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AT&T is looking to gain a GSM monopoly by defeating the DOJ and acquiring T-Mobile

AT&T's lawyers gripe about material in the DOJ complaint being "unidentified". This makes little sense for two reasons. First, most of the material quoted comes from AT&T and T-Mobile, so they should be aware of it. Second, it took us less than a minute in Google to spot the mystery material. Have AT&T's lawyers ever heard of a search engine?
AT&T lawyers' newspeak: less competition is morebetter

(This article contains mild editorial commentary/analysis.)

American Telephone and Telegraph Company once held a monopoly grip on wired phone service in the U.S.  In 1982, after eight years in court, the U.S. Department of Justice broke up the company into seven "Baby Bells".  

Since then, the AT&T of yore has slowly been coming back together. Six of those seven Baby Bells have merged into two single companies -- AT&T, Inc. (T) (Ameritech+BellSouth+ Pacific Telesis+Southwestern Bell) and Verizon Communications, Inc. (VZ) (NYNEX+Bell Atlantic).  And with an acquisition of the fourth largest wireless service provider in the U.S. -- Deutsche Telekom AG's (ETR:DTE) T-Mobile USA -- pending, AT&T is poised to gain a monopoly on 3G GSM service in the U.S. and the top spot in the U.S. market.  Only one thing is standing in the way of AT&T's monopoly plans -- the U.S. Department of Justice.

I. Newspeak: Less Choice, Better for Consumer

AT&T is fighting hard to save the deal that would have granted it a monopoly.  On Friday it filed its response to the DOJ lawsuit.  

The full 27-page response can be found here.

In the filing AT&T's basic tact is to claim that the U.S. DOJ hasn't proven that less choice in the market would hurt competition.  The lawyers write [pg. 2]:

The Complaint largely ignores the significant competition from established providers such as Verizon Wireless and Sprint, innovative upstarts such as MetroPCS and Leap/Cricket, and strong regional providers like US Cellular and Cellular South, among others. The Department does not and cannot explain how, in the face of all of these aggressive rivals, the combined AT&T/T-Mobile will have any ability or incentive to restrict output, raise prices, or slow innovation. Nor can it explain how T-Mobile, the only major carrier to have actually lost subscribers in a robustly growing market, provides a unique competitive constraint on AT&T.

Of course AT&T neglects to note that MetroPCS Communications, Inc. (PCS) and Leap Communications International, Inc. (owner of Cricket) are both CDMA 3G companies, unlike T-Mobile and AT&T who are the only major U.S. GSM networks.  GSM is the most used wireless standard in the world, so most international business people or frequent overseas travelers prefer GSM.

Further, the statements ignore the fact that Verizon and Sprint provide service to MetroPCS and Leap/Cricket, so the market isn't quite as big as AT&T is making it out to be.

AT&T asserts that less competition is more, writing [pg. 3]:

Blocking this transaction will not help T-Mobile or its customers, but the transfer of T-Mobile’s network capacity and infrastructure to AT&T, a healthy competitor, will enhance competition for all, now and in the future.

And near the end of the response AT&T writes [pgs. 23-24]:

Defendants respond that significant efficiencies more than outweigh any anticompetitive effect from this merger. Defendants further respond that Plaintiff’s own Horizontal Merger Guidelines make clear that cost savings and other efficiencies can "reduce … the merged firm’s incentive to elevate prices," "make coordination less likely," and more
generally "reverse the merger’s potential to harm customers." Defendants further respond that it is Plaintiff’s burden to prove that, on balance, in light of all the evidence, including the competitive, efficiency-enhancing effects, the net effect of the transaction is to substantially lessen competition. 

Note the use of the bolded words.  AT&T phrasing makes it clear that it acknowledges the possibility that competition may be reduced, prices may rise, and coordination may occur.  It's just using clever legal language to try to make it sound otherwise.

II. No "Significant" Harm to Competition (Maybe Some?)

AT&T claims, "Although the transaction will remove T-Mobile as an independent competitor, no significant consumer harm will result."

In other words, AT&T is leaving the door open to the possibility that consumers may be harmed by what it considers to be "a little bit", but that the extent of the harm will not be enough to be considered "significant" -- not by AT&T's standards at least.

It also returns to its old arguments, blaming consumers for mandating this expensive acquisition.  It writes:

[C]ustomers’ insatiable and growing demand for wireless data is placing unprecedented strains on AT&T’s network and is impairing its ability to continue to meet explosive mobile broadband demands... Without this merger, AT&T will continue to experience capacity constraints, millions of customers will be deprived of faster and higher quality service, and innovation and infrastructure will be stunted.

AT&T claims it's the customers that are forcing it to reconsolidate its monopoly of yore.  However, the complaint doesn't quite make sense from a financial perspective.

As we already highlighted, AT&T is spending $39B USD for the equivalent of $3.8B USD of LTE coverage.  Even with the additional 3G coverage and spectrum, it's hard to believe that the cumulative market value of physical tangibles is worth more than $10B USD.

