DoJ Tries To Block AT&T/T-Mobile Merger; Not Yet Taking Competition From LightSquared Seriously

LightSquared, the wireless-broadband company owned mostly by Harbinger and its disgruntled former investors has had a good run recently, announcing a spectrum deal with Sprint, helping with Hurricane Irene, and not actually killing anyone yet (that we know of). You might think that it’s well on its way to fulfilling its mission of increasing competition in the wireless broadband industry.

But it’s not enough for the Department of Justice, which today sued to block the proposed AT&T/T-Mobile merger. The DoJ’s suit relies on the conclusion that wireless is basically a 4-party national game (among T, VZ, S, and T-Mobile), and gives short shrift to the notion that smaller regional wireless companies can be counted on to provide competition and limit price gouging by an engorged AT&T. From the complaint:

In some [Cellular Market Areas], AT&T, T-Mobile, Verizon, and Sprint are the only competitors with mobile wireless networks. Although in other CMAs there are also one or two local or regional providers that do serve a significant number of customers, those smaller providers face significant competitive limitations, largely stemming from their lack of nationwide spectrum and networks. They are therefore limited in their ability to competitively constrain the Big Four national carriers. Among other limitations, the local and regional providers must depend on one of the four nationwide carriers to provide them with wholesale services in the form of “roaming” in order to provide service in the vast majority of the United States (accounting for most of the U.S. population) that sits outside of their respective service areas. This places them at a significant cost disadvantage, particularly for the growing number of customers who use smartphones and exhibit considerable demand for data services.

Which is pretty clearly true: talking to someone on your clunky MetroPCS phone just doesn’t have quite the cachet of dropping calls on your AT&T iPhone. But that doesn’t mean it has to remain that way forever. LightSquared’s proposed business model is to help local and regional providers like Leap and ClearTalk compete with the big boys by selling them roaming network capacity. And they’re not the only ones. Antitrust law professor Geoffrey Manne is not happy that the DoJ is blocking this merger, and describes some of the regional competitors:

Meanwhile, even on a national level, the blithe dismissal of a whole range of competitors is untenable. MetroPCS, Cell South and many other companies have broad regional coverage (MetroPCS even has next-gen LTE service in something like 17 cities) and roaming agreements with each other and with the larger carriers that give them national coverage. Why they should be excluded from consideration is baffling. Moreover, Dish has just announced plans to build a national 4G network (take that, DOJ claim that entry is just impossible here!).

The Department of Justice, however, is not buying the notion that just anyone can go build a national 4G network. From the complaint again:

Entry by a new mobile wireless telecommunications services provider in the relevant geographic markets would be difficult, time-consuming, and expensive, requiring spectrum licenses and the construction of a network. To replace the competition that would be lost from AT&T’ s elimination of T-Mobile as an independent competitor, moreover, a new entrant would need to have nationwide spectrum, a national network, scale economies that arise from having tens of millions of customers, and a strong brand, as well as other valued characteristics.

Presumably other characteristics valued by DoJ include not sinking boats/crashing planes.

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13 Responses to “DoJ Tries To Block AT&T/T-Mobile Merger; Not Yet Taking Competition From LightSquared Seriously”

  1. Mexi_Cant says:

    Gawd Matty your more boring then animal porn.

  2. Guy with A.D.D. says:

    A Scattered plot graph with 5 different variables would tie this whole article together really nice

  3. Guest says:

    How you uh, how you comin' on that article you're working on? Huh? Got a a big, uh, big stack of papers there? Got a, got a nice little story you're working on there? Your big article you've been working on for three years? Huh? Got a, got a compelling protagonist? Yeah? Got a obstacle for him to overcome? Huh? Got a story brewing there? Working on, working on that for quite some time? Huh? Yeah, talking about that three years ago. Been working on that the whole time? Nice little narrative? Beginning, middle, and end? Some friends become enemies, some enemies become friends? At the end your main character is richer from the experience? Yeah? Yeah? No, no, you deserve some time off.

  4. Anonymous says:

    What? Lightsquared has no plans to be a retail competitor, it sells its network to the wireless companies, hence the big contract it inked with Sprint a month ago. Lightsquared is no more a competitor against T, VZ, S than Clearwire is.

  5. Matt's Protoge says:

    "Entry by a new mobile wireless telecommunications services provider in the relevant geographic markets would be difficult, time-consuming, and expensive, requiring spectrum licenses and the construction of a network.

    Did anyone else read an article that caught a conversation between ATT execs that said it would actually be cheaper to build out their national network than form the merger? I guess that was overlooked.

    (sorry for the lack of humor in this post….Matt's effort to tackle real issues is starting to rub off on me.)

    • jumbo says:

      Yeah, AT&T's lawyers actually forgot to redact that information in one of the regulatory filings. According to AT&T's numbers it would cost them $3-4 billion to build out its 4G LTE network to 97% of the population. The company claims that there isn't a business case to do so unless it can add T-Mobile's subscriber base, at a cost of $39 billion.

      Makes no sense – wouldn't the best business case be for acquiring T-Mobile's subscribers and cutting costs by firing everyone at T-Mobile and then reneging on the promise to do build-out? If there isn't a business case now, there won't be a business case after the merger goes through.

      AT&T build out post-merger was just a red herring.

      • FKAFinkNottle says:

        Hmm…. Isn't the cost of 39 billion offset by future earnings from T-Mobile's existing revenues?

        Let's say, for sake of argument, that AT&T bought T-Mobile at a 50% premium, so it's really more like $13B vs. the $3-4B in investment to build out its 4G LTE network ($3–4B is definitely a lowball there, but let's not get into that here).

        Fact is, T-Mobile's LTE ready phones (there's no LTE iPhone yet) will help AT&T start producing revenue and compete against VZ from day 1. Even if AT&T builds out an LTE network, it would need to claw back early LTE adopters from T-Mobile and VZ, a competition that it does not want to engage in because it would invariably lead to a price-war, and a race to the bottom. They'd much rather, you know, stifle competition with this merger.

  6. N.A.S. Keflavik boi says:

    I object to the merger solely on the grounds that it will probably entail the end of advertisements featuring that brunette T-Mobile chick in the pink dress. I can't get enugh of that honey, she is so friggin' succulent. OOO-FA!

  7. early_hominid says:

    Assertions in litigation ≠ reality

    – all litigants