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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.

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. 

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. 

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. 

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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RE: twisting words
By JasonMick on 9/12/2011 12:08:51 PM , Rating: 1
so you taking the quote from ATT that there will not be "significant harm" to the consumer -- bastardizing it -- and turning it into ATT admitting that the merger will hurt consumers? -the whole premise of this article is ridiculous. This is totally sad reporting. And i'm sorry to see this kind of stupid stuff from you, Jason.

I never said that AT&T admitted that it WOULD hurt customers. They would never do that! But by saying it won't hurt consumers substantially, they're essentially admitting it may hurt consumers a little. If not they'd say it "will not hurt consumers" (without the disclaimer language).

Wording is absolutely important.

If I walked up to you with a bat and you got scared and I said "Don't worry, I'm not going to hurt you!", maybe you'd feel a bit better. But if I said, "Don't worry, I'm not going to hurt you substantially !" you'd feel a lot differently, probably....

It doesn't matter whether or not ATT owns all GSM frequencies. It will not have a monopoly on the wireless communications industry. If you're trying to imply that T-Mobile is the only thing holding back ATT from total market domination, then we have other issues. --wait a few years when T-mobile will just fold on its own and see what happens. The fact is: that there is a lot of substitutes to wireless service. Now if ATT were trying to purchase verizon... yeah, i'd start to worry. But this is a case where number 2 is merging with number 4; true, they'll gobble up enough to be the new number 1, but the fact remains that subscribers still have alternatives.

Simply not true when it comes to GSM. Remember GSM (3G) is still the standard when it comes to most of the world. If the deal goes through AT&T will gain near absolute control over GSM service in the U.S.

The monopoly tag applies specifically to 3G GSM coverage.

As to the T-Mobile folding part, that's highly speculative. It's true it's not profitable and Deutsche Telekom is looking to offload it. But there's plenty of potential buyers. Just maybe not @ the ridiculous premium AT&T is willing to offer in order to squelch competition...

RE: twisting words
By robbase29a on 9/12/11, Rating: -1
RE: twisting words
By JasonMick on 9/12/2011 1:32:36 PM , Rating: 1
You can't faithfully take a non-negative and turn it into a perhaps-positive and call it the same thing. I agree that wording is important; and changing "no significant" to "perhaps some" is misleading to say the least. It actually means something completely different. You're really grasping at straws here. We'd argue about this all day without getting anywhere, so let's just say that we're at an impass here.

It's not a non-negative! It's a qualified indefinite. In this case the qualified indefinite can be a partial positive, a significant positive or a partial negative. Logic 101!

Your logic is flawed. (same to the op below).

e.g. if this was an if statement and good is positive and bad was negative this would be like saying:

if ( Impact > -2000000 ) printf("Harm is not substantial!\n"); //prints if no harm, or just a little harm...

...harm may be minor (as my headline asserts) or it may not. The point is that AT&T is making no guarantees with respect to what it defines as minor competitive harm. And there's compelling evidence that there would be competitive harm.

If you don't work @ AT&T or own AT&T stock, this should be self-evident.

To quote you, I'd say that changing a indefinite (what I state) to a non-negative (your claim) "is misleading to say the least."

(Disclaimer: I own no stock in AT&T or its rivals and have no other financial stake in either party, other than my phone service is through Sprint.)

I'll repeat my earlier argument that it would not make a hill of beans if ATT has complete control on GSM coverage. Your argument of foreign travel is the best their is on the monopoly issue, but it still has flaws. With the price of phones these days, it's much easier to go ahead and purchase a prepaid plan when travelling internationally. In fact, many of our GSM phones here will not even work overseas, so that argument is almost completely mute.

Not necessarily true. I have several friends who coinhabit two nations and they prefer GSM phones. If you spend a lot of time in both regions, getting two contracts on a single GSM phone is less hassle and less expensive than one CDMA contract phone and one prepaid (foreign) GSM phone.

I believe the statistics support this general trend.

Competition will still exist when ATT purchases T-mobile. That's all that matters. T-mobile is bleeding cash and is up for sale. Verizon won't buy them (if they did, would there be as much of a concern?) The best case for the t-mobile shareholders is to be purchased as soon as possible and att is willing to overpay quite a bit right now. If this deal doesn't go through, we'll see what happens.. when all that's left of t-mobile is their infrastructure.

Of course it's good for T-Mobile shareholders (perhaps you're one). But it's likely bad for T-Mobile consumers and bad for consumers in general from a competitive standpoint.

And again you neglect the possibility that there's plenty of other telecom-interested companies that are big enough to purchase T-Mobile. AT&T just happens to be the only one who would gain a monopoly on GSM, and thus was the quickest and most lucrative buyer.

