House To Investigate Whether DOJ's AT&T Antitrust Lawsuit Was Political

from the do-not-pass-go,-do-not-collect-$200 dept

When the Trump DOJ sued to stop AT&T's $89 billion merger with Time Warner last year, more than a few eyebrows were raised. After all, the DOJ's antitrust suit, allegedly a bid to protect consumers, came as other arms of the Trump administration were busy utterly dismantling a wide variety of popular consumer protections (like net neutrality) at the direct request of industry. It raised the question: why suddenly care about consumer protection and antitrust power when you've shown absolutely no general concern for those concepts previously?

As a result, there's always been a lingering question as to whether Trump's obvious disdain for Time Warner owned CNN was driving a petty bid for vengeance. Others wondered if the DOJ's lawsuit was a personal favor to Trump ally Rupert Murdoch, who had tried unsuccessfully to buy CNN from AT&T at least twice, and had spent much of 2017 lobbying Trump to scuttle the deal as a competitive favor to his Fox empire.

With a shakeup in the House, those questions could soon again be making headlines. Incoming House intelligence committee chairman Adam Schiff told Axios last weekend that one of the numerous things the new House leadership will investigate is whether the DOJ's antitrust lawsuit against AT&T was political:

"Schiff said Congress also needs to examine whether Trump attempted to block AT&T’s merger with Time Warner as payback to CNN.

"We don't know, for example, whether the effort to hold up the merger of the parent of CNN was a concern over antitrust or whether this was an effort merely to punish CNN," Schiff said.

To be clear, AT&T's monopoly power is clearly a problem and, regardless of the motivation, it's a good thing the DOJ tried to stop it.

AT&T's domination of both fixed broadband, wireless broadband, and its monopoly over the backhaul connections feeding everything from cellular towers to ATMs was already causing headaches. The company's expanded ownership of "must have" media properties only made things worse by causing new anti-competitive problems for competitors like Dish. Combine these with the death of net neutrality, AT&T's past behaviors, and the FCC's fresh inability to hold AT&T accountable for any of it -- and the over-arching market issues should be pretty clear.

Ultimately the DOJ lost its case for several reasons. Antitrust laws weakened after decades of lobbying left the DOJ arguing obvious outcomes (like AT&T raising rates on competitors and consumers) within narrow confines of economic theory. And because the DOJ didn't want to highlight the fact the Trump admin was harming these same consumers with its other hand (net neutrality), it simply avoided mentioning the idea at all. That's an obvious issue since AT&T's domination of both the media and its broadband monopoly will work synergistically to harm competitors and consumers alike.

Regardless, the Trump DOJ suddenly and exclusively caring about AT&T's monopoly power was always curious. And while many will be sure to suggest that any investigation of the motivation is itself political, it's a question that would be nice to have answered all the same -- since using "instruments of state power" like the DOJ to settle petty grievances with media outlets you don't like is kind of a fucking problem.

Filed Under: adam schiff, antitrust, congress, doj, mergers, politics
Companies: at&t, time warner

AT&T Blackout Of HBO On Dish Highlights Perils Of Megamerger Mania

from the do-not-pass-go,-do-not-collect-$200 dept

You might recall that AT&T recently defeated the DOJ's challenge to their $86 billion merger with Time Warner thanks to a comically narrow reading of the markets by U.S. District Court Judge Richard Leon. At no point in his 172-page ruling (which approved the deal without a single condition) did Leon show the faintest understanding that AT&T intends to use vertical integration synergistically with the death of net neutrality to dominate smaller competitors and squeeze more money from consumers in an ocean of creative new ways.

Throughout the case the DOJ tried to demonstrate (poorly) that a bigger AT&T has every incentive to behave badly. Admittedly those efforts were pretty feeble since the multi-decade steady lobbyist erosion of antitrust law left them trying to make the case within very narrow confines of legally-acceptable economic theory. The DOJ also shot itself in the foot by refusing to even mention AT&T's attacks on net neutrality, likely because it didn't want to highlight the fact that another arm of the government (the FCC) was actively harming the same consumers the DOJ claimed it was trying to protect.

Regardless, with the merger still less than 5 months old, AT&T has been quick to show why people were concerned. The company has already quickly jacked up rates on most of its subscribers and imposed all manner of bizarre new fees as it tries to recoup the massive debt it incurred from both the DirecTV and Time Warner mergers. And this week, AT&T blacked out (previously Time Warner-owned) HBO content for Dish Network customers during contract negotiations, the first time that has happened in the history of HBO:

"AT&T Inc.’s HBO and Cinemax programs were pulled from Dish Network Corp.’s satellite service after the companies failed to reach a new distribution agreement, setting up a real-life “Game of Thrones” between two of the biggest players in pay TV. It is the first time in HBO’s more than four-decade history that programming has been blocked at a distribution partner over a contract dispute, according to AT&T, which acquired the premium cable network as part of its June $85 billion acquisition of Time Warner.

We've noted for years how retransmission and carriage fee disputes in the cable industry have grown increasingly common and are only getting worse. Basically, when it comes time to sign a new deal paying for content, broadcasters generally demand huge rate hikes for the same channels. Cable operators then play hardball, and during negotiations one side or the other (usually broadcasters) pulls their content from the cable lineup. Consumers never see refunds for these feuds, even though these feuds have occasionally left them without access to channels they've already paid for, for months.

