FSF Files Comments on FTC and DOJ Merger Enforcement

On April 21, the Free State Foundation submitted comments to Federal Trade Commission and the Department of Justice in response to their Request for Information on Merger Enforcement. The comments were written by FSF President Randolph May, Senior Fellow Andrew Long, and Legal Fellow Andrew Magloughlin. FSF's comments recommend that the FTC retain a case-by-case merger review process that weighs the totality of the circumstances, including merger-specific efficiencies and other contextual factors such as market structure and dynamic innovation. 

FSF's comments focus on the lessons to be learned from the T-Mobile/Spring merger, since it "exemplifies the probative value of an efficiency-centered, case-by-case approach." The introductory section of FSF's comments explain:

As predicted, that merger already has led to substantial pro-consumer efficiencies, including expedited deployment of next generation 5G service, network quality improvements, and continued downward pressure on prices. It also has confirmed the folly of relying on narrow market definitions in complex, dynamic markets. Indeed, that no consumer harm resulted is likely because, viewed through the appropriate lens – that is, the broader "broadband market" rather than the outdated mobile-only market – the T- Mobile/Sprint merger did not constitute a "4-to-3" merger as some alleged. 

Additionally, FSF's comments stated that "any revised guidelines should not adopt presumptions of harm." As the comments explain: 

There is no clear empirical evidence that vertical mergers are harmful on net. But there are numerous examples where predictions of harm have not materialized, including the AT&T/Time Warner, Comcast/NBC Universal, and AOL/Time Warner mergers, combinations with which Free State Foundation scholars are very familiar. The inaccuracy of those often overheated pre-merger prognostications of harm confirms that a case-by-case approach remains preferable to presumptions of harm for vertical mergers. 

FSF's comments to the FTC and DOJ on merger enforcement is available here.

FCC Made a Good Call in Approving Verizon/TracFone Merger

Hours after my November 22 blog post, the FCC released its order approving the Verizon/TracFone merger. The Commission reached a strongly supportable conclusion, which is contained in paragraph 150 of its order:

After carefully reviewing the record in this proceeding and performing a thorough and extensive analysis, we find that the transaction will lower TracFone’s costs to provide service and improve its ability to offer prepaid and Lifeline services. These benefits, combined with Verizon’s robust commitments, which we accept as conditions of our approval, ensure that the proposed transaction will serve the public interest, convenience, and necessity. Accordingly, we approve the transaction. 

Notably, Commissioner Brendan Carr concurred in the result; but his statement accompanying the Verizon/TracFone Order also pointed to the agency's 2008 "mobile telephony/broadband services" market definition that it applied in evaluating the merger. Commissioner Carr cited to his thoughtful statement accompanying the 2019 T-Mobile/Sprint Order on the need for the FCC to update its framework for assessing competition and the likely effects of mergers in today's broadband services market. Insights from that prior statement, part of which are quoted below, are even more relevant as we approach 2022 than they were in 2019:

Instead of formally updating our view of competition to reflect 5G, we conduct our initial screen using the market definition of "mobile telephony/broadband services." The Commission created that market definition in November 2008—more than two years before any of the nationwide wireless providers had deployed 4G LTE. Even at that time, we saw how faster wireless service would combine the markets for talk, text, and low-data uses on phones with the market for high-data uses on computers and non-voice devices. The new market definition recognized how "mobile broadband services" (enabled by upgraded 3G and 4G networks) would break down previously siloed industries. And so when we reviewed a transaction between wireless companies in 2008, we took the opportunity to update our market definition, "conclud[ing] that there are risks associated with defining product markets too narrowly, since doing so may thwart this and future pro-competitive deals that take place in the context of rapidly evolving markets and services."

 

The Commission shows no such prescience in defining the relevant market here. Rather, it applies the same definition that both the FCC and antitrust authorities have been using for a decade. By sticking with a pre-4G market definition, we miss an essential feature of 5G: the blurring of wired and wireless networks and the enhanced competition that results. While our legacy market definition may track FCCs and antitrust authorities past, it prevents the expert agency Congress created to regulate telecommunications from helping our sister agencies modernize their approach to this technology. 

Verizon/TracFone Merger Now Has a Clearer Path to FCC Approval

Pending before the FCC is Verizon's proposed acquisition of TracFone, a mobile virtual network operator (MVNO) that had 21 million subscribers at the end of 2020. MVNOs aren't facilities-based providers. Rather, they purchase wireless network on a wholesale basis from facilities-based providers like AT&T, T-Mobile, and Verizon and then they resell those services to consumers. Prepaid wireless service offerings by MVNOs have been especially popular with cost-conscious consumers. 

On August 13, I was quoted in Communications Daily in response to news that many prior opponents of Verizon/TracFone are now supportive of the merger because of pledges Verizon has made to provide continuing services with the Lifeline program. Leaving aside the issue of whether those pledges ought to have been necessary or the merits of those pledges, it safe to conclude that the Verizon/TracFone merger would result in economic efficiencies because an acquired TracFone would save on costs of obtaining wireless network services at wholesale. And since the Verizon/TracFone merger would not result in the loss of a facilities-based provider, the FCC's approval of the merger ought to be a foregone conclusion.  Moreover, as I was quoted in saying in CommDaily: "A timely and straightforward FCC decision on Verizon/Tracfone likely would make any state PUC reviews go more smoothly, given that state regulatory assertions of authority over wireless mergers already are on thin legal ground in light of Section 332 of the Communications Act."

