T-Mobile's CDMA Network Sunset Did Not Harm Competition

My July 7 blog post covered most of the misleading and regurgitated evidence alleged by plaintiffs in Dale v. Deutsche Telekom AG, a private antitrust lawsuit challenging the T-Mobile/Sprint merger. I left for this blog a separate discussion about one particular claim: The Dale plaintiffs claim – wrongly – that T-Mobile's early sunsetting of Sprint's CDMA network harmed competition by stifling DISH Network's chances to succeed in entering the wireless market. But rapid migration to next-generation mobile networks benefit consumers with more capacious, speedy, and reliable services.

Because that's a mouthful, let's first understand the facts. As a condition of the T-Mobile/Sprint merger, the DOJ Antitrust Division required T-Mobile to spin off Sprint's largest mobile virtual network operator (MVNO) brand, Boost Mobile, to DISH. The purpose of this spinoff was to facilitate DISH's entry into the mobile broadband market. Combining the acquired MVNO brand with its own network infrastructure potentially would enable DISH to take Sprint's place as the fourth largest facilities-based mobile broadband provider. Boost Mobile had roughly 9.3 million subscribers at the time the merger consummated, so transferring it to DISH gave DISH a pool of customers to kickstart its business.

 

Most of Boost Mobile's customers relied on Sprint's antiquated CDMA network, an inferior legacy technology inadequate for the provisioning of 5G service. Sprint's continued reliance on CDMA technology is one of the many reasons it struggled as a company. CDMA is incompatible with "GSM," the higher quality network technology used by T-Mobile, AT&T, and Verizon. Some former Sprint customers and most of Boost Mobile's customers had old CDMA-only devices that could not connect to GSM networks. Upon the CDMA network sunset, these devices would become useless for those customers, and those customers would need to buy new phones to continue receiving service. In other words, Boost Mobile customers were hemmed in by Sprint's prior bad business decision in selecting CDMA technology that was finally facing its demise.

But as Free State Foundation Director of Policy Studies Seth Cooper explained in an August 2021 Perspectives from FSF Scholars, T-Mobile's choice to sunset the 3G CDMA network it acquired improved mobile broadband service quality for nearly every T-Mobile customer. Knowing this result would be likely, the FCC's 2019 order approving the T-Mobile/Sprint merger declined to require T-Mobile to continue CDMA network operations. Notably, T-Mobile or Boost customers would enjoy the benefits of the network sunset if they upgraded their devices.

Enter the Dale complaint. The Dale plaintiffs allege that T-Mobile sunset its CDMA network earlier than it previously indicated to sabotage DISH's chances at successfully entering the mobile broadband market. In their view, the CDMA sunset forced the customers DISH acquired from Boost Mobile to buy new devices, making them highly vulnerable to "churn" or "switching" to another provider. With DISH then hemorrhaging customers, its revenues would sink and its costs would increase, making it more difficult to construct a nationwide 5G network. And this supposedly would make T-Mobile's settlement commitments to sell network services to DISH meaningless, because DISH's mobile business would quickly lose its customers, making it dead-on-arrival. The complaint then points to the fact that DISH cut an eventual network services agreement with AT&T instead of T-Mobile as more evidence of T-Mobile harming competition.

But the Dale claimants ignores two critical facts. First, the terms of DISH's network usage agreement with AT&T appear to be better than its original agreement with T-Mobile. The contract with AT&T is for a duration of 10 years, while T-Mobile's agreement with DISH is for a duration of 7 years. And the deal does not appear to have increased costs for DISH. The Dale plaintiffs might contend that, even if DISH got a better deal with AT&T, T-Mobile's CDMA sunset still harmed competition by rendering DISH customers' devices useless because AT&T does not have an active CDMA network.

That hypothetical criticism would fall short because of the second critical fact. T-Mobile and DISH resolved their dispute over the CDMA sunset and inked a new, lower-priced network services agreement in which T-Mobile agreed to assist with transitioning Boost Mobile customers to GSM-capable devices. Thus, even if upgrading to next-gen mobile network technology could be conceived as cognizable consumer harm, T-Mobile's agreement with DISH alleviated that harm. Indeed, T-Mobile's CDMA sunset improved mobile broadband service for virtually every customer, likewise increasing network quality competition.

In view of the facts, the complaint in Dale shows an absence of harm and a benefit to consumers. Antitrust claims with no harm and real benefits to consumers are not viable.

Antitrust law is supposed to protect competition, not competitors. Yet far too often, the crux of arguments made by antitrust claimants is harm to particular competitors. Of course, certain types of harm to particular competitors can harm competition, if there is evidence that it leads to market price increases and output reductions. But in this case, harm is nowhere near clear given the pro-competitive benefits from sunsetting legacy technologies and expanding next-generation technologies.

Under the Dale plaintiffs' ideal version of competition, T-Mobile's network infrastructure and financial resources would have been conscripted to maintain an outdated technology to the advantage of a competitor. This would have slowed 5G network deployment and made T-Mobile customers worse off. The plaintiffs in Dale should have difficulty in convincing a court to side with claims that are based on such a skewed view of competition.

Realizing the benefits of next-gen networks requires that old legacy technologies be timely sunset. For the good of consumers, 5G networks have rapidly been deployed across the U.S. DISH still has a shot to become the fourth nationwide facilities-based 5G provider, and its recent announcement that its 5G network is available to more than 20% of the US population indicates that it may be on pace.