T-Mobile will likely (note the indefinite) sell to someone at above the current worth, even if the AT&T deal goes down in flames.

RE: twisting words
By robbase29a on 9/12/11, Rating: -1
RE: twisting words
By JasonMick on 9/12/2011 2:59:53 PM , Rating: 1
I was refering to harm as the positive test result, and I could have (and probably should have) said non-positive, but i thought you'd get it. obviously not, my bad. You're still mincing words. If your Logic 101 says that "ATT states no significant harm" is equal to "ATT admits harm" then your class is flawed. Out of all of ATT's comments and arguments for the betterment of consumers, you take one and twist it to make them "leave the door open to perhaps-maybe-possibly cause marginal-but-perhaps-insignificant harm to consumers" I'm not here to argue words, i'm just saying that your headline is very misleading.

No, as I've tried to explain to you multiple times, the headline is correct. AT&T's wording acknowledges that their may be slight harm -- it is an indefinite. Again, one more time. The only thing they guarantee is that there won't be "significant" harm to consumers.

Again, this is a qualified indefinite, so it indicates both a partial-negative and partial-positive are possible outcomes -- the headline points to the negative one simply because it's an interesting admission.

Again, remember too that AT&T is arbitrarily defining what it thinks to be "significant". It does not including its definition of significant harm vs. minor/slight harm in the document....

I don't own ATT stock or T-mobile stock, and I definitely dont' work for either company. I'm just an observer here.

Well that's good....
Good for them! The fact remains that they have choices! They don't have to use GSM here or there! It's just convenient. I'm sure you don't think it's our government's job to regulate our companies to use forein standards for convenience sake. (or maybe you do) Then verizon wouldn't even exist... at least in the same capacity. Everyone would have to use GSM? no. that's retarded.

That's like saying you have a choice between walking or riding your car. Yes there's choices, but one choice is much less convenient than the other, since it's a different kind of product.

So yes, AT&T does, in a sense, own a monopoly.

T-mobile's owners should get the say in who purchases them. As long as the sale is legal. Saying that there are other possible buyers that maybe won't pay as much, but that would be better anyway is definitely not free-market. Whatever, maybe you're not a free-market person.

There's a difference between a free market and an unregulated market.

In an unregulated market insider trading would be legal, etc.

I'm a free market person, but any sane person realizes that mild market regulation is necessary to safeguard modern economies.

I believe this despite my somewhat libertarian leanings, in terms of federal authority.

RE: twisting words
By robbase29a on 9/12/11, Rating: -1
RE: twisting words
By aharris on 9/12/2011 7:26:04 PM , Rating: 2
Not denying a possible negative is not the same as admitting a possible negative.

Maybe not with regards to everyday conversation, but with legal interpretation, it absolutely leaves room for the possible negative to be true.

If AT&T were ultimately sued by consumers for causing "insignificant harm", this clause proves its point.

AT&T: "We never said the merger wouldn't cause harm. We said it wouldn't cause significant harm."

^True statement.

And forgive me if you're an employee or a stakeholder of said blue giant, but I, as a consumer, am not willing to roll the dice on the premise that AT&T's definition of "insignificant harm" won't negatively impact me.

I'd analogize that being FOR this merger is similar to volunteering to be a casualty of war.

RE: twisting words
By bfdd on 9/12/2011 6:33:42 PM , Rating: 2
lol @ all the Mick hate. He's right on this, the fact they say no substantial harm means there will be anywhere from SOME harm to no harm done at all. The fact they would use a term to describe some harm to the customer could be done, indicates they are(in some estimates) measuring some level of harm to the customer. Or else why not just say "no harm will be done to the consumer". lols

RE: twisting words
By vol7ron on 9/12/2011 7:30:34 PM , Rating: 2
Jason, that's not right.

ATT is saying that the burden of proof is on the plaintiff and that burden has to be substantial .

Just like, when the jury finds someone guilty, they must find them beyond reasonable doubt. Substantial and reasonable are minimums, which must be found; it doesn't mean any exist. ATT is saying, considering everything involved, if there is less competition, it must be substantial.

I know it's tricky to understand this lawyer talk. I will say good attempt, but what you've posted isn't exactly accurate.

"Monopoly" is also fishy. In terms of what you're saying, maybe, but legally ATT will not have any Monopoly. The other carriers are free to switch to GSM if they so please, they just don't want to and if it is the better technology, then maybe they will in the future. Regardless, AT&T will not be a monopoly, however they will be shifting the current oligopoly in place today -- and I, for one, am not sure it's a good thing.

RE: twisting words
By adiposity on 9/12/11, Rating: -1
RE: twisting words
By robbase29a on 9/12/11, Rating: -1
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