Consumers Union Challenges AT&T-T-Mobile Merger on Capitol Hill

Combining AT&T and T-Mobile USA would create a highly concentrated” market based on merger guidelines adopted by the federal government, an attorney for Consumers Union told lawmakers Thursday on Capitol Hill.

It has been estimated that the merger would significantly increase an index the so-called Herfindahl-Hirschman Index that the Department of Justice and Federal Trade Commission use in their guidelines to measure market concentration, said Parul Desai, policy counsel of Consumers Union, in testimony before the House Judiciary Subcommittee on Intellectual Property, Competition, and the Internet.

Three years ago, the Federal Communications Commission estimated that the index already exceeded both the FCC (2,800 HHI) and DOJ (2,500 HHI) definition of a heavily concentrated market,” said Desai, whose non-profit publishes Consumer Reports magazine. According to the DOJ, if an acquisition creates a highly concentrated market and if the HHI is increased by over 100 points, the acquisition will raise competitive concerns that warranty scrutiny.”

Desai said its estimated that AT&Ts $39 billion acquisition of T-Mobile USA would increase the index by another 650 to 700 points, raising the presumption that the acquisition will enhance market power.”

The merger, Desai noted, would leave about 75 percent of the wireless market within the control of AT&T and Verizon Wireless and regional carriers MetroPCS, US Cellular and Cricket/Leap would control less than seven percent of the entire market.

Even if Clearwire, a wireless data provider, is included in the mix, those four providers would still control only nine percent of the market ,” Desai said. 

Joshua Wright, a professor of law with George Mason University School of Law, told lawmakers that market concentration is not the only measure used to determine the effects of a merger on competition.

Indeed, one of the fundamental contributions of antitrust economics in merger analysis over the past several decades has been a shift away from near-sole reliance upon market definition and calculation of market shares, toward a direct, fact-intensive analysis of economic evidence of competitive effects,” Wright said.

The professor indicated that U.S. regulators will examine the effects of the merger on prices under two frameworks: whether the merger will enable AT&T to unilaterally raise prices; and whether its more likely that there will be coordinated pricing or collusion between firms” because, for example, an acquisition removes a maverick from the industry a firm that disrupts attempts at coordinated pricing by the industry with its own low prices that steal market share from rivals.”

Wright implied he doesnt think the merger will result in the types of unilateral or coordinated pricing effects that regulators examine under an antitrust analysis.

Although T-Mobile USA has occasionally offered lower prices than AT&T, the Bellevue, Wash.-based mobile operator is not a maverick” under the economic definition, Wright said.

Without more, a price difference does not connote an aggressive pricing strategy. For example, the 2010 FCC Report recognizes that AT&Ts price premium relative to T-Mobile USA includes consumer perceptions of higher quality and access to better handsets and phones. Further, to be effective (and by definition), a maverick, must steal market share from rivals by lowering price and increasing output,” Wright said.

Yet 2011 first-quarter results reflect that T-Mobile USA has lost customers and failed to increase market share, Wright pointed out.  

But Howard University School of Law Professor Andrew Gavil raised concerns that the proposed merger presents very substantial risks of anticompetitive effects across multiple dimensions of competition in what can only be viewed as an awesomely strategic and already highly concentrated industry.”

The DOJ will examine the merger based on federal antitrust law, and the FCC will conduct a broader analysis based on whether the merger is in the public interest.

Gavil, who has taught antitrust law for the last 22 years, said the federal government must dig deep into the facts outside of public documents and statements that are often self-serving and exaggerated.

Your task, as is the task of the agencies, is to separate the wheat from this considerable mound of self-interested chafe,” he told lawmakers. The necessary investigation, therefore, must probe beyond the more obvious, publicly available information and prepared statements of industry participants, to include the internal strategic planning documents and communications that can more clearly illuminate the parties goals and the likely effects of the transaction.”

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