Misleading Evidence in Private Antitrust Suit Against T-Mobile/Sprint Merger

Dale v. Deutsche Telekom AG, a recent class action antitrust lawsuit filed in the Northern District of Illinois, alleges that the T-Mobile/Sprint merger harmed consumers by causing price increases. The Dale complaint largely rehashes arguments brought by state attorneys general that Judge Victor Marrero rejected back in 2020, but it also hangs its hat on new misleading evidence: the claim that the Consumer Price Index's "quality-controlled prices" for wireless telephone services have increased since the consummation of the merger.

The problem with that argument is that the CPI's "quality-controlled prices" do not control for quality improvements brought by 5G service.

Currently, the CPI records changes in wireless telephone plans from 4G networks to 5G networks, but does not quality adjust for these changes. The CPI continues to observe the changes in customer access of 5G networks to determine if quality differences can be quantified.

So, the tiny price increases that the CPI measured in late 2020 do not account for the increased quality brought by 5G service. That's a serious problem for the plaintiffs in Dale, because one of the reasons Judge Marrero approved the T-Mobile/Sprint merger was that he found it likely to expedite the rollout of 5G service. To that point, he seems vindicated, as OpenSignal's periodic "5G Report" repeatedly has found that T-Mobile's 5G network is delivering on its commitments and has improved on its past performance levels. So, if the CPI actually adjusted for improved quality from 5G service, it might not show price increases at all.

As a matter of antitrust law, it would be strange to find that the company with the highest-performing and continually improving network is suppressing competition. And as a reminder, antitrust law does not prevent businesses from increasing prices for improved service.

Also, since a brief small spike in late 2020, wireless prices have resumed their downward trend, and are nearing their all-time low on the CPI. Likewise, wireless telephone services are one of the only goods or services measured by the CPI currently decreasing in nominal price despite 40-year-high inflation. As I wrote in May, wireless telephone prices decreased by .7% between April 2021 and April 2022. Inflation during that period was 8.3%, so during the same time, real wireless prices decreased by 9%.

Evidence of improved 5G service quality, recent wireless price decreases, and additional evidence of increasing broadband competition – all of which Free State Foundation scholars included in their 2022 Communications Marketplace Report comments – will be hard for the Dale plaintiffs to overcome.

In Eyebrow-Raising Fashion, FTC Adopts New Policy Statement on Prior Approval Provisions

Last week, the FTC finally filled the vacuum it created this summer when, in a vote along party lines, it rescinded the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement). The new Policy Statement, perhaps unsurprisingly, heralds a worrisome return to, and expansion upon, pre-1995 practices shown to discourage pro-competitive transactions. Equally newsworthy, however, are the departures from traditional process associated with this agency action.

Prior to 1995, the Commission routinely required that consent decrees include an obligation that the combined entity provide advance notice of, and obtain prior approval for, subsequent transactions in the relevant product and geographic markets. The 1995 Policy Statement put an end to that practice.

However, and as I detailed in a July 23, 2021, post to the FSF Blog, at the FTC's July Open Commission Meeting, the agency's Democratic majority opted to rescind the 1995 Policy Statement. The two Republican Commissioners articulated their concerns about that decision.

Commissioner Noah Phillips characterized prior approval provisions as "a decade-long M&A tax on anyone who enters a merger consent" and decried the inconsistency of the majority's action with the intent of the Hart-Scott-Rodino Act of 1976 (HSR Act). He also argued that the resumed use of such provisions will create competitive disparities between those subject to consent decrees and those not so constrained – and, as a consequence, "lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare."

Commissioner Christine Wilson explained how prior approval conditions create opportunities for "questionable exercises of enforcement discretion"; emphasized that, even with the 1995 Policy Statement in place, the FTC retained the ability to require prior notice and/or approval in consent decrees under warranting circumstances; and highlighted that "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years."

That void now has been addressed, but decidedly not in a manner to the liking of either Republican Commissioner.

On October 25, 2021, the FTC announced the adoption of a new Prior Approval Policy Statement (2021 Policy Statement). Per the Press Release, "merger enforcement orders will once again require acquisitive firms to obtain prior approval from the agency before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of ten years." Prior to 1995, prior approval provisions remained in effect for a maximum of ten years.

In addition, per this expanded policy, the agency may require prior approval for:

• Transactions outside of the affected product and/or geographic markets when, based upon the application of a "non-exhaustive" list of subjective factors, it concludes that "stronger relief is needed";
• In instances where the parties abandon the proposed deal; and
• For the sale of divested assets by entities not involved in the challenged transaction.

Thus, the 2021 Policy Statement in significant ways is much more expansive than those practices in place prior to 1995.

Although there currently is a 2-2 split between Democratic and Republican Commissioners on the Commission, Chair Lina Khan and Commissioner Rebecca Kelly Slaughter were able to push through the 2021 Policy Statement with the assistance of a tie-breaking "zombie vote" cast weeks prior by former Commissioner Rohit Chopra.

However, that is not the only procedural anomaly that transpired.

While a Dissenting Statement from Commissioners Phillips and Wilson eventually was released, on October 29, 2021, it notably was not included in the initial announcement.

As a result, Commissioner Phillips took to Twitter to voice his displeasure:

The Commission issued this ill-advised policy without giving minority commissioners a promised opportunity to issue a simultaneous dissent, as has always been the practice. ⁦@CSWilsonFTC⁩ and I will issue a statement later, as planned. https://t.co/KkQLbFzdTy

— Noah J. Phillips (@FTCPhillips) October 25, 2021

Commissioner Wilson weighed in, as well:

Simply stunning.

