Judge allows Sprint suit against AT&T/T-Mobile deal

A U.S. judge has ruled that Sprint and C Spire Wireless can pursue part of their antitrust lawsuit against AT&T Inc's proposed $39 billion acquisition of T-Mobile USA. Though the judge dismissed large parts of the suit, U.S. District Judge Ellen Huvelle agreed to allow the competitors to pursue their injury claims about the effect the deal would have on the market for wireless devices.


AT&T and T-Mobile, a unit of Deutsche Telekom AG , had sought to dismiss the lawsuit, but U.S. District Judge Ellen Huvelle agreed to allow the competitors to pursue their injury claims about the effect the deal would have on the market for wireless devices.


The decision may complicate matters for AT&T and T-Mobile USA because they will now have to simultaneously fight the government's attempt to block the deal and argue against claims by the two competitors. Sprint suit against AT&T/T-Mobile deal


Though the outcome remains in doubt, some observers might argue that the fearsome, well-oiled AT&T regulatory affairs team has had an unexpectedly difficult time making the argument in favor of the acquisition. 


Some might argue that this indicates not some sudden loss of effectiveness on the part of AT&T's persuasion machine, but merely that the case is a tough one to present. 


Perhaps most difficult in that regard is the argument that there is a spectrum shortage that will be alleviated, in substantial ways, if the acquisition moves forward. Others have pointed out that it would cost less for AT&T simply to light up spectrum it already owns, for example. 


The other problem, from an antitrust perspective, is that market concentration in the U.S. mobile industry already exceeds the normal tests antitrust attorneys normally use to determine the extent of market concentration. HHI index

Google has no Ability to Dominate New Markets, Some Would Argue

Legislating and regulating "problems" that are just about to solve themselves is a real problem in either national economic "planning" or regulation. Most of you are too young to remember the real and serious debates and dialogues held by telecom policymakers back in the 1970s and 1980s about how to provide telephone service to "one billion people who have never made a phone call."

The daunting problem seemed intractable. But policymakers back then had no idea "mobile service" was about to revolutionize communications, making it now a silly question to worry about how to provide communications service to those billion people. These days, most people in developing regions have, or soon will have, mobile phone service.

Some might argue we more recently, in the United States, thought the Telecommunications Act of 1996, the first major reform of the U.S. telecom framework since 1934, would introduce more competition in communications, and promote innovation.

That was just about the point that the Internet, broadband, mobility and applications were about to cause wholesale changes in user experience, user expectations and the product life cycles of any number of products, including fixed line voice services.

These days, you would be hard pressed to find a highly-placed telecommunications executive who would argue that voice revenues in the future will be anything but smaller than they are today, both in the fixed line and the mobile environments.

Despite the good intentions, policymakers tried to stimulate competition in voice services right at the point that voice services were about to reach the peak of the product life cycle, and then enter the declining stage.

Some might argue that growing scrutiny of Microsoft a decade ago likewise was misplaced. Microsoft was about to hit a period when Internet-based applications were going to undermine its potential "monopoly" in any case. Regulators honestly worried that Microsoft's dominance of PC operating systems would lead to domination of browsers.

These days regulators seem to worry that Google's presence in PC-based search advertising will give it "unfair" advantage in mobile services, mobile banking or mobile advertising and social networks. There is not much evidence that Google has actually been so successful at dominating the many other potential businesses it seeks to enter, or has entered.

"While it's true that Google's stranglehold on mobile search and associated ad spending is near 100 per cent, according to recent reports, it's equally true that most of the "search" consumers do on their mobile devices isn't the kind that Google controls," the Register notes.

In fact, the common thinking now is that Facebook and other social sites are becoming the way people use search in a mobile context.

Why grill Google over web dominance? It has none

Digital Monopolies?

A "digital monopoly" can be a strange thing. An application, whether Facebook or PayPal or Google or iTunes can have external characteristics that resemble what might have been seen as monopolies in other earlier contexts.

But they are odd sorts of monopolies. They can be used "for free," so price gouging is hard to discern. There are other alternatives for all applications and devices, over time, so lack of choices is likewise hard to discern.

But in some quarters there is concern over such application "monopolies," even when traditional tests of consumer harm are virtually impossible to prove.

The rise of the digital monopolies

Eric Schmidt on Google's "Monopoly"

Google Executive Chairman Eric Schmidt raises an interesting point about traditional antitrust regulation and Google's business, by extension raising issues about any number of other leading firms in the software industry that actually do not charge users anything to use the apps.

Traditionally, the test has been harm to consumer welfare, through the mediation of markets where welfare is assumed to be a matter of choice, and choice is a matter of robust competition between firms.

