Monday, May 23, 2011
The relevant geographic market may be an important consideration in evaluating the merger because if there is anational market for wireless services, then the merger reduces the number of players from 4 to 3 – suggesting a fairly strong presumption of illegality – and the potential remedy of divestitures to local or regional carriers in certain local markets would be ineffective because it would not replace the loss of a national competitor.
The relevant geographic markets are likely to be both local and national. While some competition for wireless services is local, other competition (among the national carriers) is primarily national, as illustrated by the billions of dollars spent in national advertising. In its acquisition of the regional carrier Centennial, AT&T claimed that “the predominant forces driving competition operate at the national level. . . . AT&T establishes its rate plans and pricing on a national basis . . . in response to competitive conditions and offerings at the national levels – primarily the plans offered by the other national carriers.” AT&T explained that its plans were uniform throughout the country for efficiency and marketing reasons, and that “[v]ery infrequently,” it may offer a local promotion. In contrast, in its current application to acquire T-Mobile, AT&T emphasizes the “the local nature of this marketplace,” but does not suggest that pricing of its service plans is done on anything other than a national basis. Rather, any local promotions appear to be limited to handsets and peripheral devices.
In the past, the DOJ and FCC have considered only local geographic markets in wireless mergers, but that is because they have not previously reviewed a merger between two national carriers. Indeed, in recent wireless mergers, the DOJ has emphasized that “[t]he existence of local markets does not preclude the possibility of competitive effects in a broader geographic area, such as a regional or national area . . . .” Insofar as competitive effects may occur on a national level, it is appropriate to define a relevant market that is national in scope. This is consistent with the revised Horizontal Merger Guidelines, which provide that “The hypothetical monopolist test . . . does not lead to a single relevant market. The Agencies may evaluate a merger in any relevant market satisfying the test, guided by the overarching principle that the purpose of defining the market and measuring market shares is to illuminate the evaluation of competitive effects.” U.S. Dept of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 4.1.1 (Aug. 19, 2010). It is also consistent with United States v. Grinnell Corp., 384 U.S. 563, 575-76 (1966), in which the Supreme Court held that the relevant geographic market for accredited central station protection services was national because it “reflect[ed] the reality of the way in which” the business was built and operated, even though the service was provided on a local basis.
Regional and local wireless carriers are not participants in the national market because they do not offer services on a national basis. (They offer national roaming but that does not mean a person located in a roaming area can become a subscriber.) Moreover, their local offerings do not appear to affect the national post-paid plans offered by the national carriers. Indeed, the regional carriers like MetroPCS and Leap/Cricket offer a different product and serve different market segments. They offer only pre-paid, non-contract services, and tend to serve customers with poor credit histories; they do not market to businesses. Further, smaller and regional carriers are limited in the competition they can provide to the national carriers because they lack brand names like those of the national carriers built up by years of intensive advertising, lack the array of smartphones offered by the national carriers, their networks are perceived to be of inferior quality, and they must depend on expensive roaming agreements with the national carriers. Accordingly, even if geographic markets are defined as local, the competitive significance of the local and regional carriers on the AT&T/T-Mobile combination is probably minimal.
--------------------------------------------------------------------------------  Or, as the American Antitrust Institute (AAI) said, “more realistically, [from 4 to] 2 1/2, since the merger may have the effect of marginalizing Sprint as a competitor.” Letter from the American Antitrust Institute to Chairman Herb Kohl, May 16, 2011, available at http://www.antitrustinstitute.org/sites/default/files/AAI%20Letter%20on%20ATTTMobile.pdf.  Merger of AT&T Inc. and Centennial Comm’cns Corp., Description of Transaction, Public Interest Showing and Related Demonstrations 28-29 (Nov. 21, 2008). AT&T stated it “focuses on the other national carriers in its competitive decision-making and does not consider Centennial in deciding on pricing and service offerings.” Id. at 37. AT&T made a similar claim when it acquired the regional carrier Dobson in 2007, explaining, “Where national competitive forces determine prices and the same products are offered nationwide at the same price, the relevant geographic market is national, rather than local.” Merger of AT&T Inc. and Dobson Comm’cns Corp., Description of Transaction, Public Interest Showing and Related Demonstrations 19 n.74 (July 13, 2007).  Description of AT&T/Centennial Transaction, Declaration of David Christopher Chief Marketing Officer ¶ 6.  See Acquisition of T-Mobile USA, Inc. by AT&T Inc., Description of Transaction, Public Interest Showing and Related Demonstrations 74 (April 21, 2011).  United States et al. v. Verizon Commc’ns Inc. and Alltel Corp., No. 1:08-cv-01878, Competitive Impact Statement at 7 n.2 (Oct. 30, 2008); United States et al. v. AT&T and Centennial Commc’ns Corp., No. 1:09-cv-01932, Competitive Impact Statement at 6 n.2 (Oct. 13, 2009) (same).