Strong dissent forthcoming. https://t.co/bHFpxOJmOC

— Christine S. Wilson (@CSWilsonFTC) October 25, 2021

For more on Commissioner Wilson's general process-related concerns, please read "Congressional Testimony of FTC Commissioner Wilson Addresses Agency Processes, Section 13(b), and Federal Privacy Legislation," a July 2021 post to the Free State Foundation's blog.

Eventually, the official FTC Twitter account issued a mea culpa:

The Office of Public Affairs unfortunately issued the prior approval policy release prematurely and plans to update immediately upon receipt of the dissenting statement from minority Commissioners. We regret the error.

— FTC (@FTC) October 25, 2021

Nevertheless, in a footnote to their joint Dissenting Statement, Commissioners Phillips and Wilson reiterated that "[t]he policy at issue was announced without our participation, which is contrary to longstanding practice and the opposite of what was promised."

Moving to the substance of their objections, Commissioners Phillips and Wilson dismissed the 2021 Policy Statement as "yet another daft attempt by a partisan majority of commissioners to use bureaucratic red tape to weigh down all transactions – not just potentially anticompetitive ones – and to chill M&A activity in the United States."

In addition, they:

• Pointed out the various ways, noted above, in which the 2021 Policy Statement goes even further than pre-1995 practices;
• Detailed how the 2021 Policy Statement stands in conflict with procedures set forth by Congress in the HSR Act;
• Explained how "the majority oversells the benefits of its actions and significantly undersells the harms";
• Highlighted how this action further exacerbates the growing disparity between how the FTC and the Department of Justice review transactions; and
• Criticized the majority's failure to seek public input before finalizing the 2021 Policy Statement.

I urge you to read the Dissenting Statement of Commissioners Phillips and Wilson in its entirety. It can be accessed here.

FTC Commissioner Phillips' Recent Comments on Changes to Transaction Review Process, Proper Focus of Antitrust Law

In a series of recent posts to the FSF Blog, I have highlighted instances where the two Republican FTC Commissioners, Noah Phillips and Christine Wilson, have voiced concerns regarding changes to the process by which the agency reviews transactions.

Appearing on a panel at the Technology Policy Institute's just-concluded Aspen Forum 2021, Commissioner Phillips was afforded an opportunity to expand upon his recent public statements. His remarks were noteworthy.

When asked to assess the performance of Lina Khan during her first two months as FTC chair, Commissioner Phillips responded in relevant part that:

There are some changes being made that I think are good things. I like the concept of open meetings. I think it's good to show the public … who we are and what we're doing. 

There are some changes that I don't like as much…. Something that I said recently is I'm concerned that some of the policies we're adopting are essentially aimed at undoing the Hart-Scott-Rodino merger review legislation. That was a piece of legislation adopted by the Ford Administration in 1976 and it has been one of the great "win-wins" in antitrust law over the decades. 

Businesses got an answer to their question and didn't have to waste a lot of money. Government enforcers got a chance to look at transactions before they happened, and didn't have to deal with hostile judges who didn't want to "unscramble the eggs." And it's been really good to give the opportunity to the government to review mergers, to give answers to businesses, and, ultimately, and this is the point, to help consumers.  

But I fear that some of the steps we're taking now will make that process less effective and less efficient and less fair. And so there are certainly some things we're doing … that I'm not a fan of. It's early days, and we'll see what happens.

In response to a question regarding the FTC's merger-review backlog, Commissioner Phillips stated the following:

What I will say is that we have deliberate and public policies right now of holding off on making decisions. So, for example, we adopted a policy, and … this was under Acting Chair Slaughter, when companies sought early termination … for deals that were non-problematic, that no one had an issue with, companies used to be able to come to the government and say, "Hey, you're not interested in this, can we just go ahead and do it?" And now we're saying, "No, you can't. You just have to wait. Not for any reason. Just because." That, to me, adds some needless friction to markets.

Another example, we announced a policy that in more cases we're going to be demanding of companies to give us prior approval rights for future mergers in our consents. And one thing I fear here is that this is just going to make doing consents harder. Resolving things ahead of time harder. 

Now I know a lot of people are worried that consents don't work well. And I know people don't want to say, "Yes," they don't want to say, "Yes, I'm ok with this merger." But the whole congressional scheme from 1976 forward depends upon the ability of the agencies to get things done. Sometimes we  sue… sometimes we go to court. But in order to bring those cases, we're going to have to resolve others. And I just worry that we are needlessly impeding our ability to do so.

Later in the discussion, Commissioner Phillips made a comment very much in line with a July 2021 Perspectives from FSF Scholars critical of calls to expand the focus of antitrust law beyond the relatively narrow "consumer welfare" standard that has prevailed for half a century.

In "Failure Everywhere? The Expansion of Goals for Antitrust," Timothy Brennan, Professor Emeritus, School of Public Policy, University of Maryland-Baltimore County (UMBC) and a member of the Free State Foundation's Board of Academic Advisors, argued that attempts to achieve too much through antitrust law in actuality are likely to produce the opposite result:

Expanding the range of goals to pursue with antitrust may end up not only doing a poor job protecting consumer welfare, but also will impede achieving the equity, employment, fairness, and other social objectives motivating the critics of traditional antitrust ….

In responding to moderator Tom Lenard's question whether the United States has a "serious and growing market power problem," Commissioner Phillips made a similar point:

What I do think … is a problem in some of the discussion that … everyone is having is that almost everything that people view as negative, either that a particular firm is doing, or that they see in society, let's say, the redistribution of wealth from labor to capital, they tag as a problem of market power. So: company does a bad thing, you will see infinite number of people on Twitter talk about how, if we had competition, we wouldn't have that. 

