DOJ will find vibrant competition in reviewing telecom industry

The DOJ has opened an initial review of the telecom industry, per WSJ reports, as part of the Obama Administration's and the Varney Antitrust Division's "aggressive stance on antitrust enforcement."

Antitrust enforcement is fact-driven, since it ultimately must be proven in court. The competitive facts in the telecom industry will speak for themselves; the industry is clearly and overtly competitive and trending more competitive. 

This review will not be difficult or take long since the DOJ has vast and deep experience with the U.S. telecom industry -- having overseen the AT&T Consent Decree 1984-1996, been intimately involved with the drafting and implementation of the 1996 Telecom Act including the detailed development of local competition and Bell entry into long distrance. The DOJ also has reviewed and approved a number of telecom mergers over the last several years, most recently the approval of Verizon-Alltel and Centurytel and Embarq.

  • It is important to note that the scrutiny standard of approving a merger is a dramatically tougher standard than that of a Sherman antitrust action.
  • Generally as a rule of thumb, the DOJ prevents proposed mergers that would create combined market share of over 30%, while the market share standard to prove a Sherman antitrust case generally requires at least a 50% share and more likely 70-90% share.    

Moreover, the DOJ will examine the telecom marketplace to see if it exhibits the core characteristics of a competitive market:

  • Do consumers/businesses have competitive choice and excercise it -- i.e. does market share shift and is a customer contestable?
    • The evidence strongly indicates the DOJ will conclude yes. 
  • Are prices declining and is the value proposition offered to the customer increasing?
    • The evidence strongly indicates the DOJ will conclude yes. 
  • Is there significant marketing/advertising to consumers and businesses? 
    • The evidence strongly indicates the DOJ will conclude yes.  
  • Is there significant investment and innovation by competitors to offer better products and services? 
    • The evidence strongly indicates the DOJ will conclude yes.  

Let's do a quick overview of the competitive facts of the telecom industry to see what the DOJ is highly likely to find in its review of the telecom industry.

The "eyes & ears" test:

  • The telecom industry advertises more than any other American industry. Any rational conclusion from this consistently large, multi-billion-dollar annual advertising outlay is that companies are extremely active in trying to win customers from competitors and keep the ones they have.

Review of local competition:

  • The DOJ is highly likely to find that the incumbent telcos have lost about  a third of their local phone customers since 2000 to cable companies, competitors' wireless services, and VOIP providers. Any review of the quarterly earnings of the major wireline providers is highly likely to show steady and substantial line loss to competitors and that underlying prices of these services are going down.
  • The DOJ is also highly likely to find that the widespread discounting of bundles of services represents a steady decrease in price of the component parts, especially for long distance service.

Wireless competition:

  • The DOJ is highly likely to find a very competitive wireless market with among the lowest prices per minute of use in the world, which in turn has resulted in the most usage of wireless services in the world by far -- 2-6 times more than OECD nations.
  • When the DOJ runs their HHI index, their measure to judge the relative concentration of an industry, they are highly likely to find that the U.S. is among the 2-3 least concentrated wireless markets in the OECD. Moreover, unlike France, Japan or Korea, which all have top wireless providers with about half of the market, no U.S. wireless provider is over ~30% market share.
  • When the DOJ examines handset choice and innovation, they are highly likely to find over 600 different kinds of handsets sold to consumers from over 30 manufacturers. 

Wireline broadband services:

  • What the DOJ is highly likely to find here is that the telcos are not the leading provider of wireline broadband services and that the U.S. is the only nation in the world where the alternative broadband facility to the telcom incumbent, cable, has more share than the telco.
    • Moreover, speeds and the value proposition are increasing as Cable rolls out DOCSIS 3.0, Verizon rolls out fiber to the home and the wireless broadband providers roll out 4G WiMax and LTE technologies.

In closing, when the DOJ reviews and updates their already deep level of understanding of telecom markets, I believe the core facts will continue to overwhelmingly prove a vibrant competitive marketplace greatly benefiting consumers and businesses. Will they find the straw man, perfectly competitive market expected by critics? Of course not, but that is not the antitrust standard.

  • To see why the DOJ is highly likely to not find the common marketing practice of handset exclusives a competitive problem -- see my analysis: "Handset exclusives drive growth and broadband adoption -- why regulate tech/computer sales?" Click here.
  • To see why the DOJ is highly likely to not find the special access market  segment a competitive problem, see my analysis: "What if Columbo investigated special access?" Click here.