Mark Goldberg

What Canada can learn from T-Mobile / Sprint

In a 173 page decision [pdf] issued last week, Judge Victor Marrero of New York’s Southern District of the US District Court rejected an appeal of the merger of T-Mobile with Sprint, clearing the way for the deal to go through, subject to just two final gates: approval by California’s utility board; and, a federal judicial sign-off on the Justice Department’s settlement.

Judge Marrero described the challenge of ruling in a case such as this as recognizing that “In the final analysis, at the point of sharpest focus and highest clarity and reliability, the adversaries’ toil and trouble reduces to imprecise and somewhat suspect aids: competing crystal balls.”

Like the CRTC’s Wireless Review proceeding (with its oral hearing opening this week) Judge Marrero said “This is a case about competition in the retail market for mobile wireless telecommunications services.” So, I thought it might be especially relevant to take a look at what the Court said about a number of issues that are currently before the CRTC.

I suspect that a number of witnesses at the CRTC’s hearing will raise at least some of these issues during their testimony [agenda for the CRTC hearing can be found here].

  • MVNOs should not be considered competitors of the carriers: “the Court is persuaded that MVNOs should not be considered independent competitors in the RMWTS [retail mobile wireless telecommunications services] Market, and it adopts Plaintiff States’ position that MVNO shares should thus be attributed to the MNOs from which the MVNOs lease network access. The weight of the evidence at trial suggested that MVNOs could not restrain the pricing behavior of MNOs to any truly significant degree. MVNOs have a miniscule share of the RMWTS Market overall; for example, even though defendants cite Comcast as one of the fastest growing MVNOs in the market, it nevertheless has only two million customers (measured by connected lines) in a market of over 300 million lines… Comcast’s Chief Business Development Officer… testified that he had seen no evidence of MNOs altering their pricing or service plans in response to Comcast’s actions in the market, and he did not believe Comcast’s Xfinity Mobile brand served as a competitive constraint… That MVNOs necessarily rely on MNOs for use of the MNOs’ mobile wireless networks further demonstrates their further limited ability to constrain the MNOs’ market power.”
  • Market Concentration: “depending on the affirmative practices and actions taken by market participants, highly concentrated markets can nevertheless be quite competitive. And, as observed, the HHI [Herfindahl-Hirschman Index] thresholds prescribed by the Merger Guidelines are generic as to the markets being evaluated. This fact is particularly relevant because antitrust analysis must always be attuned to the particular structure and circumstances of the industry at issue. HHI measures may not be as informative as they might first appear in light of complexities particular to the RMWTS Markets”
  • Coordinated Behaviour: “the RMWTS industry is not particularly vulnerable to coordination. As both sides acknowledge, price is not the only dimension on which competition occurs. The non-price factors listed above demonstrate the various strategies that competitors in the market might pursue, drawing also into question whether the firms’ pricing is truly so transparent. For example, while T-Mobile might try to compete primarily on the basis of its capacity advantages, AT&T might try to leverage the entertainment content provided by its merger with Time Warner, and a cable MVNO like Comcast might advertise the convenience of bundling mobile wireless services with fixed in-home broadband and cable services.”

    “in complex and dynamic markets, pricing strategies tend to be less transparent and more dependent on a multitude of pushes and pulls, internal and external. In particular, prices are more likely grounded on combinations of different product and service features varying by capacity, speed, quality, and content. For this reason, in complex and dynamic markets, anticompetitive behaviors pricing strategies creating coordinated or unilateral effects are likely more risky, impractical, or unrealistic for reasonable corporate executives to implement.”

The Court also found “there are local RMWTS markets which should be considered in determining the relevant geographic market”, which is relevant because Canada has seen regional pricing in certain cases, reflective of local market conditions. “As a practical matter, it seems highly unlikely that a consumer in a locality like New York City could simply turn to anywhere else in the nation, such as California, to obtain wireless services. On the contrary, consumers likely rely primarily on local services in the area in which they live and/or work.”

Without any intent to be patronizing, I found this statement by Judge Marrero provides important counsel for consideration by the CRTC, the Competition Bureau and policy makers on the other side of the river at the Department and in the Prime Minister’s Office:

Most significant about the preceding contrast between relatively simple versus complex product markets, and the static as opposed to the dynamic, is how the distinction bears upon individual and corporate behavior in a business context. The differences raise a basic question: whether or not commercial practices and decision-making norms generally prevailing in one type of market may be transferable, and thereby likely to inform and guide the kinds of practices and decisions that govern another type, thus aiding predictions about the business choices company executives are likely to make under particular market conditions.

From this Court’s review, the record of this litigation informs a response to the preceding question. Projections of likely conduct in one type of market and analysis and predictions of competitive effects should take account of the unique features of the particular market and not be gauged by economic standards and practices that characterize another. Effects on competition in the market for cinder blocks, for instance, should not be assessed by the rules and practices prevalent in the market for computers. On this view, the extreme complexity and dynamism characterizing the wireless telecommunications markets would justify treating the industry as unusual for the purposes of antitrust analysis, and hence not be examined solely according to traditional economic models or based narrowly on the simpler business calculus that may be more fitting in evaluating competitive effects in relatively simpler and more stable product markets.

Comments are closed.