Saturday, March 09, 2019

The T-Mobile/Sprint Merger on Day 122

On April 29. 2018, T-Mobile and Sprint announced that they had entered into an agreement to merge. On July 18, 2018, applications seeking Federal Communications Commission approval of the merger were accepted by the agency, initiating a pleading cycle for those wishing to oppose, support, or just comment on the merger proposal.

So, July 18 is the date the FCC's famous (or infamous, depending on your view) "shot clock" began ticking. Under the Commission's self-imposed shot clock, the agency has 180 days to act on applications seeking approval of mergers. For various and sundry reasons, including a government shut-down, the Commission can pause the clock. If you look at the clock now, you will see it has been stopped at "Day 122" while the Commission seeks public comment on additional information submitted by T-Mobile and Sprint.

My purpose here is not to complain about the "shot clock" generally or the pace of the FCC's review of the T-Mobile-Sprint proposed merger – although I'll reserve the right to do so later if it seems appropriate. Rather my purpose is to offer – briefly – a few thoughts on where matters stand as we approach the one-year mark of the merger announcement, albeit only on Day 122 of the stopped shot clock.

At some point in the merger review process, it is not unusual for competitors of the merger applicants to become more vocal in their opposition to the merger. In fact, it is unusual if they don't. Of course, the competitors' opposition is couched in "public interest" lingo, not overtly protectionist lingo – such as "please, Mr. Commissioner, protect me from having to compete against a stronger post-merger competitor."

Let me be frank: In my view, T-Mobile and Sprint have succumbed to such special pleading in the past based on just such a "competitor protectionist" reflex. And, to be sure, they have had plenty of company from other market participants seeking to use the regulatory process to protect their positions.

But any party's past behavior in this regard is irrelevant. The Commission (and the Department of Justice, of course) need to keep in mind that a primary objective of the public interest analysis is to determine whether the merger will have an adverse impact on competition, not on competitors. These are two entirely different things, but they are often conflated, deliberately or otherwise.

As my Free State Foundation colleague Seth Cooper and I have explained in detailed substantive comments and reply comments filed with the FCC, in this instance the proposed merger is likely to enhance competition in the wireless broadband market and also in the overall broadband market. Indeed, as we explain at some length in those comments, given the growing cross-platform competition between wireline and wireless providers employing differing technologies, and especially with the advent of 5G networks, it is this broader broadband market that, more properly, is the relevant market for purposes of analyzing the merger's competitive impact.

Another matter of which to be wary beginning right about now in the merger process are increasingly vocal cries for the imposition of various and sundry merger conditions from competitors and other parties. They have a right to plea for this or that condition, of course. And the "public interest" standard under which the merger is judged at the Commission, as opposed to the competition standard at DOJ, is sufficiently indeterminate that all manner of objections and proposed conditions are claimed to fit under the public interest umbrella. These include, by way of one example, the notion that the Commission should condition merger approval on elaborate commitments regarding job retention, maintenance of employee counts for certain types of positions and in certain locations, and so forth. However commendable the commitments already offered by T-Mobile and Sprint with regard to these matters, concerns like these relating to job protection should not be at the core of the Commission's public interest analysis.

Please note: This is not to say matters like these are unimportant or totally outside of the public interest ambit, but they shouldn't be at the core. At the core of the merger review analysis should be consumer welfare– or put even more simply without the gloss of the economists' lingo: Overall, and over time, are consumers likely to benefit from the efficiencies and synergies associated with the merger?

At this point in the review process, I don't have any reason to alter the view expressed in the comments filed with the FCC on August 27, 2018:

[T]here is strong evidence that the proposed T-Mobile/Sprint merger, if approved, would greatly benefit consumersand enterprises by enabling faster mobile broadband speeds, higher data capacity, and reduced per-megabit prices. A combined “New T-Mobile” would have the resources to rapidly deploy a nationwide 5G network and to compete more effectively against AT&T and Verizon, presently the two largest wireless carriers. On its face, the proposed merger appears to satisfy the public interest standard.

Note the emphasis on consumers in our original FCC submission.

Now, one final but yet important point: In the D.C. Circuit's recent opinionin United States v. AT&T, Inc. affirming the District Court decision refusing to block the AT&T/Time Warner merger, the court repeatedly pointed to the trial court's reliance on "real-world evidence" over proffered "quantitative" economic models divorced from real-world data. Each merger is different, of course. Nevertheless, fairly read, the D.C. Circuit's opinion should be a caution for antitrust and regulatory authorities not to be overly seduced by theoretical economic models prepared by the "quants" that are divorced from the dynamic realities of today's communications marketplace.

Certainly, at a time when cable operators and Internet web giants like Google, along with regional carriers, are competing for customers in the wireless marketplace, it would be wrong for regulators to put much weight on static quantitative models purporting to suggest that there must be at least four nationwide facilities-based wireless operators in order to protect consumers.

This would be the equivalent of committing analysis by shibboleth-paralysis.  

With all the foregoing in mind, on Day 122, I continue to hold that the proposed merger of T-Mobile and Sprint likely will benefit consumers.