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Video: Lessons from the “Hall of Fallen Giants”

by on March 17, 2021 · 3 comments

Here’s a new animated explainer video that I narrated for the Federalist Society’s Regulatory Transparency Project. The 3-minute video discusses how earlier “tech giants” rose and fell as technological innovation and new competition sent them off to what the New York Times once appropriately called “The Hall of Fallen Giants.” It’s a continuing testament to the power of “creative destruction” to upend and reorder markets, even as many pundits insist that there’s no possibility change can happen.

This is an important lesson for us to remember today, as I noted in the recent editorial for The Hill about why, “Open-ended antitrust is an innovation killer“: Continue reading →

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Some thoughts on the T-Mobile-Sprint merger

by on April 30, 2018 · 5 comments

Mobile broadband is a tough business in the US. There are four national carriers–Verizon, AT&T, T-Mobile, and Sprint–but since about 2011, mergers have been contemplated (and attempted, but blocked). Recently, the competition has gotten fiercer.  The higher data buckets and unlimited data plans have been great for consumers.

The FCC’s latest mobile competition report, citing UBS data, says that industry ARPU (basically, monthly revenue per subscriber), which had been pretty stable since 1998, declined significantly from 2013 to 2016 from about $46 to about $36. These revenue pressures seemed to fall hardest on Sprint, who in February, issued $1.5 billion of “junk bonds” to help fund its network investments. Analysts pointed out in 2016 that “Sprint has not reported full-year net profits since 2006.”  Further, mobile TV watching is becoming a bigger business. AT&T and Verizon both plan to offer a TV bundle to their wireless customers this year, and T-Mobile’s purchase of Layer3 indicates an interest in offering a mobile TV service.

It’s these trends that probably pushed T-Mobile and Sprint to announce yesterday their intention to merge. All eyes will be on the DOJ and the FCC as their competition divisions consider whether to approve the merger.

The Core Arguments

Merger opponents’ primary argument is what’s been raised several times since the 2011 AT&T-T-Mobile aborted merger: this “4 to 3” merger significantly raises the prospect of “tacit collusion.” After the merger, the story goes, the 3 remaining mobile carriers won’t work as hard to lower prices or improve services. While outright collusion on prices is illegal, they have a point that tacit collusion is more difficult for regulators to prove, to prevent, and to prosecute.

The counterargument, that T-Mobile and Sprint are already making, is that “mobile” is not a distinct market anymore–technologies and services are converging. Therefore, tacit collusion won’t be feasible because mobile broadband is increasingly competing with landline broadband providers (like Comcast and Charter), and possibly even media companies (like Netflix and Disney). Further, they claim, T-Mobile and Sprint going it alone will each struggle to deploy a capex-intensive 5G network that can compete with AT&T, Verizon, Comcast-NBCU, and the rest, but the merged company will be a formidable competitor in TV and in consumer and enterprise broadband.

Competitive Review

Any prediction about whether the deal will be approved or denied is premature. This is a horizontal merger in a highly-visible industry and it will receive an intense antitrust review. (Rachel Barkow and Peter Huber have an informative 2001 law journal article about telecom mergers at the DOJ and FCC.) The DOJ and FCC will seek years of emails and financial records from Sprint and T-Mobile executives and attempt to ascertain the “real” motivation for the merger and its likely consumer effects.

T-Mobile and Sprint will likely lean on evidence that consumers view (or soon will view) mobile broadband and TV as a substitute for landline broadband and TV. Much like phone and TV went from “local markets with one or two competitors” years ago to a “national market with several competitors,” their story seems to be, broadband is following a similar trajectory and viewing this as a 4 to 3 merger misreads industry trends.

There’s preliminary evidence that mobile broadband will put competitive pressure on conventional, landline broadband. Census surveys indicate that in 2013, 10% of Internet-using households were mobile Internet only (no landline Internet). By 2015, about 20% of households were mobile-only, and the proportion of Internet users who had landline broadband actually fell from 82% to 75%. But this is still preliminary and I haven’t seen economic evidence yet that mobile is putting pricing pressure on landline TV and broadband.

FCC Review

Antitrust review is only one step, however. The FCC transaction review process is typically longer and harder to predict. The FCC has concurrent  authority with the DOJ under the Clayton Act to review telecommunications mergers under Sections 7 and 11 of the Clayton Act but it has never used that authority. Instead, the FCC uses its spectrum transfer review authority as a hook to evaluate mergers using the Communication Act’s (vague) “public interest standard.” Unlike antitrust standards, which generally put the burden on regulators to show consumer and competitive harm, the public interest standard as currently interpreted puts the burden on merging companies to show social and competitive benefits.