My question is, "Why? Why do we assume that's true?" If, in fact, the thing that we're seeing would not be the result of normal competition, there I think you have an argument. But there are times when bad things happen, and the cause of that is not a lack of competition. And so the solution of antitrust will not lead to better results….

And so one of the concerns that I have … about introducing all of these new features, especially ones that aren't naturally borne out by the competitive process, which is why we have regulation: to solve those externalities where the market won't. One of my concerns is, if you're trying to solve everything at once, you'll solve nothing at all.

Federalist Society Series Tackles Legal Issue Posed by Online Free Speech Suppression and Public Policy Responses

For an interesting discussion of legal issues posed by Big Tech censorship of content posted by users of social media, be sure to check out the Federalist Society's six part-series hosted by D.C. Circuit Judge Gregory Kastas. The six-part series addresses online speech suppression as well as legal attempts to address it in light of the First Amendment, federal preemption, state action, common carriage, antitrust, and Section 230 of the Communications Decency Act. Each part features distinguished panelists who bring their distinct views to the table. The Federalist Society should be commended for bringing putting this thoughtful and incisive series together. The last two parts of the recently concluded series are below:

Parts one, two, three, and four also can be found on the Federalist Society's website. 

Commissioners Phillips, Wilson Object to FTC's Rescission of Policy Statement on Prior Approval and Prior Notice Merger Provisions

At its July 21, 2021, Open Commission Meeting, the FTC voted along party lines to rescind its 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement).

When it adopted the 1995 Policy Statement, the FTC abandoned what had become routine practice: requiring that transacting parties agree to obtain prior approval, and/or provide advance notice, of future acquisitions within the relevant product and geographic markets.

As a result of this substantial departure from longstanding policy, there is widespread concern that the FTC will expand significantly its exercise of authority over the merger and acquisition activities of companies that enter consent orders with the agency.

The two Republican Commissioners have made their objections to this action known. Commissioner Noah Joshua Phillips issued a Dissenting Statement and Commissioner Christine Wilson posted the text of her oral remarks to the FTC's website "[t]o facilitate transparency."

*    *    *

After objecting to the majority's decision to rescind the 1995 Policy Statement "with the minimum notice required by law, virtually no public input, and no analysis or guidance," Commissioner Phillips set forth two substantive criticisms in his Dissenting Statement.

First, he argued that, by once again broadly subjecting merging companies to prior approval and/or notice provisions, "the majority chooses to impose a decade-long M&A tax on anyone who enters a merger consent." This, he maintained, will discourage companies from entering consent decrees and, in turn, "abrogate" the Hart-Scott-Rodino Act of 1976, which "Congress enacted … to protect the public from anticompetitive mergers and acquisitions before they occur."

With the 1995 Policy Statement no longer in place, Commissioner Phillips concluded that "companies will be less likely to work with the Commission to resolve competitive concerns – contrary to the express purpose of the HSR Act, and leading to less efficient merger enforcement. As consent negotiations become more difficult, we will have to go to court more – wasting precious taxpayer dollars, and accomplishing less."

Second, he argued that "[a] blanket policy of routinely requiring prior approval" unreasonably will place at a competitive disadvantage those subject to consent decrees, as they "may have to bid higher … to compensate the seller for the uncertainty and the longer lead time required to obtain prior approval."This, in turn, will lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare.

*    *    *

Commissioner Wilson offered three primary reasons for her opposition to the agency's decision to rescind the 1996 Policy Statement. First, she questioned why the majority chose to remove this important "guardrail to prevent … questionable exercises of enforcement discretion."

Commissioner Wilson pointed out that the 1995 Policy Statement was implemented "following nearly nine years of highly resource-intensive litigation undertaken by the FTC against an abandoned transaction" involving the Coca-Cola Co. (Coke) and the Dr Pepper Company that "some observers viewed … [as] a punishment for Coke's temerity to exercise its legal rights and litigate."

By contrast, a contemporaneous attempt by PepsiCo, Inc. to acquire Seven Up Co. was abandoned without a fight when the agency voted to challenge it – that is, without a legal challenge – and therefore did not lead to the imposition of a prior approval order.

Questioning the "purported rationale" put forth by the majority – that the justification for rescinding the 1995 Policy Statement "lies in saving agency resources that it would otherwise spend to review a transaction the Commission previously considered" – Commissioner Wilson expressed her concern "that the Commission intends to revert to the vindictive approach that led to the nine-year litigation against Coke" and "fear that rescinding the policy statement is being sold to the public under false pretenses."

Second, Commissioner Wilson highlighted the fact that, even with the 1995 Policy Statement in place, the FTC could, and often did, incorporate prior approval and/or notice provisions into consent decrees under certain scenarios, such as "where there [was] a credible risk that a company would attempt the same or approximately the same merger" or "would engage in an otherwise unreportable anticompetitive merger."

Raising doubts as to "whether rescission of this policy will facilitate further constructive use of" such provisions and echoing the sentiment of Commissioner Phillips, she expressed her fear that instead "it will facilitate a massive end-run around Hart-Scott-Rodino ('HSR') filing requirements and, for mergers subject to prior approval provisions, a shifting of the burden of proof that will chill procompetitive deals and hurt consumers." Such a drastic step, she argued, should only be taken by Congress.

Third, Commissioner Wilson agreed with Commissioner Phillips that, "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years." In that regard, she noted that this action will create a conflict between the FTC and the Department of Justice's Antitrust Division, which takes a similar approach to prior approval provisions as the FTC did pursuant to the 1995 Policy Statement.