FSF President Randolph May Commends Bill to Reform FCC Merger Reviews

A March 9 feature article at Utahpolicy.org discusses Sen. Mike Lee's reintroduction of the One Agency Act in the 117th Congress. If the bill becomes law, it would consolidate agency merger reviews at the U.S. Department of Justice. Additionally, the bill would remove the authority of the FCC and state public utility commissions to conduct duplicative competitive analyses in reviewing mergers. 

Free State Foundation President Randolph May is quoted in the article. While FSF President May takes no position on the DOJ/FTC antitrust consolidation, he does commend the provisions relating to reforming the FCC's transaction review process:

The part of the One Agency Act that prevents the FCC and state public utility commissions from duplicating the Department of Justice's analysis of a transaction's competitive effects makes eminent sense. And the bill's limitations on the FCC's invocation of its vague "public interest" authority, which the agency often has abused by imposing a multitude of conditions unrelated to any impact resulting from the proposed transaction, would constitute a significant improvement. Together, these two aspects of Senator Lee's bill would constitute a meaningful reform of the review process applicable to transactions involving communications firms. 

The text of the One Agency Act is available here and Sen. Lee's press release for the bill (which also quotes FSF President May) is here.

T-Mobile Announces Closing of its 5G-Accelerating Merger with Sprint

Today, T-Mobile US announced the closing of its 5G-accelerating merger with Sprint. The New T-Mobile touts that, over the next 6 years, its network capacity will surge 14 times its current capacity, its average 5G speeds will be 15 times faster than its current LTE speeds, and its 5G network will cover 99% of the U.S. population. T-Mobile expects to make $40 billion in network investments over the next three years, and it plans to cover 90% of rural Americans with high-speed 5G services. 

In public comments and reply comments filed with the FCC and in other publications, including blogs, Free State Foundation scholars have described the pro-innovation, pro-investment, and ultimately pro-consumer benefits of the T-Mobile/Sprint merger. As we explained in those publications, the merger's closing will allow for a more rapid deployment of a nationwide 5G network that will pose a potent competitive challenge to AT&T and Verizon. More recently, T-Mobile's resounding victory in U.S. District Court over certain state attorney's general who challenged the merger on antitrust grounds was the subject of my Perspectives from FSF Scholars paper, "Court Affirms T-Mobile/Sprint Merger Will Speed 5G Deployment." 

Congratulations to T-Mobile on the closing of its merger and to its new CEO Mike Sievert. American consumers are now set for a big boost on 5G and a more innovative and competitive wireless market.

P.S. T-Mobile's 5G Fact Sheet for March 2020 can be found 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.

FCC Releases T-Mobile/Sprint Order

On November 5, the FCC released its order approving the T-Mobile/Sprint merger. The result is consistent with comments and reply comments filed by the Free State Foundation in the proceeding. Also, on October 8, FSF President Randolph May and I filed comments pursuant to the Tunney Act regarding the U.S. Department of Justice's proposed settlement with T-Mobile and Sprint.

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.”

D.C. Circuit Rejects DOJ's Lawsuit Regarding AT&T-Time Warner

Today, the U.S. Court of Appeals for the D.C. Circuit rejected the Department of Justice's bid to overturn a ruling that allowed AT&T to acquire Time Warner. (See the opinion here.) Theodore Bolema, a member of FSF's Board of Academic Advisors, and other FSF scholars have followed the merger and the subsequent lawsuit by the Department of Justice very closely. 

Here is a list of articles and Perspectives from FSF Scholars that we have authored regarding this lawsuit:

• Randolph May and Theodore Bolema, "The Justice Department Will Need a Stronger Case Against the AT&T/Time Warner Merger," The Hill, (November 17, 2017).

• Theodore Bolema, "AT&T-Time Warner Suit a First," The Detroit News, (November 30, 2017).

• Theodore Bolema, "The Proper Context for Assessing the AT&T/Time Warner Merger," Perspectives from FSF Scholars Vol. 13, No. 6, (February 8, 2018).

• Randolph May and Theodore Bolema, "After AT&T/Time Warner, Antitrust Authorities Should Abandon Their Craft," Real Clear Markets, (June 20, 2018).

• Theodore Bolema, "The DOJ's Rather Unusual AT&T/Time Warner Merger Appeal," Perspectives from FSF Scholars Vol. 13, No. 39, (October 18, 2018).

• Theodore Bolema, "D.C. Circuit Skeptical of AT&T/Time Warner Merger Appeal," Perspectives from FSF Scholars Vol. 13, No. 45, (December 13, 2018).

