CWA: Proposed T-Mobile-Sprint remedy fails public interest standard and DOJ should withdraw consent

In new Tunney Act comments filed with the U.S. Department of Justice Antitrust Division (DOJ or Division), the Communications Workers of America (CWA) assess the Department’s proposed Final Judgment (PFJ) on the T-Mobile-Sprint merger and the announced divestiture deal with DISH, noting:

“the proposed remedy flies in the face of numerous Division remedy policies and the odds are remote that the remedy will work as intended … under any reasonable definition of the ‘public interest,’ a complex remedy that carries a high risk of failure and exposes the public to substantial economic harm if it fails is not in the ‘public interest.’”

CWA’s comments also detail why the announced divestiture deal with DISH would create T-Mobile’s largest customer, not a competitor:

“The core provisions of the remedy are not divestitures at all but rather the sharing of the ‘New T-Mobile’ network with the divestiture buyer for a minimum of seven years under a mobile virtual network operator agreement … [a deal that would] cement a multiyear business relationship between the buyer and the merged company that would require extensive government oversight – exactly the sort of remedy Division leadership has strongly, and persuasively, argued is ineffective as a matter of enforcement policy and, moreover, one that inappropriately puts a law enforcement agency into a regulatory role it is ill-suited to perform.” 

“The proposed T-Mobile-Sprint merger remains anti-competitive and harmful and the announced divestiture deal with DISH is insufficient to resolve these concerns. In fact, the divestiture deal would create T-Mobile’s largest customer, not a new competitor,” said Debbie Goldman, Research and Telecommunications Policy Director for the Communications Workers of America. “As the comments and analysis make clear, the proposed Final Judgment violates the DOJ’s own Antitrust policies on merger remedies and fails the public interest standard. For all of these reasons, the pending lawsuit from 18 state attorneys general seeking to block the proposed merger is in a strong position to stand up for consumers and workers.”

In light of the PFJ’s failure to meet the public interest standard, CWA’s new comments call on the Division to “exercise its power ... to withdraw its consent to the entry of the PFJ.” Under the Tunney Act, whenever the Justice Department proposes to settle an antitrust case, the court – not the Justice Department, and not the merging parties – must determine whether the proposed settlement is “in the public interest.” To set in motion this judicial review process, the Tunney Act directs that, before an antitrust consent decree may be approved, the Justice Department must explain the decree in a “competitive impact statement.” Then, interested persons such as CWA may submit comments on the proposed decree, to which the Justice Department itself typically responds. At that point, the Justice Department may ask the court to approve the proposed consent decree, or it may insist on changes to the proposed consent decree, or it may withdraw its consent entirely. 

See below for key summary details from CWA’s new Tunney Act filing, which is available online.

• Antitrust Division policy requires merger remedies to be “appropriate, effective, and principled” – the PFJ violates all of these basic tenets. After providing a detailed explanation of how the PFJ “violates a number of clearly articulated Antitrust Division policies on merger remedies,” the new comments note, “the Division has not articulated any reasons, let alone principled reasons, why it has turned its back on its own merger remedy policies … many of which are long-standing and represent sound antitrust enforcement.”
  

• The divestiture of less than a full business unit carries significant execution risk and the risk is particularly high in this case. The divestiture of less than a full business unit creates a serious risk that the divestiture will fail to restore competition. However, the divestitures in the PFJ are far less than a full business unit (prepaid brands with high churn rates, options on “decommissioned” cell sites and “decommissioned” retail stores, and an option to acquire Sprint 800 MHz licenses representing a small frequency band). Under these circumstances, neither the seller’s nor the buyer’s interest can be expected to match the interest of the public. 

• At its core, the remedy depends on behavioral conditions that will last for years, creating excessive entanglements between buyer and seller and requiring multiyear oversight. Although the Division has characterized the remedy in this case as “structural,” we respectfully submit that this is not an accurate characterization.  Under Division policy, the term “structural” is generally reserved for divestiture remedies that do not involve ongoing entanglements between the divestiture buyer and seller, do not involve ongoing regulation of the buyer or seller’s conduct, and do not require lengthy and extensive government monitoring and enforcement.  The remedy in this case is more accurately characterized as a “conduct” remedy that includes certain limited divestitures. As such, it is contrary to long-standing DOJ policy which strongly favors structural remedies over behavioral decrees, particularly in horizontal mergers. The bulk of the remedial provisions in the PFJ consist of behavioral conditions. Some of these require the merged company to work against its profit-maximizing incentives, such as by providing numerous services to a would-be competitor for an extended period of time. Others purport to order the buyer to do things it would not ordinarily do, such as to offer a particular type of service.  The net result is excessive entanglements between buyer and seller and the requirement of multiyear oversight.