Hopefully the FCC will hew to a more rigorous antitrust inquiry and reform the open-ended public interest inquiry. As Chris Koopman and I wrote for the law journal a few years ago, these FCC  “public interest” reviews are sometimes excessively long and advocates use the vague standards to force the FCC into ancillary concerns, like TV programming decisions and “net neutrality” compliance.

Part of the public interest inquiry is a complex “spectrum screen” analysis. Basically, transacting companies can’t have too much “good” spectrum in a single regional market. I doubt the spectrum screen analysis would be dispositive (much of the analysis in the past seemed pretty ad hoc), but I do wonder if it will be an issue since this was a major issue raised in the AT&T-T-Mobile attempted merger.

In any case, that’s where I see the core issues, though we’ll learn much more as the merger reviews commence.

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ABA Roundtable Discussion Tomorrow on the AT&T/T-Mobile Merger

by on September 26, 2011 · 0 comments

[Cross posted at Truthonthemarket]

As I have posted before, I was disappointed that the DOJ filed against AT&T in its bid to acquire T-Mobile.  The efficacious provision of mobile broadband service is a complicated business, but it has become even more so by government’s meddling.  Responses like this merger are both inevitable and essential.  And Sprint and Cellular South piling on doesn’t help — and, as Josh has pointed out, further suggests that the merger is actually pro-competitive.

Tomorrow, along with a great group of antitrust attorneys, I am going to pick up where I left off in that post during a roundtable discussion hosted by the American Bar Association.  If you are in the DC area you should attend in person, or you can call in to listen to the discussion–but either way, you will need to register here.  There should be a couple of people live tweeting the event, so keep up with the conversation by following #ABASAL.

Panelists: Richard Brunell, Director of Legal Advocacy, American Antitrust Institute, Boston Allen Grunes, Partner, Brownstein Hyatt Farber Schreck, Washington Glenn Manishin, Partner, Duane Morris LLP, Washington Geoffrey Manne, Lecturer in Law, Lewis & Clark Law School, Portland Patrick Pascarella, Partner, Tucker Ellis & West, Cleveland

Location:  Wilson Sonsini Goodrich & Rosati, P.C. 1700 K St. N.W. Fifth Floor Washington, D.C. 20006

For more information, check out the flyer here.

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The Spectrum Argument Lives, Debunking Letter-Gate, and Why the DOJ Is Still Wrong to Try to Stop the AT&T/T-Mobile Merger

by on September 2, 2011 · 615 comments

Milton Mueller responded to my post Wednesday on the DOJ’s decision to halt the AT&T/T-Mobile merger by asserting that there was no evidence the merger would lead to “anything innovative and progressive” and claiming “[t]he spectrum argument fell apart months ago, as factual inquiries revealed that AT&T had more spectrum than Verizon and the mistakenly posted lawyer’s letter revealed that it would be much less expensive to expand its capacity than to acquire T-Mobile.”  With respect to Milton, I think he’s been suckered by the “big is bad” crowd at Public Knowledge and Free Press.  But he’s hardly alone and these claims — claims that may well have under-girded the DOJ’s decision to step in to some extent — merit thorough refutation.

To begin with, LTE is “progress” and “innovation” over 3G and other quasi-4G technologies.  AT&T is attempting to make an enormous (and risky) investment in deploying LTE technology reliably and to almost everyone in the US–something T-Mobile certainly couldn’t do on its own and something AT&T would have been able to do only partially and over a longer time horizon and, presumably, at greater expense.  Such investments are exactly the things that spur innovation across the ecosystem in the first place.  No doubt AT&T’s success here would help drive the next big thing–just as quashing it will make the next big thing merely the next medium-sized thing.

The “Spectrum Argument”

The spectrum argument that Milton claims “fell apart months ago” is the real story here, the real driver of this merger, and the reason why the DOJ’s action yesterday is, indeed, a blow to progress.  That argument, unfortunately, still stands firm.  Even more, the irony is that to a significant extent the spectrum shortfall is a product of the government’s own making–through mismanagement of spectrum by the FCC, political dithering by Congress, and local government intransigence on tower siting and co-location–and the notion of the government now intervening here to “fix” one of the most significant private efforts to make progress despite these government impediments is really troubling.

Anyway, here’s what we know about spectrum:  There isn’t enough of it in large enough blocks and in bands suitable for broadband deployment using available technology to fully satisfy  current–let alone future–demand.

Continue reading →

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Be Wary of T-Mobile and “Protection” You Don’t Want

by on May 14, 2011 · 1 comment

As a rule of thumb, when I have to spend a given amount of time straightening out a company’s poor service or unscrupulous practices, I’ll spend an equivalent amount of time giving that company some payback. Today’s victim: T-Mobile. Fear the blog post.

A letter from Asurion Warranty Services arrived in my mail today thanking me for signing up for their “Premium Handset Protection Bundle” for T-Mobile phones.

