Why Did Sprint Pile On the DOJ’s AT&T / T-Mobile Suit?

by on September 6, 2011 · 0 comments

[Cross posted at Truthonthemarket]

So, the AT&T / T-Mobile transaction gets more and more interesting.  Sprint has filed a complaint challenging the transaction.  I’ve been commenting on the weakness of the DOJ complaint and in particular, its heavy reliance on market structure to make inferences about competitive effects.  The heavy dose of structural presumption in the DOJ complaint — especially in light of the DOJ / FTC’s new Horizontal Merger Guidelines which stress reducing that emphasis because it is grounded in outdated economic thinking in favor of analysis of actual competitive effects — reads more like a 1960s complaint than a modern post-2010 Guidelines approach.

There is a question that jumps out here.  What does Sprint get for jumping into full litigation mode rather than free-riding upon the DOJ’s case?  They could certainly free-ride and retain some influence over the DOJ case with economic submissions.  The DOJ is not a passive plaintiff.  This is the DOJ of “reinvigorated” antitrust enforcement.  There is an even more obvious cost to getting involved.  The conventional antitrust wisdom requires skepticism of private suits by rivals for the reasons I discussed here.   Rivals often have a financial incentive to sue more efficient competitors.  Various substantive and procedural stands of antitrust attempt to minimize the costs of providing rivals with generous remedies and a private right of action under the antitrust laws.  Suffice it to say, a rival suit doesn’t get the same attention as one brought by the DOJ or FTC.

So why do it? Continue reading →

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Michael Nelson on digital preservation

by on September 6, 2011 · 6 comments

On the podcast this week, Michael Nelson, Associate Professor at Old Dominion University, developed, along with colleagues at the Los Alamos National Laboratory, “Memento,” a technical framework aimed at better integrating the current and the past web. In the past, archiving history involved collecting tangible things such as letters and newspapers. Now, Nelson points out, the web has become a primary medium with no serious preservation system in place. He discusses how the web is stuck in the perpetual now, making it difficult to view past information. The goal behind Memento, according to Nelson, is to create an all-inclusive Internet archive system, which will allow users to engage in a form of Internet time travel, surpassing the current archive systems such as the Wayback Machine.

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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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Do Exclusionary Theories of the AT&T / T-Mobile Transaction Better Explain the Market’s Reaction to the DOJ’s Decision to Challenge the Merger?

by on September 2, 2011 · 0 comments

[Cross posted at Truthonthemarket]

I don’t think so.

Let’s start from the beginning.  In my last post, I pointed out that simple economic theory generates some pretty clear predictions concerning the impact of a merger on rival stock prices.  If a merger is results in a more efficient competitor, and more intense post-merger competition, rivals are made worse off while consumers benefit.  On the other hand, if a merger is is likely to result in collusion or a unilateral price increase, the rivals firms are made better off while consumers suffer.

I pointed to this graph of Sprint and Clearwire stock prices increasing dramatically upon announcement of the merger to illustrate the point that it appears rivals are doing quite well:

The WSJ reports the increases at 5.9% and 11.5%, respectively.  In reaction to the WSJ and other stories highlighting this market reaction to the DOJ complaint, I asked what I think is an important set of questions:

How many of the statements in the DOJ complaint, press release and analysis are consistent with this market reaction?  If the post-merger market would be less competitive than the status quo, as the DOJ complaint hypothesizes, why would the market reward Sprint and Clearwire for an increased likelihood of facing greater competition in the future?

A few of our always excellent commenters argued that the analysis above was either incomplete or incorrect.  My claim was that the dramatic increase in stock market prices of Sprint and Clearwire were more consistent with a procompetitive merger than the theories in the DOJ complaint.

Commenters raised three important points and I appreciate their thoughtful responses. Continue reading →

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Why Silicon Valley should fear U.S. v AT&T

by on September 1, 2011 · 3 comments

On Forbes this morning, I argue that the Department of Justice’s effort to block the AT&T/T-Mobile merger signals a dangerous turn in antitrust enforcement.