T-Mobile-Sprint Merger Would Benefit Resellers and Hybrid Services

In the Free State Foundation’s comments submitted to the FCC regarding the proposed merger between T-Mobile and Sprint, FSF rebutted claims that the potential merger would harm resellers, or mobile virtual network operators (MVNOs). FSF scholars showed that a combined T-Mobile and Sprint would accelerate 5G deployment, giving MVNOs a third nationwide option for 5G access in addition to Verizon and AT&T. Tracfone, the nation’s largest MVNO, made similar sentiments in its comments, stating that a merged T-Mobile and Sprint would increase mobile broadband access in rural areas, where competition from a third provider is lacking.

In their comments, FSF scholars examined T-Mobile and Sprint’s spectrum holdings, capital investments, and financial obligations and determined that the two companies, alone, would not be able to compete with Verizon and AT&T with regard to timely deployment of 5G networks:  

It appears unlikely that T-Mobile and Sprint separately would have the capital resources necessary to invest in and timely deploy nationwide 5G networks that could compete effectively with AT&T and Verizon. Furthermore, build-out and operation of a next-generation mobile wireless network involves significant costs in migrating subscribers onto the new network and closing down older-generation networks. Such migration would be particularly challenging to T-Mobile and Sprint separately given their relatively smaller pool of financial and spectrum resources.

In other words, the T-Mobile-Sprint merger would accelerate small cell deployment and increase the likelihood of consumer access to three or more nationwide 5G providers. But MVNOs, which purchase network capacity from mobile network operators (MNOs), like Verizon and AT&T, and resell the service rather than building out their own facilities, also would benefit from having access to an additional nationwide 5G network.

FSF’s comments said the following:

Based on observations that T-Mobile and Sprint are the largest wholesalers of mobile wireless network capacity to mobile virtual network operators (MVNOs) – or “resellers” – it has been claimed that the reduction of one wholesaler could raise wholesale prices for MVNOs and therefore harm consumers by causing their retail subscribers’ prices to rise. However, given the competitive conditions of the wireless market identified above – including the new T-Mobile’s likely enhanced ability to compete with wireless market leaders AT&T and Verizon – it is quite unlikely that wholesale prices would significantly increase post-merger. A rigorous economic analysis should be required to demonstrate that significant and non-transient price increases are likely to occur before the Commission should credit such an argument as a possible merger related concern. And even assuming such a demonstration were made, it is unlikely that concern would outweigh the 5G and other potential benefits of the proposed merger.

In September 2018, Tracfone, the largest MVNO in the U.S. with 22 million customers, announced that it supports the T-Mobile-Sprint merger for this exact reason. In comments submitted to the FCC, Tracfone said:

While today’s wholesale market for MVNOs is generally competitive, the existing four nationwide MNO’s from which TracFone can purchase network capacity are not equivalent alternatives in all markets. In rural areas, T-Mobile and Sprint historically have not offered sufficient coverage and/or speeds in these geographic pockets of the United States.

With the merger of T-Mobile and Sprint, and the resulting more rapid deployment of a nationwide 5G network with broader coverage, greater capacity, higher throughput and lower latency, the wholesale market place will be more competitive with three full service competitors, rather than two. The increase in competition should have the greatest effect in rural areas. The resulting excess capacity would be available for MVNOs in these areas as a third option that has not been available in the current marketplace.

Moreover, in a recent Perspectives from FSF Scholars, Randolph May and I discussed how cable providers are now offering mobile services as hybrid mobile network operators (HMNOs) that use a combination of their own facilities and leased networks. (Comcast’s “Xfinity Mobile” is one example.) Cable providers, too, would benefit from more options for nationwide 5G networks when offering their hybrid mobile services.

As HMNOs and MVNOs continue to use a facilitates-based MNO to deliver their own mobile services, the T-Mobile-Sprint merger would provide cable providers and MVNOs with a third option for a 5G network in addition to Verizon and AT&T.

Shareholders Approve Disney to Buy Fox Assets

Last week, Walt Disney Co. and 21^st Century Fox Inc. shareholders approved the $71.3 billion deal for Disney to acquire Fox's entertainment assets. This approval comes after Comcast dropped its $65 billion bid to focus its efforts on acquiring the European pay-TV company Sky. The two companies were in an aggressive bidding war, but both were in good standing to receive antitrust clearance. Disney has already received antitrust clearance, subject to certain divestiture conditions, and if Comcast had stayed in the running, it likely would not have faced any significant antitrust concerns either.

Comcast Drops Bid for Fox Assets

Today, Comcast announced that it is dropping its $65 billion bid for Twenty-First Century Fox assets. Instead, Comcast will focus on its $34 billion bid for the British company Sky. 

As discussed in a blog last week by FSF Senior Fellow Ted Bolema, Comcast and Disney have been aggressively bidding on Fox assets, including Twenty-First Century Fox movie and TV studios, FX channels, controlling interests in National Geographic Partners, as well as non-controlling interests in Hulu. This announcement leaves Disney as the favorite to acquire these Fox assets, a decision that will be made by Fox shareholders on July 27, 2018.

Randolph May and Theodore Bolema React to Comcast Announcement Regarding Fox Acquisition

This week, Free State Foundation President Randolph May and Senior Fellow Theodore Bolema issued statements in response to Comcast's announcement regarding the acquisition of 21st Century Fox.

See both of their statements here.