Tales of the Sausage Factory

An insider’s view of the media hegemony

What’s At Stake in United Stated v. AT&T, Inc.? The Future of Antitrust. (Part I)

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The Department of Justice (DoJ) Antitrust Division challenge to the AT&T/T-Mo deal, United States v. AT&T, Inc., in addition to being a huge deal for us in the telecom world, is probably the single most important merger review case for the next ten years. In two ways, this has become a battle about the future of antitrust enforcement and the soul of the Antitrust Division.

Yes, that sounds melodramatic, but I make no apologies. As I explain below, this case has become a test case for the nature of antitrust and whether traditional metrics of concentration and market share, notably the Herfendahl-Hirschman Index (“HHI”), coupled with the concerns that such concentration predicts both the ability of the largest company to raise process and for all surviving companies to raise process (the “coordinated effects” test), will still have validity going forward.  If the court accepts the arguments from AT&T and its defenders that the traditional measures of concentration are irrelevant, then antitrust review of mergers will essentially end for the next 5-10 years while economists and antitrust enforcers struggle to develop a new set of metrics for predicting the likely impact of mergers.

More importantly, however, this case represents a clear decision of the Antitrust Division to move ahead with enforcement despite the possible political consequences. Yes, politics has always mattered, and anyone who rises to the position of Assistant Attorney General for Antitrust has a well-developed political sense. The back channels for unofficial influence remain strong, and only a brave head of the Antitrust Division, whether or Acting or confirmed Appointee, seeks to challenge the most powerful and well connected companies in Washington.

But we have not yet reached the point where the head of the Antitrust Division decides to enforce the Antitrust law and the White House tries to pull it back. This may seem a small thing, but it is what separates us as a country that can still aspire to say it follows the rule of law and a country like Russia where  law enforcement is simply the extension of the policy of the ruling oligarchy. And I assure you, oh cynical reader, that when we cross that threshold you will know the difference between a society where influence matters and a society that has abandoned any pretense of the rule of law.

I shall reserve this second point for a separate post. I address the legal significance of the case below . . .

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DoJ Says “No” To Ma Cell; Here’s What Happens Next (and Why It’s All Over But The AT&T Screaming)

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In what is undoubtedly the best Labor Day present the Department of Justice ever gave America, DOJ has filed to block the AT&T/T-Mobile Merger in court. One should not, however, expect AT&T to give up easily. AT&T can, and almost certainly will, decide to fight rather than simply abandon the deal. If nothing else, it has $6 billion in break up fees to pay if the merger does not go through. On the plus side, the odds definitely favor the DoJ, which is why so many companies simply abandon the merger once DoJ has filed.

Meanwhile, the FCC, an independent agency, still needs to make its decision on what it will do. Unlike DoJ, where the head of the Anti-Trust division makes the call (subject to the usual political checks, of course), the FCC must have a vote on an Order, which must get a majority of the Commission (3 votes). Since Congress repealed the FCC’s ability to immunize phone mergers from antitrust back in 1996, the FCC cannot approve if DoJ wins in court. OTOH, the FCC is under no time pressure, and can wait to see how the court case turns out. At the same time, however, the court may decide to stay consideration until the FCC decides, since the merger cannot proceed without FCC approval.

All of this has huge implications for AT&T and its current bluster that it will fight DoJ for the right to eat T-Mo. Normally, AT&T could hope to get this wrapped up in a few months, and continue to try to use its political muscle to force a settlement. But the interaction between DoJ’s challenge and the FCC lawsuit make it incredibly difficult for AT&T to get this done before Deutsche Telekom decides it wants it $6 billion cash ‘n spectrum break up fee. As I explain below, AT&T must simultaneously persuade the FCC not to act while convincing the court to move at super speed, despite the fact that the usual way things work is for courts to wait for agencies to finish review (because the agency may remove the need for the court to act).

I explain AT&T’s legal problems below . . .

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Forget The First Amendment, BART Messed With The Phone System. Violated CA and Federal Law.

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I suppose I am, at heart, really a telecom lawyer after all. My reaction to the news that the Bay Area Rapid Transit (BART) police shut down cellphone networks in a number of stations had nothing to do with democracy, the First Amendment, Tahrir Square, etc. With all deference to the importance of these concerns, my reaction was WHAT DO YOU MEAN THESE IDIOTS MESSED WITH THE PHONE SYSTEM! From my perspective, and the perspective of traditional telecom law, BART could just as well have turned off the local central office and all this chatter about whether or not BART is a public forum is just a distraction.