While President Obama promised during his campaign to “reinvigorate” antitrust, few expected the agency would turn its attention with such laser-like precision on the technology sector, one of the few bright spots in the economy.  But as Comcast, Google, Intel, Oracle and now AT&T can testify, the agency seems determined to make its mark on the digital economy.  If only it had the slightest idea how that economy actually worked, and why it works so well. Continue reading →

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Why Is Sprint’s Stock Surging Upon the Announcement of the DOJ’s Challenge to the Proposed AT&T / T-Mobile Merger?

by on September 1, 2011 · 4 comments

[Cross posted at Truthonthemarket]

Basic economic theory underlies the conventional antitrust wisdom that if a merger makes the merging party a more effective competitor by lowering its costs, rivals facing this more effective competitor post-merger are made worse off, but consumers benefit. On the other hand, if a merger is likely to result in collusion or a unilateral price increase, the rival firm is made better off while consumers suffer. In the latter case — the one the DOJ complaint asserts we are experiencing with respect to the proposed AT&T merger — marketwide coordination or reduction of competition resulting in higher prices makes the non-merging rival better off.

Basic economic theory thus generates a set of clear testable implications for the DOJ’s theory of the transaction:

  1. events that the merger more likely should have a negative impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the likelihood the firm will face a more efficient, lower-cost rival in the future);
  2. events that make a merger less likely should have a positive impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the reduced likelihood that the merger will face the more efficient competitor in the future)
  3. by similar economic logic, events that make an anticompetitive merger more likely to occur should result in increase non-merging rivals’ stock prices (who will benefit from higher market prices) while events that make an anticompetitive merger less likely should decrease non-merging rivals’ stock prices.

The DOJ complaint clearly stakes out its position that the merger will be anticompetitive, and result in higher market prices. Paragraph 36 of the DOJ’s complaint focuses upon potential post-merger coordination:

The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. … Any anti competitive coordination at a national level would result in higher nationwide prices (or other nationwide harm) by the remaining national providers, Verizon, Sprint, and the merged entity. Such harm would affect consumers all across the nation, including those in rural areas with limited T-Mobile presence.

Continue reading →

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Let me say something good about DOJ’s AT&T/T-Mobile decision …

by on August 31, 2011 · 5 comments

I can’t help but think that there might be  a big advantage of having the AT&T-T-Mobile merger go to court.  For once, the high-profile action everyone pays attention to will occur in an antitrust forum where the decision criterion is the effects of the merger on consumer welfare, period.   Regardless of what one thinks about the merger, it’s nice to see that we’ll finally have a knock-down, drag-out fight based on whether a big telecommunications merger harms consumers and competition.  That’s the antitrust standard the Department of Justice has to satisfy in order to prevent the merger. 

This will be a refreshing change from the Federal Communications Commission’s “public interest” standard, which allows the commission to object on grounds other than consumer welfare and demand all manner of concessions that have nothing to do with remedying anticompetitive effects of a deal. Case in point: Comcast must now offer broadband service for $9.95 per month to low-income households as a condition for getting approval to buy 51 percent of NBCUniversal. Now, I’m all for seeing low-income households get access to broadband, but subsidizing one subset of customers has little to do with mitigating any possible anticompetitive effects of allowing a cable company to own NBCUniversal. As FCC Commissioners McDowell and Baker said in their statement on that transaction, “Any proposed remedies should be narrow and transaction specific, tailored to address particular anti-competitive harms. License transfer approvals should not serve as vehicles to extract from petitioners far-reaching and non-merger specific policy concessions that are best left to broader rulemaking or legislative processes.” 

In short, if AT&T wins in court, the FCC should approve the merger promptly without additional conditions.