• DISH fails to meet the Division’s standard requirements for a divestiture buyer. Given that the Complaint alleges that the loss of a fourth competitor in the retail wireless market is competitively harmful, the minimum requirement that any remedy must meet to protect the public interest is that it must recreate a competitively significant fourth competitor ...  If DISH is not a suitable or effective competitor, the remedy is likely to fail and the competitive harm alleged in the Complaint will not be remedied. The Division requires divestiture buyers to demonstrate “managerial, operational, technical, and financial capability” to “compete effectively” in the relevant market alleged in the complaint. The buyer in this case fails on every score – it lacks financial resources of its own and has not secured third-party funding; it has management that has not built a wireless network despite the legal obligation to do so; and it has no experience or technical ability to operate such a network, the challenges of which are extensive.  DISH has a well-documented history of warehousing spectrum and avoiding its obligations to the FCC. At the same time, the buyer has demonstrated a willingness to abuse a federal program to obtain over $3 billion in taxpayer-funded discounts, and thereby to make “a mockery of the small business program” in the words of then-Commissioner Ajit Pai. Moreover, as Dr. Andrew Afflerbach notes in an attached Declaration, T-Mobile will control the technical aspects of the network, and will be able to limit the MVNO’s potential service strategies. DISH will need more than four years to deploy tens of thousands of sites with robust fiber backhaul to develop a reliable footprint that is not highly dependent on T-Mobile -- a process that will require extensive design, planning, procurement, site acquisition, and approvals - as well as an enormous capital investment. DISH fails the Division’s standard “fitness” test of a prospective acquirer of divested assets.

• The incentives for DISH to build in a timely framework its own retail wireless network in competition with AT&T, Verizon and T-Mobile are weak.  By comparison, DISH has strong incentives to remain an MVNO under favorable terms and ultimately sell its spectrum, or, alternatively, to operate any network it builds outside of the relevant market. Even assuming for the sake of argument that a weak and otherwise unacceptable buyer could somehow transform into a strong competitor at some future date, the remedy provides insufficient incentives for this transformation to take place … The failure of the buyer to satisfy basic Division requirements for a buyer, and the lack of adequate incentives for the buyer to compete in the relevant market, violate long-standing Division policy.

• Vague and ambiguous language in several of the PFJ’s central regulatory provisions give the parties an escape route and render the PFJ difficult to administer or enforce. If this vague language were limited to unimportant parts of the PFJ, it would be of less concern.  However, vague and non-specific language is used in connection with central behavioral conditions in the PFJ … These open-ended, undefined terms provide a convenient escape route for a defendant wishing to avoid its obligations. Moreover, they make it virtually 100% certain that disputes will arise as to whether the defendants have fulfilled their commitments … in a court order that obligates a major market participant to create and facilitate the entry of a new competitor, this sort of language is deeply problematic.  It is an invitation to a great deal of mischief, including evasion and repeated disputes.

• Under any reasonable definition of the “public interest,” a remedy that carries a high risk of failure and exposes the public to substantial economic harm if it fails cannot be said to be in the “public interest.” By far the most likely outcome in this case is that the complex, highly regulatory remedy will fail or fall short.  In either event, as the Division has alleged in the Amended Complaint, consumers will end up paying the price. The risk of failure has significant consequences for the public interest determination. Division officials have clearly stated as a matter of law and policy that the Clayton Act directs antitrust enforcers and courts to employ a low risk tolerance.  Risky, partial and complex remedies, however well-intentioned, do not warrant shifting some of the risk posed by an anticompetitive merger back onto consumers … The price of a failure of the remedy has been quantified in this case. Not only has DOJ alleged that the merger, unremedied, would lead to consumers paying billions of dollars more each year, but on April 8, 2019 DISH itself submitted an analysis of the price increases in countries that have gone from 4 to 3 MNOs. As further evidence, we cite an econometric study from the UK’s telecommunications regulator of 25 countries found that “removing a disruptive player from a four-player market could increase prices by between 17.2% and 20.5% on average.” Another study cited by DISH found “a long run price-increasing effect of a four-to-three merger,” of as high as 29% compared to countries with 4 MNOs.