So if AT&T is facing such crippling demand why doesn't it just spend the $10B USD to upgrade its network and avoid paying an 290 percent premium on that infrastructure?  The answer is painfully obvious, though AT&T's lawyers continue to try to argue otherwise -- AT&T is spending 3.9 times the market value because it's getting something extra out of the deal -- a monopoly.

III. More Inaccuracies

AT&T's lawyers also seem ignorant to the difference between a national carrier and a local one.  It writes [pg. 5-6]:

Defendants further respond that characterization of AT&T, T-Mobile, Verizon, and Sprint as the "Big Four" is misleading in this context, because, as the FCC has recently found in its Fifteenth Report on the state of competition in the mobile services marketplace, more than 90% of U.S. consumers have at least five wireless providers to choose from. Defendants otherwise deny the allegations in this paragraph.

Except there's a good reason why the U.S. DOJ differentiates Verizon, AT&T, Sprint Nextel Corp. (S), and T-Mobile USA.  These are the only four networks to have major infrastructure deployment across the entire country.  

AT&T argues that there's a fifth carrier in most regions.  This is true, but these carriers (like Cellular South) rely on the infrastructure of the "Big Four".  Further, given that they rely on roaming agreements, their service is often considered inferior from a nationwide coverage perspective, and there's some truth to that argument.  In short there may be a fifth option, but it's not equivalent to the "Big Four" in that it lacks its own infrastructure, has far less subscribers, and is unlikely to always match its larger competitors in coverage when roaming.

Other items AT&T denies without offering any logic behind its rebuttal.

DOJ:
The United States files this Complaint under Section 15 of the Clayton Act, 15 U.S.C. § 25, to prevent and restrain Defendants from violating Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18. 

AT&T:
Defendants admit that Plaintiff has filed its Complaint pursuant to Section 15 of the Clayton Act and that Plaintiff purports to seek to prevent and restrain Defendants from violating Section 7 of the Clayton Act. Defendants deny that the proposed transaction would violate the Clayton Act. 

DOJ:
The merged firm would have approximately 132 million connections to mobile wireless devices in the United States, with more than $72 billion in mobile wireless telecommunications services revenues. 

AT&T:
Defendants deny ... the allegations..."

The latter denial is particularly baffling given that it's simple arithmetic (AT&T: 96 million customers; T-Mobile: 33.73 million customers; 96+33.73=~130 (the minor 2 million discrepancy is likely due to the DOJ having access to the most recent unpublished subscriber figures).

IV. AT&T's Lawyers Appear Incapable of Using Google

AT&T also is consistently griping about "unidentified written material", which it calls "misleading and inappropriate."

Well that complaint seems rather dubious, given that we were able to easily locate the passages in question via Google searches.

For example the DOJ quotes AT&T as saying that CMAs are "the predominant forces driving competition among wireless carriers operate at the national level".  It took us about 2 minutes to find this document via Google.  It's hosted here [pg. 28].  AT&T wrote this (!), but is feigning ignorance.

AT&T also is befuddled by when T-Mobile said it "make smart phones affordable for the average US consumer".  This took us 1 minute to find in Google.  It's here [pg. 17].

In other words, two of AT&T's complaints took us three minutes to find via Google.  We'd hardly call that "unidentified" -- particularly because AT&T and T-Mobile made these claims and thus should be in possession of copies of these documents.  Further, AT&T's claims that the commentary is taken out of context seem almost entirely false -- it seems blatantly obvious what the context is and what the comments mean, with regard to the majority of these quoted passages.

V. Wasting Taxpayer Money

Whatever harm consumers face from the deal is being amplified by the fact that AT&T's court case is wasting U.S. taxpayer money.  Unfortunately the U.S. government stands little hope of recouping its legal fees, even if it succeeds in blocking AT&T's monopoly bid.

Documents like this one -- full of disingenuous wording, feigned ignorance, misleading claims -- represent the kind of wasted time that AT&T is looking to force the U.S. government -- and taxpayers -- to endure.  The DOJ will likely spend millions in billable legal hours in order to try to fight AT&T's legal team.

The alternative is to allow AT&T to gain a GSM monopoly and return to the unchallenged monopoly it once held on the American market.  In short this is one case where U.S. consumers appears to face a "damned if you do, damned if you don't" scenario.

AT&T may yet make some valid arguments in support of the merger.  But such arguments were few and far between in this filing, as with previous ones.  


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This article is over a month old, voting and posting comments is disabled

down with att
By darckhart on 9/12/2011 11:26:40 AM , Rating: 2
I hate ATT and any obstacle in their path to attempt to merge I will gladly support.

Went from ATT to Cingular to ATT. Was with them for 8 years. With stupid business tactics, I was forced to drop them. (With sprint now) I used ATT for my dsl for 6 years. Once again, stupid tactics, and I've dropped them. Unfortunately, my dsl provider (sonic) just resells the ATT lines in the ground... and I am getting terrible service because (you guessed it) every hardware test or change requires my provider to ask ATT, and ATT are jerks.

Sooo, yes, stop ATT from attempting to become the largest GSM provider. They do not have any customer interests at heart except bilking you every month for as much as they can.

/rant




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