Like it or not, U.S. antitrust enforcers are being forced delve into new technologies that birth new industries in a legal field that doesn’t have the best tools for analyzing the future. It’s proving to be difficult.
First, there was AT&T Inc., claiming that emergence of streaming video offered by Amazon.com or Netflix Inc. is the real threat to its ability to compete in its traditional pay-TV market. The Justice Department didn’t buy that when it sued to block AT&T’s merger with Time Warner Inc., and now AT&T is waiting to find out if a federal judge will be any more understanding.
Then T-Mobile Inc. and Sprint Corp. said the only way the U.S. will be the first in rolling out the next generation of wireless internet is if the two carriers are allowed to merge. The T-Mobile prospectus selling its pending Sprint merger to shareholders pointed out that both China and South Korea are ahead of the U.S. in 5G rollout.
What’s a poor competition lawyer to do? The attorneys and economists populating the DOJ and the Federal Trade Commission typically don’t come from a Silicon Valley-like background. Even if they did, it’s harder to prove the existence of an emerging threat than it is to simply assert that threat.
“Prediction is very difficult, especially if it’s about the future,” observed economist David Dranove, who teaches business strategy at Northwestern University’s Kellogg School of Management, at last month’s American Bar Association antitrust conference.
The disconnect between the government reviewer of a merger and the deal strategist is that the government reviewer needs cold hard data to illustrate how the deal is good for consumers. To a CEO, that goodness may seem embarrassingly obvious. “LOWER PRICES!” screams the T-Mobile prospectus, adding that the merger would create $6 billion in “rate-run synergies.”
But an independent economist needs more than these statements, however sincere, when evaluating whether the benefits generated by eliminating a market competitor is worth it. The merging companies need to prove they’re putting something into the economy that wasn’t there before and couldn’t be gotten otherwise.
That’s a high bar, which is precisely why economists have an “unhealthy obsession with efficiencies,” said Robert Majure, the DOJ antitrust division economics director, at the ABA conference. When there’s a way to make a market work better, it’s really cool.
But Majure said company executives often mistake an “efficiency” with simple cost savings when plugging a merger, and those savings don’t contribute to the overall market in a tangible way. Those savings could actually subtract from the market if, say, a plant closure is in the works.
“I see $1 billion in efficiencies, I get excited,” Majure said. “And then I see what the real claim is, and then I get depressed.”
Sprint and T-Mobile are making 5G rollout a key part of their sales pitch to regulators about why the merger is a good idea. It’s an understandable strategy, considering that the U.S. earlier this year endorsed the importance of 5G from a national security perspective when the Committee on Foreign Investment in the U.S. (CFIUS) blocked Broadcom’s attempted purchase of Qualcomm Inc.
But the Broadcom-Qualcomm case involved an actual foreign entity that might have had access to sensitive technologies involved in 5G. T-Mobile and Sprint are arguing a more general threat – that the U.S. could lose in the global 5G race. That’s hard to prove, particularly when both companies have independently declared that they’ll roll out 5G on their own. And even if antitrust regulators accept that a combined T-Mobile/Sprint would accelerate 5G in some way, the actual economic value of this future Garden of Eden is even harder to quantify. Numbers can be so stingy.
On Wednesday, the House is scheduled to vote on H.R. 5465, a bill that would narrow the FTC’s ability to challenge mergers by removing its ability to subject proposed deals to administrative litigation. The House Judiciary Committee approved a similar bill last year.
“I wouldn’t bring a case I didn’t think I could win.”
--Justice Department antitrust chief Makan Delrahim on the government’s suit to stop AT&T from merging with Time Warner.
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