court to understand how dynamic, fluid, ever-changing, innovative, and vibrant the overall mobile ecosystem really is, it will be very difficult for the DOJ to prove, based on the preponderance of the evidence, that this 5-to-4 merger will substantially lessen competition.
In sum, the DOJ has the burden of proof to prove the AT&T-Mobile merger is anti-competitive.
- The DOJ has not helped its case by arbitrarily gerrymandering its market definition in direct contradiction to longstanding precedent, with no justification, and by ignoring important and relevant competitive facts.
Public assertions and lawsuits may persuade some merging parties to fold on their own, but being on the right side of precedent, facts and the merits will be required to win in court here.
- Advantage to AT&T/T-Mobile in court.