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A couple of quick thoughts on the DOJ’s filing to block AT&T/T-Mobile

by on August 31, 2011 · 11 comments

[Cross posted at Truthonthemarket]

As Josh noted, the DOJ filed a complaint today to block the merger. I’m sure we’ll have much, much more to say on the topic, but here are a few things that jump out at me from perusing the complaint:

  • The DOJ distinguishes between the business (“Enterprise”) market and the consumer market. This is actually a good play on their part, on the one hand, because it is more sensible to claim a national market for business customers who may be purchasing plans for widely-geographically-dispersed employees. I would question how common this actually is, however, given that, I’m sure, most businesses that buy group cell plans are not IBM but are instead pretty small and pretty local, but still, it’s a good ploy.
  • But it has one significant problem: The DOJ also seems to be stressing a coordinated effects story, making T-Mobile out to be a disruptive maverick disciplining the bigger carriers. But–and this is, of course an empirical matter I will have to look in to–I highly doubt that T-Mobile plays anything like this role in the Enterprise market, at least for those enterprises that fit the DOJ’s overly-broad description. In fact, the DOJ admits as much in para. 43 of its Complaint. Of course, the DOJ claims this was all about to change, but that’s not a very convincing story coupled with the fact that DT, T-Mobile’s parent, was reducing its investment in the company anyway. The reality is that Enterprise was not a key part of T-Mobile’s business model–if it occupied any cognizable part of it at all– and it can hardly be considered a maverick in a market in which it doesn’t actually operate.
  • On coordinated effects, I think the claim that T-Mobile is a maverick is pretty easily refuted, and not only in the Enterprise realm. As Josh has pointed out in his Congressional testimony, a maverick is a term of art in antitrust, and it’s just not enough that a firm may be offering products at a lower price–there is nothing “maverick-y” about a firm that offers a different, less valuable product at a lower price. I have seen no evidence to suggest that T-Mobile offered the kind of pricing constraint on AT&T that would be required to make it out to be a maverick.

Continue reading →

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Gerald Faulhaber on the economics of net neutrality

by on August 30, 2011

On the podcast this week, Gerald Faulhaber, Professor Emeritus at the Wharton School at the University of Pennsylvania and Penn Law School, discusses his new paper in Communications & Convergence Review entitled Economics of Net Neutrality: A Review. Faulhaber delves into the network neutrality debate noting that consumers do not want complete neutrality since they approve of ISPs blocking content such as child pornography or malware. He explains that there is little evidence that violations of net neutrality have actually occurred, so that consumers today getting as much neutrality as they want. Faulhaber submits that implementing prophylactic regulations will only stifle innovation and encourage rent seeking.

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What’s in a Pseudo-name? Privacy, Free Expression & Real Names on Google+ & Facebook

by on August 29, 2011 · 6 comments

Republished from The Mark News

Privacy advocates are attacking Google again, this time for requiring that field-testers of its new, invite-only Google+ social network use “the names they commonly go by in the real world.” After initially suspending Google+ accounts flagged as pseudonymous, Google has clarified that such users will be given four days to add their real names to their profiles. Users who don’t like the policy can export all data they’ve put into Google+ and leave.

Cyber-sociologist Danah Boyd calls “real name” policies “an authoritarian assertion of power … [by] privileged white Americans … over vulnerable people [like] abuse survivors, activists, LGBT people, women, and young people.” In 2003, she denounced the “Fakester genocide” perpetrated by Friendster, the first major “real name” social network. Facebook later faced similar criticism from her and others for its purge of “Fakebookers” – those using fake names on the popular social network.

Boyd and others are right that anonymity can be “a shield from the tyranny of the majority,” as the U.S. Supreme Court has said while striking down laws requiring speakers to identify themselves. But, like the rest of the First Amendment, the right to anonymous speech limits government, not private actors. In other words, while the First Amendment bars government from forcing us to identify ourselves, those who sign up for Google+ must play by Google’s rules.

Boyd wants to regulate social-media giants as public utilities, but – unlike government bans – we can opt out of these services. Google and Facebook merely offer trusted communities that compete with sites like Twitter, where pseudonyms thrive alongside real names. With over 200 million users, Twitter has met the very demand Boyd cites –but she’s not satisfied.

As a gay activist myself, I’m sympathetic to her privacy concerns. But, as much as I respect Boyd, I find her obsession with “privilege” unhelpful. The engineers who design new social-networking tools may indeed tend to under-value the concerns of particularly privacy-sensitive users or groups. But their critics under-value authenticity’s benefits even more – or simply refuse to acknowledge that privacy is in tension with civility and usability, among other values. Continue reading →

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