Obviously, however, no one at BART thinks of cell phones as the phone system. In BART’s open letter explaining what they did and why it was cool, BART focuses on the First Amendment /public forum issue and completely skips the fact that they shut off a phone system. Mind you, I suppose I can’t blame them – much. A number of folks are asking if there is a right to cell phone service as if there were a novel question rather than something settled by decades of telecom law.

Also missed by most: this goes well beyond BART. If BART gets away with including “we can shut down cell phone service” in its tool box you can guarantee that other local law enforcement agencies will start copying this – and all for the best of reasons. Because what could possibly go wrong when you pull the plug on a critical piece of infrastructure whenever some local police chief or city council person or whoever decides they need to do something about these “flash mobs” or “rioters” or whatever? BART emphasizes the narrowness of the impact. But Montgomery County, MD, where I live, is worried about an outbreak of flash mobs of teenagers that materialize to raid local stores. Suppose they decide to start turning off the phone grid in neighborhoods they believe are “at risk?” Sure, lets just knock out phone service for a neighborhood for a few hours. What could be the harm – and it’s all in a good cause, right?

There is a reason we do not mess with the phone system, and why that doesn’t change when the phone system is wireless.  Legal reasoning below . . . .

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CBO Scores The Senate Spectrum Bill (S.911): No Spectrum Pots of Gold — Really.

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Last week, the Congressional Budget Office (CBO) issued its “score” (how much a bill will cost or earn for the U.S. Treasury) for S.911(aka The Rockefeller/Hutchison spectrum bill). CBO estimated that all spectrum auctions proposed in the bill — incentive auctions, new federal spectrum, and generally extending the FCC’s spectrum authority — would net $24.5 billion. After expenses, including reallocating the D Block to public safety, the bill ended up netting only $6 billion for deficit reduction, disappointing supporters who had promised $10 billion in deficit reduction. More importantly than the revenue, however, the CBO explanation of the score highlighted the following for anyone who actually read more than the bottom line:

  1. We have no way to predict what an incentive auction will actually make, and have a lot of doubt this will work;
  1. We don’t believe you can get more good spectrum (the kind that fetches billions of dollars) out of the federal government;
  1. Trying to do spectrum policy right is very expensive.

For various reasons, however, CBO doesn’t come right out and say this in the same bold way I just did above. Instead, they drop little dollops of wisdom in the text, which requires a certain amount of decoding from Washington Weasel speak. Happily, I brought my Weasel Word Decoder (don’t come to Washington without one!).

CBO score decoded below . . . .

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PK Action Alert To Save the Future of Unlicensed Spectrum

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Despite the obvious reliance on unlicensed spectrum by Americans every day in the form of everything from wifi to baby monitors to RFID, the current mania for spectrum auction revenues combined with lobbying from companies opposed to the TV white space has put the future of unlicensed spectrum at risk. This is particularly true under the discussion draft circulated by House Republicans last week. That draft would require that before the FCC could allocate any new spectrum for unlicensed use, it would first have to have an auction that would allow companies to buy the spectrum for exclusive use. Only if everyone collectively outbid AT&T or Verizon for unlicensed would the spectrum go to unlicensed use. As Stacy Higginbotham at GigaOm notes, this would have devastating impact on the future of unlicensed and the innovation that comes out of the unlicensed bands.

As if that were not enough, the proposed bill literally allows companies to buy their way out of FCC consumer protection regulation.

We are trying to stop this before it’s too late.  Public Knowledge has created an Action Alert asking anyone who cares about protecting unlicensed, or opposed to letting companies literally buy their own rules, then help us this Friday (tomorrow) by telling your member of Congress not to sell off our digital future or let companies buy their way out of public interest obligations. Sign up for the PK mobile Action Alert and you will get a text message tomorrow letting you directly contact your member of Congress so you can tell them why this bill is a really, really bad idea.

I reprint the PK Action Alert below.

Stay tuned . . . .

