Thursday, April 04, 2013

Positive Wireless Policy Takeaways from the FCC's T-Mobile/MetroPCS Order

On March 12, the proposed T-Mobile/MetroPCS merger was approved by an order of the FCC's Wireless Telecommunications and International Bureaus. The U.S. Department of Justice previously cleared the merger. Whether the T-Mobile/MetroPCS goes through will be up to MetroPCS's shareholders at their April 12 meeting. 

Wireless mergers can create economies of scale and scope that benefit consumer welfare. This includes enabling more efficient use of spectrum and broader access to next-generation wireless networks with greater reliability and speeds. But merger review proceedings beset by delays or prone to saddle proposed deals with extraneous conditions based on ad hoc criteria can diminish promised public benefits.

Whatever MetroPCS's shareholders ultimately decide, the FCC' T-Mobile/MetroPCS proceeding avoided delay and uncertainty problems that plagued prior major merger reviews. The T-Mobile/MetroPCS Order therefore offers some positive takeaways that the FCC should seek to repeat when it reviews future mergers.

First, the FCC acted on the proposed merger in a timely manner. The FCC has a self-imposed 180 day shot clock for issuing a ruling on proposed mergers. And the agency has exceeded its deadline in numerous reviews of major telecommunications transactions. Excluding FCC clock stoppages, the CenturyLink/Qwest Order took 294 days, the Frontier/Verizon Order took 283, the Harbinger/SkyTerra Order took 329, and the 323 AT&T/Centenniel Order took 323.

The T-Mobile/MetroPCS Order was issued 137 days after applications were filed. And the agency rejected calls to extend its deliberations to 180 days, noting that "where possible, applications will be granted as expeditiously as possible." With the FCC's adoption of the Verizon/CableCo Orders 180 days after applications were filed and the AT&T/WCLS Licensees Order issued after 109 days, perhaps one can be optimistic that future FCC merger reviews will be conducted more expeditiously, too.

Second, the FCC's analysis took seriously the benefits of next-generation wireless broadband networks to wireless competition and innovation. Even if the FCC has consistently recognized the benefits of next-generation broadband networks such as LTE in theory, in practice federal agencies have not always been so resolute. The Wireless Telecommunication's 2011 memorandum opposing the ill-fated AT&T/T-Mobile merger, for instance, simply brushed aside any boost in LTE deployment that would have likely resulted from that merger. For that matter, DOJ's legal complaint challenging the AT&T/T-Mobile merger essentially ignored the critical role of LTE network deployment for the future of wireless.

But the T-Mobile/MetroPCS Order made the benefits of next-generation wireless broadband deployment a core focus, concluding: "we anticipate that the combination of T-Mobile USA and MetroPCS would enable the deployment of a substantial LTE network nationally that would enhance competition and provide important benefits for consumers. By merging the two companies, and their network assets and spectrum, we find that the resulting Newco would provide for a broader, deeper, and faster LTE deployment than either company could accomplish on its own." Because LTE networks have enhanced throughput and security features with lower latency and promise reduced costs per-megabit, they will serve as a platform for exponential economic growth and innovative opportunities.

Third, the FCC's analysis didn't treat static market indicators as outcome-definitive. The flipside to the T-Mobile/MetroPCS Order's recognition of the role of LTE network deployment is its more modest approach to static indicators such as market share snapshots and concentration estimates. The merger would result in the fifth largest wireless provider (MetroPCS) being combined with the fourth largest (T-Mobile), reducing the number of competing providers in some local areas. But the Order recognized that the combination would create efficiencies that benefit consumers, including reductions in roaming and therefore roaming charges, while improving network reliability for MetroPCS customers being migrated onto T-Mobile's network.

Even in static terms, the merger posed virtually zero potential threat to local competition. Regarding the first part of the FCC's spectrum screen, HHI concentration estimates were triggered by increases in just 19 cellular marketing areas (CMAs) out of 248 where the geographical footprints of both providers overlapped. And on a county-by-county basis, the HHI was triggered in no markets. For that matter, not a single market triggered the second part of the FCC's spectrum screen regarding spectrum aggregation. Post-merger, T-Mobile/MetroPCS would nowhere exceed the FCC's threshold of "one-third of the total spectrum suitable and available for the provision of mobile telephony/broadband services." Consumers in most instances would still have at least four national wireless providers to choose from, post-merger.

Fourth, the FCC's analysis didn't include ad hoc rationales for rejecting or placing conditions on the merger. Of course, the agency hasn't always been so disciplined in exercising its merger review authority. In its AT&T/Qualcomm Order, for example, the FCC departed from precedent by subjecting different spectrum bands considered suitable and available to separate analyses. And in light of that previously unannounced change in policy focus, the agency attached conditions to the transaction.  Also, the FCC staff memo opposing the AT&T/T-Mobile merger would have significantly reduced the baseline of suitable and available spectrum and declared that proposed merger harmful at least partly on that basis. Thankfully, the T-Mobile/MetroPCS Order contained no novel or surprise rationales for rejecting or conditioning the merger.

Fifth, the FCC declined to impose conditions on the merger that were extraneous or to its likely competitive effects. In other contexts, conditions seemingly unrelated to fulfilling the Communications Act or to protecting consumer welfare have been attached to mergers. In the AT&T/BellSouth Order, for instance, the FCC included a condition that overseas jobs be repatriated to the U.S., including some two-hundred jobs to the New Orleans area. It's difficult to justify conditions of that kind as remedies targeted narrowly to a specific harm likely arising from the merger.

Fortunately, the T-Mobile/MetroPCS Order rejected specious calls for conditions involving employment practices, market branding, and affordability. Concluded the Order: "[T]he proposed transaction would enhance the competitiveness of the combined provider, as the fourth largest nationwide service provider by allowing it to strengthen its network and expand its product line, thereby enabling increased employment and bolstering the long-term viability of the combined provider." The Order likewise stated that "ongoing repositioning by other service providers and the continued introduction of new service plan offerings in the mobile wireless marketplace would ensure continued access to affordable service options."

In sum, the FCC and its bureaus' Order approving T-Mobile/MetroPCS deserve credit for prompt decision-making, emphasis on LTE deployment benefits, avoidance of static market myopia, and rejection of conditions based on ad hoc rationales or otherwise extraneous to the merger. As a matter of administrative law, decisions by subordinate agency bodies like the Wireless Telecommunications and International Bureaus are not precedents that bind future FCC actions or authority. But for future merger reviews the FCC will hopefully follow the example it set for itself in the T-Mobile/MetroPCS proceeding.