In the wake of the Justice Department’s antitrust suit to stop AT&T’s $39 billion acquisition of T-Mobile, Sprint Nextel (the nation’s 3rd largest wireless carrier) and Cellular South (a smaller wireless company in the Southeastern U.S., which changed its name to C Spire last week) filed similar suits seeking to enjoin the merger. The suits were filed under § 16 of the Clayton Act which provides injunctive relief for private parties. The suits by Sprint and Cellular South claimed that the merger would result in higher prices and reduced innovation in the wireless industry. On September 30th, AT&T filed 12(b)(6) motions to dismiss the Sprint and Cellular South suits.
AT&T presented three main points designed to show that the cases by Sprint and
Cellular South should be dismissed. First AT&T argues that because Sprint and Cellular South are competitors—not consumers—in this market, both lack standing to bring an antitrust suit. The economic justification behind enjoining a horizontal merger among competitors, such as AT&T and T-Mobile, is based on the theory that the merger will lead to a more concentrated and less competitive market which will, in turn, lead to higher prices and reduced innovation. AT&T argues that even if the merger were to result in less competition and higher prices—a result AT&T says would not occur—any losses would be felt by consumers not competitors. AT&T goes on to argue that what Sprint and Cellular South are actually concerned about is increased competition from a more efficient unified AT&T/T-Mobile. AT&T argues that antitrust law does not provide any recourse for a competitor’s concern about losses resulting from a rival’s increased efficiency and competitiveness. AT&T also submitted a very powerful piece of evidence against Cellular South in this case. In their motion to dismiss the case, AT&T included an email it received from Hu Meena, CEO of Cellular South. Mr. Meena wrote that if the companies came to an agreement through which Cellular South would build a next generation LTE network in Mississippi which AT&T would use for roaming, and AT&T guaranteed reasonably priced access to its networks for Cellular South’s roaming needs for the next 10 years, Cellular South’s antitrust concerns would be alleviated. AT&T used the email to suggest that Cellular South was exploiting the lawsuit as a way of advancing its own strategic interests.
AT&T’s second point is a response to claims by Sprint and Cellular South that an AT&T/T-Mobile merger will reduce Sprint’s and Cellular South’s access to new wireless devices. Sprint and Cellular South argue that after the merger AT&T will be able to “coerce exclusionary handset deals” from device manufacturers effectively freezing competitors out of the market. AT&T responds that it is well recognized that exclusive handset deals are generally pro-competitive and encourage company differentiation. The only way that exclusive deals hurt competition is when they allow one party to unreasonably deprive another of access to goods. AT&T argues that such an outcome is extremely unlikely in this market as there are a great variety of handset manufacturers who produce many different handset models. Between 2006 and 2010 the number of handset manufacturers that distribute their products in the U.S. market increased from 8 to 21 and these manufacturers produced 302 different models. Therefore, AT&T contends that Sprint and Cellular South failed to provide any factual allegations which indicate they would be frozen out of the handset market.
AT&T’s final point was in response to claims by Sprint and Cellular South that the merger would have an effect on the market for roaming services. AT&T argues that Sprint fails to point to any effect on a market for roaming services in which Sprint is a participant. Sprint does not currently purchase roaming services from either AT&T or T-Mobile, nor would it be possible for them to do so. Sprint’s cell phone network uses CDMA technology which is incompatible with the GSM technology used by AT&T and T-Mobile. Cellular South uses GSM service for less than 3 percent of its customers and fails to show that it would be affected. AT&T goes on to argue that any claims by Sprint or Cellular South which state that the merger would increase the price they pay for Verizon roaming services lack any factual basis. AT&T argues that both Sprint and Cellular South are ignoring the fact that FCC regulations require all mobile wireless carriers to provide roaming on a just, reasonable and non-discriminatory basis.
Regardless of how one feels about the competitive effects of an AT&T/T-Mobile merger on the wireless industry, whether there is anything to gain by allowing Sprint and Cellular South to sue on the back of the DOJ is a separate question. The DOJ and the seven state attorneys general which have joined in the suit (New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania) seem well positioned to represent the welfare of wireless consumers and it is difficult to see what additional benefits would be provided by allowing wireless companies, primarily concerned with the merger’s effects on their own bottom lines, to sue as well. It is now up to Sprint and Cellular South to show why their suits should be allowed. Oral arguments in the case are schedule for October 24th.