But how does traditional antitrust thinking apply to a firm such as Google? It hasn't harmed any user by its existence, its products or its dominance of the search advertising business. Virtually all of Google's products in the consumer space, and many to most in the business space, are offered free of charge.

"So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people," he says. "I don’t know how to say it any clearer: it’s not like we raised prices."

"We could lower prices from free to…lower than free? You see what I’m saying?"

Monopolies, or perceived monopolies, have in the past been regulated because regulators want to prevent consumer harm in the form of higher prices. Typically that requires a fact finding that such harm actually has occurred, not that it could potentially happen in the future. That's a tough case to argue in Google's case.

Microsoft Complains to FTC About Google Ad Rates

U.S. antitrust enforcers are investigating whether Google Inc. illegally increased advertising rates 50-fold for rival Microsoft Corp., according to a person familiar with the matter.

The Federal Trade Commission is probing the increase, along with other allegations against Google related to advertising, as a result of complaints from Microsoft, according to the person, who wasn’t authorized to publicly comment. The complaints are being examined as part of a larger antitrust probe into Google that began earlier this year, the person said.

Google Ad Rate for Microsoft Said to Be Investigated

Social Media Background Checks: Another Case of Software Industry Bumping into Regulators

Social Intelligence sells a service that allows employers to check applicant social network data as part of a hiring process. The firm was investigated by the Federal Trade Commission earlier in 2011, in part to ensure that the service complies with the Fair Credit Reporting Act to ensure that its clients let job applicants know when something that turned up in a background check had an adverse effect on their getting employed, or rather not getting employed.

The FTC has since dropped its investigation into Social Intelligence’s practices, but some U.S. Senators continue to express concern about the company's software. Social Media Background Checks

Most employers already are checking applicant profiles on Facebook, and conducting Google searches. In surveys, most employers admit that they check out applicants’ Facebook pages, blogs, and Google footprint. The issue is whether such information could ultimately be viewed as a violation of the law if the employer gains knowledge of something that can not be the basis for a hiring decision  (like religion or sexuality).

The investigation and continuing concern on the part of lawmakers illustrates the growing extent to which the software industry is bumping up against regulatory bodies that shape the industry's future. Google's risk of antitrust review, AT&T's current antitrust review and Microsoft's decade-long antitrust reviews in the United States and Europe, are examples.

Company investigated

Google Faces Antitrust Scrutiny, Will Apple Be Next?

AT&T isn't the only major player facing a direct limitation on its ability to grow much bigger in its core markets. Google might be next. Google CEO Eric Schmidt will face a U.S. Senate hearing on Sept. 21, 2011 looking at whether the company is now so large and dominant that it now constitutes a monopoly.

The primary issue in this hearing is whether Google gives preference to its own websites or products in search results. History suggests Google might be a turning point of sorts.

In March 1998, Microsoft CEO Bill Gates faced a similar hearing. Two months later Microsoft was served with an antitrust suit, the effects of which only fully ended in 2010, some would argue. That's more than a decade of handcuffs.

A rational observer with a sense of history might wonder when it will be Apple's turn to meet the regulatory buzzsaw. Sooner or later, big and powerful technology and application companies run into the reality of government regulation. Telcos just are more used to it.

Google facing antitrust limits

AT&T Approaches Rivals to Save T-Mobile Bid

AT&T is approaching smaller rivals including MetroPCS Communications and Leap Wireless International to sell spectrum and subscribers as part of an attempt to save its $39 billion takeover of T-Mobile USA Inc., Bloomberg reports.



AT&T has also reached out to CenturyLink, Dish Network and Sprint Nextel Corp. to gauge their interest in buying assets, Bloomberg says.



Some may question the viability of those remedies, if the Department of Justice objection really is that the acquisition violates the concentration index it routinely uses.



One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. Here is the pre-merger market HHI which already suggests that the market is uncompetitive. HHI is the problem


For some of us who just want a quick rule of thumb that tells you when there is potential antitrust concern, 30 percent market share tends to work.That has been the figure cable TV executives in the United States have worried about, and which the Federal Communication Commission at one point set as the limit of subscriber market share for any U.S. cable operator. Both AT&T and Verizon Wireless already have market share that exceeds that figure.




The Justice Department will generally investigate any merger of firms in a market where the HHI exceeds 1,000 and will very likely challenge any merger if the HHI is greater than 1,800. With a HHI over 2,300 any deal will be heavily scrutinized and most likely rejected. Even a merger between T-Mobile USA and Sprint, with a resulting 28 percent market share, would probably not be allowed on the same antitrust grounds.