Oh no I didn’t. It costs $5.99 a month for repair and replacement of my newly upgraded phone. That’s pretty much the price of a phone per year for such protections. Bad deal. I haven’t lost or damaged a phone in a decade, and I didn’t agree to get have this charge added to my phone bill.

I am on hold right now, trying to learn just how this got onto my bill. Friendly, helpful T-Mobile customer service people have told me that I should go down to the T-Mobile store where I upgraded in order to straighten this out. No I shouldn’t. T-Mobile should be straightening this out right now over the phone, with an apology and a thank you.

I am done with my 40-minute phone call, in which friendly customer service supervisor Kassidy K. (#1204178) tried to assign me the task Monday of calling the store where I upgraded my phone to get this straightened out. I explained to Kassidy K. that I’ve made the only call I need to—that’s the call we were on. Her next work-day is Wednesday, and I told her I expected to hear from her about this being cleared up.

If I have to make another call, it’s just as likely to be about returning my phone and canceling my service as getting this charge removed from my bill.

You people can argue all you want about top-down—whether the government should allow the AT&T-T-Mobile merger. I’ll do bottom-up—whether T-Mobile should get my business.

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Open minded on the AT&T/T-Mobile merger

by on April 19, 2011 · 8 comments

Is it “insane” for free market oriented thinkers to support the AT&T/T-Mobile merger?  Although AT&T says there are five choices of wireless providers to choose from in 18 of 20 major markets, Milton Mueller argues that 93 percent of wireless subscribers prefer a seamless, nationwide provider.  If the merger is approved, there would only be three such providers.

A market dominated by three major providers is neither competitive nor noncompetitive as a definitional matter.  Factual analysis is necessary to determine competitiveness.

And it may be premature to conclude that there is no competitive significance either to the fact there are over a hundred providers currently delivering nationwide service on the basis of voluntary roaming agreements that are common in the industry, or to assume that the possibility the FCC will double the amount of spectrum available for wireless services will not impact the structure of the industry.

The trouble with antitrust generally is the possibility that government will choose to protect weak or inefficient competitors, thus preventing meaningful competition that attracts private investment which leads to innovation, better services and lower prices.  Antitrust is supposed to protect consumers, not politically influential producers.  Although this sounds simple in theory, it can get confusing in practice.  As free market oriented thinkers, we do not want government picking winners and losers.

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Comcast-NBC & the FCC’s Unprecedented Merger Shakedown

by on January 20, 2011 · 119 comments

At this week’s excellent State of the Net 2011 event, I participated in a panel discussion about the future of the online video marketplace.  Unsurprisingly, a great deal of time was spent discussing the Federal Communications Commission’s (FCC) recent approval of the proposed merger of Comcast and NBC Universal (NBCU). On Tuesday, the agency voted 4-1 to approve the deal with myriad conditions and “voluntary” concessions being attached.  The FCC voted on the matter and issued a short press release and late today issued its final 279-page order.

The Commission’s Comcast-NBCU order represents an unprecedented regulatory shakedown of a company that obviously would have done just about anything to gain approval of the deal.  I believe the conditions the FCC has imposed on the deal, which are to run for seven years, are tantamount to a death by a thousand cuts for the deal and, ultimately, could lead to its failure.  That’s because the requirements placed on the new entity make it practically impossible for Comcast to leverage the content it is acquiring from NBCU and profit from it such that they can recoup the significant costs associated with the deal.

In essence, Comcast-NBCU was forced to preemptively surrender much of its intellectual property rights by agreeing to share most of their content properties with others on terms someone else will determine.  That’s a recipe for disaster.  If Comcast-NBCU doesn’t have the right and ability to cut deals on terms that they find advantageous to the company and its shareholders, then why go through with this deal at all? Isn’t the whole point of such a deal with get some additional in-house content properties — something Comcast almost completely lacked previously — such that it would have some content gems to highlight and leverage in an attempt to attract new customers (or just keep old ones)? If someone else is constantly setting the terms of their deals, it will limit the inherent value of the IP owned by Comcast-NBCU and sap most of the value from the deal. Continue reading →

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My Testimony at House Hearing about Comcast-NBC Deal

by on February 4, 2010 · 0 comments

I testified this morning in the House Energy and Commerce Committee’s Subcommittee on Communications, Technology, and the Internet at a hearing titled, “An Examination of the Proposed Combination of Comcast and NBC Universal.” Among those testifying were Comcast Chairman and CEO Brian L. Roberts, and NBC Universal President and CEO Jeff Zucker.  Down below I have attached my brief remarks (we only had 5 minutes), but see the Scribd doc at the very bottom to also see the embedded charts. I also wrote a paper about the proposed deal back in December entitled, “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC” as well as this editorial for Forbes.

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Mr. Chairman and members of the Committee, thank you for inviting me here today. My name is Adam Thierer and I am the President of The Progress & Freedom Foundation (PFF).

