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Antitrust Review of the AT&T/T-Mobile Transaction

2011; Volume: 64; Issue: 1 Linguagem: Inglês

2376-4457

Maurice E. Stucke, Allen P Grunes,

Digital Platforms and Economics

I. INTRODUCTION II. STANDARD FOR EVALUATING THE MERGER III. THIS MERGER IS PRESUMPTIVELY ANTICOMPETITIVE A. A T&T's Postmerger Market Share Would Exceed Forty Percent B. Entry Barriers Are High C. The Incipiency Standard IV. THE MERGING PARTIES HAVE NOT OVERCOME THE PRESUMPTION OF ILLEGALITY A. The Merging Parties Have Not Established That Consumers Will Overall Benefit with Merger Specific Efficiencies B. AT&T and T-Mobile Have Not Rebutted the Presumption That the Significant Increase in Concentration in an Already Highly Concentrated Industry Will Increase the Likelihood of Tacit Collusion 1. Handset Competition and Innovation 2. Text Messages 3. Parallel Accommodating Conduct 4. Unilateral Effects 5. Exclusionary Effects V. REMEDIES A. Behavioral Remedies B. Divestitures C. Enjoining the Merger VI. CONCLUSION I. INTRODUCTION Section 7 of the Clayton Act was intended to arrest the anticompetitive effects of market power in their incipiency. The core question is whether a merger substantially lessen competition, and necessarily requires a prediction of the merger's impact on competition, present and future. The section can deal only with probabilities, not with certainties. And there is certainly no requirement that the anticompetitive power manifest itself in anticompetitive action before [section] 7 can be called into play. If the enforcement of [section] 7 turned on the existence of actual anticompetitive practices, the congressional policy of thwarting such practices in their incipiency would be frustrated. (1) In this Article, we review the proposed $39 billion merger between AT&T and T-Mobile under federal merger law, under the United States Department of Justice (DOJ) and Federal Trade Commission (FTC)'s 2010 Horizontal Merger Guidelines, and with a focus on possible remedies. We find, under a rule of law approach, that the proposed acquisition is presumptively anticompetitive, and the merging parties in their public disclosures have failed to overcome this presumption. Next, we find that under the Merger Guidelines, there is reason to believe that the transaction result in higher prices to consumers under several different plausible theories. Finally, we turn to the question of possible remedies. We conclude that there is a high likelihood that divestitures will not solve the competitive problems and make the case for enjoining the acquisition. On August 31, 2011, the United States brought an action to enjoin the merger. (2) The government's complaint was subsequently amended to include the claims of seven states and Puerto Rico as coplaintiffs. (3) Two competitors also filed suit to enjoin the transaction and the defendants unsuccessfully moved to dismiss their complaints. (4) The government's case is scheduled to go to trial on February 13, 2012. (5) II. STANDARD FOR EVALUATING THE MERGER The starting point for any evaluation is the statute itself. Section 7 of the Clayton Act prohibits mergers and acquisitions when the effect of the transaction may be substantially to lessen competition, or to tend to create a monopoly. (6) Contemporary merger law is forward looking. Courts are called upon to make judgments about the likely effects of a merger that has not yet taken place. Uncertainty and errors of both overenforcement and underenforcement are inevitable. Some observers counsel for lenient merger review, as they believe the market will invariably correct any mistakes because new firms will enter and market power will quickly disappear. But the lessons from the financial crisis call into question these empirically suspect beliefs. (7) Markets do not always self-correct. (8) Most mergers do not yield significant efficiencies (which, if they did, would warrant a light touch approach to merger review). …