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The AT&T/T-Mobile Fine Print

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Anyone who has a service contract with AT&T knows that there are two parts: the advertisement and the fine print.  The advertisement promises all kinds of wonderful things. The fine print explains how AT&T really has no legal obligation to provide them, and you have no recourse if AT&T doesn’t live up to its terms. The ad has a little asterix (*), to let me know to look for the fine print. For example, AT&T recently offered me a free 4G phone*. *DISCLAIMER: Provided I sign up for a minimum $15 data plan, 4G is available in limited areas, and other restrictions apply. They also promise I can download amazing videos*, DISCLAIMER: *provided I don’t exceed my capacity cap, in which case I will pay lots more money. Etc.

Unsurprisingly, the AT&T/T-Mobile deal comes with its own set of fine print. AT&T and its allies make all kind of promises about how the deal will encourage mobile broadband and create jobs ‘n stuff, while the actual FCC filings have all kinds of wonderfully crafted (from a legal perspective) fine print that explains all the limitations on these promises. Alas, AT&T doesn’t do nearly as good a job with the helpful* for fine print on it’s advertisements for approving A&T/T-MO as it does on its regular advertisements. I want to especially point this out to all the state governors that have supported the merger based on the advertising implying that the mighty AT&T lion is going to go all Aslan and spread broadband and jobs after it devours the sickly gazelle that is T-Mobile.   Based on the fine print, you have as much chance of seeing rural broadband deployment and job creation as the average AT&T iPhone user in San Francisco has of connecting a call and enjoying “unlimited downloads”* (*subject to bandwidth cap, phases of the Moon, and wicked packet-intercepting gremlins).

Advertising matched with FCC filing fine print below . . .

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My Insanely Long Field Guide to Lightsquared v. The GPS Guys

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For some time now, I’ve been rooting for Lightsquared. Despite the fact that it faces tough odds trying to build out an expensive wireless network, a wireless network built from ground up for wholesale only could totally change the wireless market (which is entirely different from the mobile cellphone (aka the “commercial mobile radio service” or “CMRS”)  market, but that’s a rant for another time). But now, I just love the fight between Lightsquared and the GPS industry because it manages to contain everything that makes spectrum policy in this country like running a marathon with concrete blocks on your feet: bad neighbors operating critical systems so they can get away with being prima donnas, hostility from other federal agencies, unanticipated interference issues that crop up on deployment, and efforts to politicize the FCC’s technical process.

And, as always, a special guest appearance by a very tired looking Julie Knapp.

For a spectrum wonk such as myself, it simply does not get better than this. I also get one more real world example where I say to all the “property is the answer to everything” guys: “Ha! You think property is so hot? The rights are clearly defined here. Where’s your precious Coasian solution now, smart guys?” Which usually sends them back muttering that it’s not their fault no one in the real world follows the models that explain how it’s all supposed to work out in the world of rational actors and no transaction costs where unicorns frolic in the golden sunshine.

So, in the latest installment of my occasional “Insanely Long Field Guide” series, I take a lengthy look at Lightsquared, how we got here, and what I think will happen. Short version, ignore all the pseudo-Whitewater nonsense flogged by the conservative conspiracy theorists and complaints that the FCC bypassed their own process. So far, and I do not say this often so please pay attention, the FCC has behaved entirely appropriately, even intelligently. (Yeah, yeah, don’t let it go to your heads.) What matters is that the FCC is about to receive a report that confirms that, yes, when Lightsquared operates it system, it creates interference for existing deployed GPS systems. As a result, only the following things matter:

1. The Lightsquared folks are right about how the GPS guys knew this day would come and conveniently chose to do nothing. But in the short term it doesn’t matter, because the FCC will not allow anything to happen to GPS.

2. OTOH, if the GPS guys get their way, it means taking another 40 MHz of prime spectrum and rendering it useless forever. That also isn’t going to happen. That suggests a phase in/compromise.

3. Whether Lightsquared actually survives the compromise as a viable service will depend on a lot of things. The dimensions of any such compromise will depend on the interference tests. So while it is pretty clear from what’s been leaked that Lightsquared’s system as proposed causes interference with GPS systems, a lot of questions remain about what ought to happen to make it so that GPS and Lightsquared can live together in harmony.

At this point (from my wonkish perspective), the precedent of how to deal with annoying neighbors is almost more important than what actually happens to Lightsquared. If the GPS guys get their “sit on your rear-end veto,” then we can pretty much kiss off spectrum reform in the most useful spectrum bands. Every potentially useful band has neighbors that built systems on the assumption that nothing would ever change. So the FCC either finds a way to balance the interest of incumbents with fostering the expanded use we need for our expanding wireless  demand, or we forget about “spectrum flexibility” and resign ourselves to the current state of the universe pumped up by the occasional auction.