U.S. Carrier Market Concentration based on Subscribers
Company	Pre-MergerMarket Share	MarketShareSquared
Sprint Nextel	17%	412.3106
Verizon	34%	583.0952
AT &T	31%	556.7764
T-Mobile USA	11%	331.6625
MetroPCS	3%	173.2051
Leap Wireless	2%	141.4214
U.S. Cellular	2%	141.4214
Herfindahl-Hirshman Index	2339.8925

It isn’t clear how much of T-Mobile USA AT&T can shed to satisfy DoJ that there is not an HHI problem, because, by definition, AT&T already has an HHI problem. 


If the issue is the HHI, some divestitures won't help. HHI is the issue


Oddly enough, even the oft-suggested merger of Sprint and T-Mobile USA might now be impossible for regulatory reasons, and that had not been among the big concerns observers have mentioned about that particular pairing. The big issues there were seen to be incompatible networks and the complexity of managing four air interfaces at a time. If DoJ sticks with the HHI test, regulatory approval would have to become the biggest obstacle.

AT&T Approaches Rivals to Save T-Mobile Bid

Net Neutrality Issues for Google in Search?

Network neutrality proponents implicitly assume that the key bottleneck, in terms of innovation or competition, is to be found in the broadband access connection, and the way such connections are managed.

It now appears that antitrust regulators in Europe have begun to look at other potential bottlenecks, and search practices already are getting a look, the Financial Times reports. Google's purchase (or planned purchase, as there might be antitrust review) of ITA Software, a travel technology company, is not going to help.

Joaquin Almunia, Europe’s top competition official, already has hinted that European Community regulators are taking Google’s search power seriously. An informal review of search practices already is underway, and seems to be getting more pointed attention now, given the growing issues regulators now seem to be detecting in the mobile content space.

Google has powerful competitors who will not be shy about adding their concerns, and U.S. regulators have been paying more attention to both Google and Apple of late.

The point is that gatekeepers might exist at potentially multiple levels in the Internet business ecosystem, and raising the issue in one area seems to be raising issues in other areas as well.

FT.com / Media - Net neutrality comes back to haunt Google

Apple Faces Another Antitrust Probe

U.S. antitrust regulators--it is not clear whether it is the Federal Trade Commission or the Department of Justice, are reported by the Financial Times to be weighing another investigation of Apple for restraint of trade, this time because of its plans to block rivals from access to its mobile app advertising network.

The ironic point is that regulators continue to bustle about, trying to regulate an access industry fighting simply to replace revenues it is losing, while the arguably-more-important gatekeeper decisions are being made by device and application providers, whose businesses everyone conversely expect will power the businesses of tomorrow.

The latest concern comes less than a month after concluded an  investigation of Google's purchase of AdMob. So powerful is Apple seen to be that the mere presence of Apple in the market with its own iAd network and a suite of "must have" devices was seen by regulators to be enough of a counterweight to Google that there was no risk of anti-competitive behavior.

According to the Financial Times, it is not yet clear whether it will be left to the Federal Trade Commission, which carried out the recent Google investigation, or the Department of Justice to take an investigation forward.

Apple’s latest rules about analytics for bar access to such information by competing ad platforms, third-party analytics firms or companies that compete with Apple in hardware.

Google is saying, and most observers agree, that the rules effectively bar Apple apps from using Google's ad network.

So consider the possible other implications. Perhaps in retaliation for its exclusion from the Apple application ecosystem, Google makes YouTube inaccessible from iPhones, iPads or iPod Touch devices. Or search, or other apps. You get the point: serious gatekeeping happens all over the Internet and broadband ecosystems these days.

Apple Gets DoJ, FTC Antitrust Attention

The Department of Justice and Federal Trade Commission reportedly are discussing which of the watchdog agencies will begin an antitrust inquiry into Apple’s new policy of requiring software developers who devise applications for devices such as the iPhone and iPad to use only Apple’s programming tools.

Regulators apparently are concerned the policy harms competition by forcing programmers to choose between developing apps that can run only on Apple devices, compared to platform-neutral versions.

The apparent interest shows that Apple has gotten big enough now to come under the typical scrutiny dominant firms always face.

The inquiry does not mean that there will be a full-blown investigation, only that there is some level of concern. Now that Apple's equity value ($237.6 billion) is bigger than Wal-Mart's ($201.7 billion), such scrutiny now will become an on-going concern for Apple, which will henceforth have to consider antitrust implications as part of its strategy.

That isn't to suggest Apple will face any immediate restriction of its freedom of movement. But that day is coming.

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