Commissioner Wilson also took issue with the majority's decision to rescind the 1995 Policy Statement without first seeking input from the public, a step the FTC did take prior to its adoption.

*    *    *

Finally, I would be remiss if I didn't mention that Commissioner Phillips and Commissioner Wilson both participated in a Fireside Chat with FSF President Randolph May in March as part of the Free State Foundation's Thirteenth Annual Telecom Policy Conference. Video of that wide-ranging discussion is available here.

Panel Video on The Common Purposes of IP and Antitrust

Earlier today, I joined the Committee for Justice’s Ashley Baker along with Law Professor Kristen Osenga for a virtual panel discussion on "The Common Purposes of Intellectual Property and Antitrust." Video of the panel, which runs about an hour, is now available online. The panel discussion addressed the differences between intellectual property rights – such as copyrights and patent rights – from harmful monopolies. Along the way, the panel also delved into the role of administration in IP rights, legislative proposals for changing antitrust law, and the merits of the consumer welfare standard. 

My initial comments during CFJ's panel parallel my April 7 Perspectives from FSF Scholars paper titled "The Property Rights View of Copyrights Beats Bogus Monopoly Talk" and a short item I posted on April 9 at the Federalist Society's blog titled "Copyrights are Property Rights, Not Harmful Monopolies." Free State Foundation President Randolph May and I wrote a book chapter with the same name as the CFJ panel in our book Modernizing Copyright Law for the Digital Age: Constitutional Foundations for Reform (Carolina Academic Press, 2020). 

Video of FSF Fireside Chat with FTC Commissioners Noah Phillips & Christine Wilson

To kick off the Free State Foundation's Thirteenth Annual Telecom Policy Conference, FSF President Randolph May moderated a Fireside Chat with FTC Commissioners Noah Phillips and Christine Wilson. Theodore Bolema, a member of the FSF Board of Academic Advisors, also participated. Policy topics included antitrust, data privacy, and Section 230 immunity for Big Tech platforms. Video of the March 19 event is now available online:

Now Available: Videos of FSF Conference Keynotes from Jeffrey Rosen, Christine S. Wilson, and Robin Colwell

The Free State Foundation held its Twelfth Annual Telecom Policy Conference last Tuesday at the National Press Club in Washington, DC. Perhaps you were unable to attend "Broadband Beyond 2020: Competition, Freedom, and Privacy," either in person or via Facebook live stream. Or maybe you were one of the many in the audience and would like to take a second look. In either case, we have good news: the morning keynote addresses are now available on our YouTube page.

After a Welcome and Introduction by Free State Foundation President Randolph J. May, Jeffrey Rosen, Deputy Attorney General of the United States, kicked things off with remarks that touched on technological innovation, antitrust, and Section 230 of the Communications Decency Act of 1996. Alden Abbott, General Counsel of the Federal Trade Commission, afterwards provided his Reactions.

Next up was FTC Commissioner Christine S. Wilson, who gave a speech entitled "Free Markets, Regulation, and Legislation: A Place for Everything, and Everything in Its Place." Commissioner Wilson discussed the benefits of free markets, competition, and deregulation; the "toxic outcomes" that can result from heavy-handed regulatory regimes; and the need for federal privacy and data security legislation. Two Members of FSF's Board of Academic Advisors – Theodore Bolema, Executive Director of the Institute for the Study of Economic Growth in the Department of Economics at Wichita State University, and Tim Brennan, Professor of Public Policy and Economics at the University of Maryland – followed up with their Reactions to her remarks.

Robin Colwell, Special Assistant to the President for Economic Policy, gave the final keynote before the lunch break. Ms. Colwell discussed the critical role that broadband plays in the economy and Americans' lives; pending legislation; efforts to address the digital divide; and 5G. Michelle Connolly, Professor of the Practice of Economics, Duke University, and Member of FSF's Board of Academic Advisors, then offered her Reactions.

Deputy AG Rosen's FSF Conference Keynote on Competition & Innovation

The Free State Foundation held its Twelfth Annual Telecom Policy Conference on Tuesday, March 10, 2020, at the National Press Club in Washington, DC. The opening keynote address was delivered by U.S. Deputy Attorney General Jeffrey Rosen. DAG Rosen's address addressed topics in antitrust, competition, and innovation. The prepared text of his address is available online at the Department of Justice's website. John Eggerton's write-up for Multichannel Newson DAG Rosen's address is also available online.  

The Exceptional Wireless Market

My Perspectives from FSF Scholars paper, "Court Affirms T-Mobile/Sprint Merger Will Speed 5G Deployment: California PUC Should Act Without Further Delay," was published today, March 4. It reviews the U.S. District Court's decision rejecting antitrust claims brought by certain state Attorneys General. As I point out in my paper, the California Public Utilities Commission should stop delaying, end its review, and allow the New T-Mobile to bring 5G and other benefits to consumers. 

Importantly, the District Court characterized the wireless market's innovative and competitive conditions as "exceptional." The Infogram that accompanies my Perspectives paper provides a partial snapshot of today's dynamic wireless market. On some Web browsers, the Infogram may be better viewed here.) 

FSF President Randolph May on U.S. District Court's Decision in T-Mobile/Sprint Merger Case

Free State Foundation President Randolph May issued the following statement regarding the decision by U.S. District Court Judge Victor Marrero rejecting certain states' suit to block the T-Mobile/Sprint merger:

"I'm pleased that Judge Marrero has denied the attempt of a minority of states to second-guess the considered decisions of the Department of Justice and the FCC to allow the T-Mobile/Sprint merger to be consummated. In comments before the FCC and before the District Court, I explained that, all things considered, the merger was likely to increase competition and overall consumer welfare not only in today’s wireless marketplace but in the broader telecommunications marketplace as well.