More below . . . .

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How AT&T Eating T-Mobile Will Enhance AT&T’s Special Access Monopoly.

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“Special Access” is one of those fun telecom terms that makes no sense to those outside of telecom. Briefly, it’s the rate that a regulated incumbent local exchange carrier (ILEC), like AT&T, charges for certain non-residential telecom services. As you can see, even my attempt to describe in one sentence without jargon failed, that’s how complicated this is. However, like many very complicated things, Special Access is one of the important ingredients that goes into how much people pay for phone and broadband service. You can find a five minute video of me explaining Special Access and why everyone needs to care about it here.

Not surprisingly, the issue has come up in the AT&T/T-Mobile merger. Sprint says that AT&T absorbing T-Mobile will make its Special Access problems worse and allow AT&T/T-Mobile to price it out of the market. AT&T responded in this blog post, in part by asking “How could absorbing T-Mobile, which doesn’t provide Special Access, hurt the Special Access market?” Sarah Jerome over at the Hill asked me that question, prompting me to offer this response (originally printed here), which I expand on a bit below.

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Wireless Competition Rumble! Watch Me Take It To The Free Marketeers Where They Live — With Snacks to Follow!

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Ho fellow policy wonks and spectrum geeks! Come watch me and occasional blog buddy (over at PK blog) Rob Frieden take on Arch Free Marketeers Thomas Hazlett and Joshua Wright at an epic, no holds barred, steel cage death match on competition in the wireless world. The Event, “The FCC’s Wireless Competition Report: A Preview” aka “The Wireless Competition Arlington Free-For-All” (because admission is free), will take place next Wednesday, May 18, 4-5:30 p.m., at the Mercatus Center at George Mason University (official announcement with all the info here).

More outrageously exaggerated prose describing the event below!

UPDATE: I initially had this down as being in Fairfax, rather than Arlington, because the GMU main campus is in Fairfax and I misread the event announcement (it is at 3351 N. Fairfax Drive in Arlington). My bad.

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Why Does the US Trade Representative Keeps Trying To Piss Off Our Trading Partners?

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Everyone talks about promoting our exports and hooking in to the emerging economies as the means of leveraging our economic blahs. With Americans consumers still considered the walking dead, and likely to remain so for some time, anyone hoping for job growth and overall improvement in the American economy recognizes that we need to get other countries to buy our stuff.

Unfortunately, someone seems determined to piss off our potential trade partners. Worse, that “someone” is the office of U.S. Trade Representative (USTR), the folks in charge of getting trade agreements negotiated and boosting trade. If that seems odd, take a look at the most recent Special 301 Report (aka “the IP Naughty List”) released by the USTR at the end of April. Pretty much everyone we want to trade with is on either the “naughty” or “very naughty” list. True, some countries, such as Russia and China, appear genuinely naughty — in the sense that massive wholesale counterfeiting and infringement appears to be going on while the governments appear relatively uninterested in enforcement. But a large number of other countries — Canada, Israel and Brazil, to name a few — appear on the list because they failed to modify their laws to suit the demands of the U.S. pharmaceutical industry and the U.S. entertainment industry.

My colleague at Public Knowledge Rashmi Rangnath, has written up a general summary of what USTR got wrong (again!). I want to focus here on how this fits into a creeping systemic problem with USTR’s approach.  While the U.S. remains a strong market, we no longer rule the roost. The time when we could simply dictate to other countries what we expected of them and could force them to amend their constitutions, sell off vital natural resources, and dance for our amusement as a condition of getting access to our markets are pretty much over. You would think after holding up ACTA for three years trying to get other countries to adopt the MPAA’s wish list and then finally being forced to cave at the end would have impressed this point on the good folks at USTR, if not on the utterly uneducable lobbyists that make up the vanguard the IP Mafia. Alas, to judge by the USTR’s conduct here, USTR still lives in a fantasy-land where it can snap its fingers and the world hastens to do our IPR bidding. Anyone hoping for a more sensible approach in the negotiations around the Transpacific Partnership Agreement (TPPA) should prepare for disappointment, which is bad news for all those businesses hoping for a trade deal with some of the world’s fastest growing economies.

More below . . .

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