Although we are still early in this process, there has already been a great deal of hand-wringing and even some dire predictions about the pending merger of Comcast and NBC Universal. I hope to put this proposed marriage in some historical context and explain why the deal certainly won’t have the detrimental impact some critics fear, and also explain why it might even be one potential model for how to sustain traditional media going forward.

Beware Media Merger Hysteria

First, let’s remember that we’ve been here before. Paranoid predictions of a media apocalypse have accompanied the announcements of many previous media mergers, from AOL-Time Warner to News Corp.-DirecTV to XM-Sirius.[i] In these cases and almost all others, however, the “sky is falling” claims proved to be greatly overstated.[ii] The only “harm” that one could reasonably claim came from those mergers was not to consumers or content providers, but to the merging firms themselves and their shareholders. That’s because many mergers simply fail to create the sort of synergies and benefits originally hoped for and consequently die of natural causes over time.

Other firms, however, have found ways to make deals work and deliver important new services that previously were unimaginable or simply too expensive to offer alone.[iii] Regardless, the point here is that we’ll never know what works unless we permit marketplace experimentation with new and innovative business models. Continue reading →

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AOL-Time Warner Merger at 10: Lessons for Today

by on January 11, 2010 · 4 comments

“It was then, and is now, the largest merger in American business history,” notes Tim Arango of the New York Times about the AOL-Time Warner mega-merger, which happen ten years this month. And yet, as he points out in his essay, “How the AOL-Time Warner Merger Went So Wrong,” things didn’t end up going so well for this marriage:

The trail of despair in subsequent years included countless job losses, the decimation of retirement accounts, investigations by the Securities and Exchange Commission and the Justice Department, and countless executive upheavals. Today, the combined values of the companies, which have been separated, is about one-seventh of their worth on the day of the merger. To call the transaction the worst in history, as it is now taught in business schools, does not begin to tell the story of how some of the brightest minds in technology and media collaborated to produce a deal now regarded by many as a colossal mistake.

Arango goes on to interview several of the principals involved in the deal to get their take on why things unfolded so miserably and, ultimately, came to an end this year. I highly recommend the essay because it should serve as a cautionary tale to those worrywarts who are constantly predicting that the sky is going to fall if we allow a truly free media marketplace–including freedom for firms to structure themselves as they wish.  Reality usually plays out quite differently.  As I argued in my recent paper, “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC,”

The point here is not that media mergers are inherently good or always make sense. Indeed.. mergers sometimes prove to be huge blunders. But the hysteria sometimes heard before media mergers are consummated rarely bears any relationship to reality once the deals move forward. Media markets are extremely dynamic and prone to disruptive change and technological leap-frogging. Mergers are often one response to that turbulence… Given how difficult it is to predict the future course of events in this chaotic sector, humility—not hubris—is the sensible disposition when it comes to media merger policy.

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More Conspiratorial Nonsense about the Comcast-NBC Deal

by on December 16, 2009 · 11 comments

As I pointed out here before (see, “And so the Comcast-NBC Merger Hysteria Begins: Help Me Document It!“), every time a media merger is proposed we hear all sorts of silly Chicken Little predictions of impending doom as well as preposterous conspiracy theories about supposed nefarious schemes to take over the media universe and control our minds. For good measure, there’s also plenty of talk of “the death of deliberative democracy,” or efforts to weed out one sort of perspective or another.

As history has shown, it’s all complete bunk. But that doesn’t stop critics from concocting asinine theories about media providers seeking to “silence critics.”  Here’s two bits of Chicken Little-ism that I missed in my previous essay documenting this silliness.  First, over at Huffington Post, Marvin Ammori tells us that America is about to become Italy or Argentina because of the deal:

Putting so much power in the hands of one company–and, specifically, its executives–is dangerous for a democracy. There is a reason why autocratic regimes control the media–media shape public opinion and define what is “possible” in politics. We have seen the problem of private media consolidation in many countries. In Italy, Silvio Berlusconi used his massive media empire to win elections and is now Prime Minister (Italy’s longest serving ever). In Argentina, the government had to pass a media consolidation law because of the power of one media company that happens to be far smaller than a combined Comcast-NBCU.

And then we have Wade Norris writing about the deal over at the Daily Kos, saying: “If you don’t want to see the progressive voices on MSNBC silenced, then join the ‘no merger’ petition.”  Ah yes, another automated “stuff-the-online-complaint-ballot-box” petition.  I love those gimmicks.  But ignore fake complaints for a moment and focus on the accusations at hand here. The Ammori-Norris theory is: If Comcast and NBCU are allowed to marry (a) progressive voices will be driven off their platforms and (b) Silvio Berlusconi will take over America democracy will somehow suffer.  Is there really any truth to this? Continue reading →

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