The District Court properly recognized that the states bore the burden of persuasion of showing that the proposed merger would substantially lessen competition in the market for retail mobile wireless telecommunications services and that they failed to carry this evidentiary burden. Especially important is the court's recognition of the 'complexity and dynamism’ of the wireless market. Indeed, the court properly acknowledged that 'the intensely competitive and rapidly changing environment in which complex and dynamic markets operate' rendered unlikely, in the real world of the wireless market as opposed to the one conjured up in theoretical models, that the anticompetitive business strategies and market effects that the states predicted would occur.

Now that the District Court has ruled, my hope is that the states will forbear from further litigation and that the California Public Utilities Commission will quickly act on the merger. It's time to let the competitive and dynamic marketplace that Judge Marrero identified work to enhance consumer welfare."   

State AGs Should End the T-Mobile/Sprint Lawsuit and Make Way for 5G

In late November, Texas and Nevada became the two latest states to withdraw from the antitrust lawsuit challenging the T-Mobile/Sprint merger. The case is thin on the merits, and the FCC's order approving the merger recognizes the benefits that the combined T-Mobile/Sprint's nationwide 5G network will provide consumers. Now that several states have joined the U.S. Department of Justice's proposed settlement regarding T-Mobile/Sprint, the remaining State Attorneys General should withdraw their lawsuit. 

The U.S. is in a tight race to 5G with China, and every opportunity for advancing 5G services at home should be pursued. Analysts such as Accenture Strategies project that 5G networks will provide average speeds at least ten times faster than 4G LTE networks and provide peak speeds perhaps 100 times faster. Advanced 5G networks will enable smart-city applications, as well as precision agriculture, industrial, and other uses. Importantly, the T-Mobile/Sprint merger will fast-track nationwide 5G coverage. In its November 2019 order approving T-Mobile/Sprint, the FCC found that the merger "will enable deployment of a more robust, nationwide 5G network than either standalone company could deploy on its own." 

Due to the consumer welfare benefits of more rapid and widespread 5G rollout, the T-Mobile/Sprint merger is well positioned to succeed in court against the remaining State AGs. Although the State AGs' take the position that T-Mobile/Sprint merger isn't necessary for 5G deployment in the U.S., that position amounts to little more than state government lawyers' second-guessing of the investment-backed business judgment of wireless carriers in a highly competitive market. As the FCC's order approving the merger recognized: "Sprint has not widely deployed its 2.5 GHz spectrum assets and our technical analysis predicts that on a standalone basis it would fail to cover nearly half of the country with 5G services on its 2.5 GHz spectrum, even assuming it has the financial ability to reach its previously planned deployment level." The Free State Foundation's reply comments in the merger proceeding as well as a May 2019 blog by Free State Foundation President Randolph May identify Sprint's significant financial debt as well as its streak of annual revenue declines dating back to 2013. 

Moreover, the State AGs' amended complaint allegation that the merger would substantially lessen competition rests on a largely static and unduly narrow picture of today's dynamic mobile market. It downplays the increased competition that the New T-Mobile will pose to current market leaders AT&T and Verizon. Additionally, the State AGs' complaint downplays competition from regional and local wireless providers, as well as competition from entrants Charter and Comcast. As of the third quarter of 2019, those two hybrid/MVNO providers served nearly 800,000 and nearly 1.8 million subscribers, respectively, with continued subscriber increases widely expected. DISH Network also has plans in the works to launch a nationwide mobile wireless network. And DISH's acquisition of Sprint's Boost prepaid brand makes it even more difficult for the State AG's to show that the merger would harm the prepaid market segment. 

Texas and Nevada are not the only states that have withdrawn from the State AGs' antitrust lawsuit against T-Mobile/Sprint. Colorado and Mississippi withdrew in October 2019. Ten states have instead joined with the Justice Department in a proposed settlement with T-Mobile and Sprint.

Now it's time for the remaining 14 State AGs should end their lawsuit and make way for 5G.

FSF President Randolph May on the State AG Lawsuit Against T-Mobile/Sprint Merger

The following statement regarding the proposed T-Mobile/Sprint merger may be attributed to Free State Foundation President Randolph May:

“The lawsuit filed by the Attorneys General of ten states to block the T-Mobile/Sprint is disappointing and misguided. It is noteworthy that all ten Attorneys General are Democrats, and that their counterparts in the other 40 states chose not to sign onto this unusual, if not unprecedented, maneuver.

Antitrust law should not be a matter of partisan politics or predilections, but rather a matter of adherence to widely accepted jurisprudential principles that know no party. The fact that all of the AGs bringing the lawsuit are Democrats is troubling but perhaps revealing.

In its essence, the principal focus of the AGs’ suit appears to rest on counting competitors rather than on assessing the impact of overall competition and consumer welfare. Because the proposed merger will make the combined T-Mobile/Sprint a stronger competitor to the top two wireless providers, it is likely to enhance competition — and consumer welfare — in the wireless market rather than reduce it. The lawsuit also errs in not taking into account the marketplace dynamics that dictate that the relevant market is broader than wireless providers only; it is a ‘ roadband' market that encompasses providers using various technological platforms, including cable, fiber, satellite, and combinations of these.

It may be that the Department of Justice itself has concerns with the proposed merger, and if so, that is the proper venue for consideration of the antitrust analysis that should take place and the state AGs surely can make their views known to the DOJ. In any event, most of the states, including those bringing suit, have little or no regulatory authority over wireless providers and little or no experience or expertise regarding the spectrum issues, including the prospects for 5G deployment, that are central to the merger’s rationale. The AGs should stand down.”

Videos Released! DOJ's Andrew Finch and NTIA's David Redl at #FSFConf11

The theme of the Free State Foundation's Eleventh Annual Telecom Policy Conference (#FSFConf11) was "Internet Providers and Platforms: Getting Law and Policy Right." Two keynote addresses delivered at the Conference on March 26 are now available for viewing online. 

Video of the Conference's opening keynote address, delivered by Andrew Finch, Principal Deputy Assistant Attorney General of the Department of Justice's Antitrust Division is available here.

Additionally, video of the Conference keynote address by Assistant Secretary of Commerce and NTIA Administrator David Redl is available here.

Professor Daniel Lyons Reflects on Antitrust Enforcement and Net Neutrality

Law Professor Daniel Lyons, a member of the Free State Foundation's Board of Academic Advisors, was a panel speaker featured at FSF's Eleventh Annual Conference. In "An antitrust-informed approach to net neutrality," a blog post published on April 1 at AEIdeas, Professor Lyons reviews the Conference's closing keynote address by FTC Chairman Joseph Simons. Professor Lyons makes the case for FTC enforcement over broadband Internet service provider practices is preferable to FCC enforcement according to the repealed Title II rules. 

Prepared Remarks of FTC Chairman Joseph Simons at FSF's Telecom Policy Conference

The Free State Foundation's Eleventh Annual Telecom Policy Conference was on March 26. This year's conference included a keynote address by Federal Trade Commission Chairman Joseph Simons. His remarks focused on "how the FTC's two missions—competition and consumer protection—apply to the internet ecosystem."

Chairman Simons offered an overview of how the FTC can reach broadband Internet service provider behavior such as blocking, throttling, and paid prioritization under its antitrust and consumer protection jurisdiction. He also discussed the FTC's authority to address alleged deceptive and unfair privacy and security practices by ISPs. According to Chairman Simons, "the FTC will remain active in Internet commerce… we will be able to protect consumers from anticompetitive and unfair or deceptive conduct by ISPs and other firms in this fast-paced industry."

The prepared version of Chairman Simons' remarks is available at the FTC's website here.

The Bidding for the Fox Assets: Where Things Stand

Comcast and Disney for months have been aggressively seeking to buy up certain Fox assets. The Disney bid has been accepted by Fox management, but will be decided when Fox shareholders vote on the Disney bid on July 27^th. Meanwhile, Comcast is making its own offer for both the Fox assets, and this week it increased its offer for the shares that Fox does not currently own in Sky, the largest pay TV service in Europe.

The decision is ultimately up to shareholders, and it appears that antitrust considerations should not be a determining factor. In my view, the Comcast bid should not face any significant antitrust obstacles, and if anything should raise less antitrust concerns than the Disney bid that has already received antitrust clearance, subject to certain divestiture conditions.

The Fox assets in play are most of the company, excluding Fox News and other key assets. Specifically, Comcast and Disney are bidding for the Twentieth Century Fox movie and tv studios, the FX channels, the regional Fox sports channels, Fox’s controlling interest in Sky and National Geographic Partners, and its non-controlling interest in Hulu, among other assets. Not included in the transaction are Fox News, Fox Business Network, the sports channels FS1 and FS2, the Fox Broadcasting Company, and the Fox television stations. Nearly three-fourths of the Fox assets subject to the acquisition, including the Sky and Star India businesses, are overseas and thus do not raise any domestic antitrust concerns.

This analysis is based on the developments in the bidding for the Fox assets and Sky as of July 12, 2018. Of course, anything can change at any moment, especially with the July 27^th vote quickly approaching. 

The Disney Bid

The Disney bid received clearance from the Department of Justice in late June under the DOJ’s “FastPass approval” process. To obtain this expedited approval, Disney promised to divest the 22 Fox regional sports networks in response to DOJ concerns about the horizontal overlap with ESPN and other sports programming assets currently owned by Disney. Disney had previously carved out of the deal two national Fox sports channels, FS1 and FS2.

Notably, the Disney bid is structured so that it does not require any license transfers that would trigger a Federal Communications Commission review, so Disney only needs regulatory consent from DOJ for the transaction. Avoiding the FCC review means that the transaction is not subject to review under the FCC’s vague “public interest” standard, which is important for regulatory clearance because the DOJ review is limited to the economic impact of the transaction. 

The DOJ approval for the Disney bid is somewhat surprising because the approval conditions were limited to sports channels, but not to the horizontal overlap between the Disney and Fox production studios. Disney’s studio is the market leader in terms of movie box office revenues, and Fox studio is one of its leading competitors.

Moreover, the DOJ does not appear to be concerned about the impact of the proposed merger on Hulu. Combining the Disney and Fox shares in Hulu would give Disney majority control over Hulu, the video streaming company that is jointly owned by Fox, Disney, Comcast and Time Warner. Hulu is an important distribution outlet for movies, so giving Disney control over Hulu has a post-merger vertical implication of a Disney transaction. It may be overly optimistic to conclude that the DOJ learned from its recent failed challenge to the AT&T/Time Warner merger to not try to challenge the vertical aspects of another merger so quickly. It should be noted, however, that Hulu is not profitable and may not be financially viable as currently structured, and Disney is arguing that giving it majority control would give Disney the incentive to invest heavily in Hulu so that it will survive.

The Comcast Bid

Comcast evidently is seeking a similar FastPass approval from DOJ for its bid for the Fox assets. The Fox board has suggested that the Comcast bid raises more antitrust concerns than the Disney bid. That may be true in the sense that Disney has received FastPass approval and Comcast so far has not. But looking strictly at the economic implications of the Comcast bid, the antitrust concerns if anything are less for Comcast.

Comcast’s horizontal overlaps with the Fox assets are similar to those that Disney has. Comcast arguably may have a more direct overlap in sports programming, but Comcast, like Disney, has indicated that it is willing to eliminate the overlap by divesting any regional sports channels that raise concerns with the DOJ. Comcast also has a studio overlap with Fox because it owns Universal Studios. But Universal is much smaller than Disney’s studio, so if DOJ didn’t object to combining the Disney and Fox studios, it is difficult to see how it could object to the Comcast studio overlap. And the Hulu issue is largely the same for Comcast as for Disney—either one would come away with majority control over Hulu.

Comcast, with its cable system, may raise more vertical antitrust concerns than Disney if it acquired the Fox assets. But these are largely similar vertical concerns to the ones raised by DOJ in its recent failed challenge to the AT&T/Time Warner challenge. To the extent that Comcast’s proposed acquisition of Fox’s assets, akin to the AT&T/Time Warner merger, is largely a vertical merger combining programming distribution facilities with programming content, there is no reason to think a court would view the competitive analysis much differently. Moreover, as Judge Leon pointed out in his ruling in the AT&T/Time Warner case, any vertical antitrust concerns have to be weighed against the economic benefits of the transaction. In the rapidly changing communications and media environment, the proposed transaction will strengthen Comcast's ability to compete with the growing market power of web giants like Google and Facebook and online powerhouses like Netflix.

Sky and a Possible Division of Assets

Another possibility is that Comcast and Disney decide to divide up the Fox assets. Comcast is aggressively pursuing Sky, the largest pay TV service in Europe. Fox currently owns 39% of Sky, which is enough to give it managerial control over it, and is attempting to buy the rest of Sky. If the Fox bid for Sky succeeds and then Disney buys the Fox assets, Disney would come away with both control and a large majority of the shares in Sky. But separately from Comcast’s bid for the Fox assets, Comcast is also bidding against Fox for the shares of Sky that Fox doesn’t own. The Sky bidding has little direct impact on antitrust review in the U.S.

A possible resolution of the Disney/Comcast bidding could be that Disney and Fox let Comcast acquire the non-Fox shares of Sky and then Disney sells the Fox shares in Sky to Comcast. That way Disney would acquire most of the U.S. assets in Fox being sold, while Comcast would come away with Sky. Some analysts believe this is the best outcome for both companies, because they would each come away with significant assets while taking on less debt. One problem with this scenario is that Disney’s bid for the Fox assets prohibits it from talking directly to Comcast.

Conclusion

Transactions the size of the Disney or Comcast acquisitions of the Fox assets bear careful scrutiny, and I am not rendering any final judgments here. But if the Disney proposal can obtain antitrust clearance with only relatively minor divestitures, there is no reason to believe that a Comcast bid should face any greater regulatory obstacles. Thus, the resolution of these bids will likely come down to what the Fox shareholders choose to do, which should not be affected by U.S. antitrust considerations.

DOJ’s Antitrust Chief Says Three Wireless Providers May Be Enough

The proposed merger of T-Mobile and Sprint would arguably be a four-to-three merger in the market for U.S. wireless carrier, with the combined T-Mobile and Sprint competing against the presently much larger Verizon and AT&T, along with several regional wireless carriers. This merger will be reviewed by both the Department of Justice and the Federal Communications Commission.

In the past, former Federal Communications Commissioner Tom Wheeler stated that such a merger of wireless carriers would not be approved by the FCC under his leadership. Similarly, William Baer, the head of the DOJ Antitrust Division during the Obama Administration, said in 2014: “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”

However, the current Assistant Attorney General in charge of the Antitrust Division, Makan Delrahim, recently indicated there should not be any hard-and-fast rule regarding a merger of two of the four largest wireless carriers. Following a speech before the Council on Foreign Relations in Washington, DC on June 1, AAG Delrahim told reporters, “I don’t think there’s any magical number that I’m smart enough to glean.” He also said the DOJ would look at the arguments that the proposed merger was needed for them to build the next generation of wireless, 5G, but that the merging companies would have to prove their case.

In this regard, AAG Delrahim’s position appears to be consistent with the view of Free State Foundation President Randolph May, who said at the time the T-Mobile/Sprint merger was announced in April of 2018:

While I’m not prepared to take a bottom-line position on whether this merger ultimately should be approved or not, I certainly don’t agree there should be any iron-clad rule, like the one Obama Administration FCC Chairman Tom Wheeler articulated, against going from four to three nationwide mobile providers.

That is the wrong way to analyze the market, especially when mobile broadband increasingly is not a distinct market but rather part of a larger dynamic broadband market and when a merger of the third and fourth carriers in terms of the number of subscribers likely would make a more formidable competitor to the two largest wireless providers.

In this case, T-Mobile and Sprint presumably are planning to present the type of evidence AAG Delrahim is seeking. The combined companies may well exert a stronger competitive constraint on Verizon and AT&T together than separately. Moreover, the combined T-Mobile/Sprint would have combined resources and a larger customer base to support a faster 5G buildout together.

While the merger may arguably leave consumers with one less choice among wireless providers, even assuming for the sake of argument that there still is a distinct wireless market separate and apart from the broader broadband market, the loss of competition, if any, may be greatly outweighed by the benefits from faster 5G deployment.