For weeks, consumers are bombarded with PR missives, new websites and on-screen warnings all trying to amplify public outrage and drive greater pressure for one side or the other to buckle. After a while, the two sides strike a new confidential deal, and the higher rates are then quickly passed on to consumers. In a letter to lawmakers last year, Dish Network argued that consumers have faced 750 such broadcaster blackouts since 2010, with the retransmission consent fees that broadcasters demand growing a whopping 27,400% between 2005 and 2016.

Of course Time Warner and HBO management traditionally took the high road to avoid these kinds of problems, something that appears to have suddenly and abruptly changed. HBO execs are implying to media outlets that this could all just be a press stunt by Dish to apply pressure on AT&T as it fights the DOJ's recent appeal. Even if that's the case, consumer groups and out-leveraged smaller cable ops have been pushing for years for updated regulations that ban companies from blacking out content while companies bicker over rates.

These demands are never really taken seriously in DC, as it's seen as too heavy handed of an intervention into negotiations between two companies. Ignored is that during these outages, consumers don't see refunds for content they paid for, and this consumer outrage itself is actively encouraged by both sides in a bid to apply pressure on the other end of the deal. While the FCC under Wheeler flirted with the idea of basic FCC rules putting this ridiculous tap dance to bed, there was simply no follow through.

That AT&T was going to use its newfound power to jack up prices for its TV competitors wasn't rocket science, especially if you've watched AT&T's particular flavor of "doing business" anytime over the last two decades.

The irony here is that AT&T even promised the DOJ that it would avoid these kinds of blackouts as a merger condition if the DOJ approved the deal. But the DOJ sued anyway claiming it was helping consumers (though Trump's disdain for CNN and Trump ally Rupert Murdoch's lobbying against the deal are seen as more likely justifications for a consumer-protection phobic Trump administration). But the DOJ's sloppy handling of the case and a terrible ruling by Leon left AT&T more powerful than ever, and consumers and competitors left more vulnerable than ever.

And that's before you even get to AT&T's plans for the post net neutrality world, currently on hold pending the outcome of next February's looming court battle.

Here in the States we have this bizarre tendency to either mindlessly approve megamergers with zero conditions, or conditions that companies are allowed to just tap dance around. The resulting mega-company then behaves badly, and everybody just stands around with a stupid look on their face. Rinse, wash, repeat.

Filed Under: competition, hbo, mergers, retransmission, retransmission disputes, tv, tv blackouts
Companies: at&t, dish, hbo, time warner

Red Hat Hysteria: Aren't We Past The Point Of Being Surprised That 'Free' Is A Part Of The Business Model?

from the seriuosly? dept

As you have likely heard by now, a few days ago, IBM announced that it was purchasing Red Hat for $34 billion. I've seen a fair bit of hand-wringing over this buyout, but don't really feel that strongly one way or the other about it. It was nice having a giant company like Red Hat to point to in explaining how of course open source software could be a big business, but... that still exists within the confines of IBM.

There could be some concerns on the patent side, as Red Hat at least has long positioned itself as a fighter against patent trolls, though in practice the company has sometimes been a bit wishy washy on that, and some have accused the company of selling out its vision on patents in the past. Of course, since Red Hat is a founding member of the License On Transfer (LOT) network, that at least should prevent any of its existing patents from getting out to patent trolling entities. Still, IBM has, for decades, had the reputation of being a very aggressive patent litigator, and has at least some history of trolling and bad practices. But, IBM has long embraced open source, and its announcement pledges to uphold Red Hat's various other commitments towards open source and against patent trolling: "IBM and Red Hat will remain committed to the continued freedom of open source, via such efforts as Patent Promise, GPL Cooperation Commitment, the Open Invention Network and the LOT Network."

However, what struck me most about the deal was't so much the deal itself, but some of the coverage of it. I'll use Wired as the unfortunate example of the kind of coverage I find bizarre (especially for a publication like Wired). Here's how it opens:

IBM JUST SPENT $34 billion to buy a software company that gives away its primary product for free.

IBM Sunday said it would acquire Red Hat, best known for its Red Hat Enterprise Linux operating system. Red Hat is an open source software company that gives away the source code for its core products. That means anyone can download them for free. And many do. Oracle even uses Red Hat’s source code for its own Oracle Linux product.

Spending billions to acquire an open source software company might seem strange.

Come on, Wired. It's 2018. Are we really still in an age where the idea that companies use "free" as part of their business model is somehow shocking or confusing to people? At this point, the idea that you can use free software to sell all sorts of other things, such as services, is pretty damn well established, and it's insulting to act like it's a huge shock that a business could possibly exist while giving away free software.

Just the fact that Red Hat has been so successful for so many years should have put the idea that "free" can't be a part of the business model to rest. Hell, IBM itself is another example of that, as it has invested heavily in open source software and made money by selling services as well. Perhaps Wired thinks very little of its readership, but to frame it as somehow surprising or confusing that a company that has open source software could somehow be worth so many billions of dollars is odd. Even more bizarre is to frame it as shocking that some other company needs to buy it out to validate that price. After all, Red Hat's market cap as a publicly traded company has been in the billions for years, and was approaching a similar valuation to IBM's buyout price around May and June before taking a hit on recent earnings.

Either way, there are potentially many interesting things to discuss concerning IBM purchasing Red Hat, from questions about the future of its products, to questions about cloud computing, open source, software services, patents and more. But... one thing that really isn't that interesting at this point in time is the fact that Red Hat built a business based on free software that it gave away. As we've said for over a decade, free never is the business model, but it absolutely can be part of any business model.

Filed Under: cloud computing, free, linux, mergers, open source, patents
Companies: ibm, red hat

All The Mergers In The World Apparently Can't Save AT&T From Cord Cutting

from the old-school dept

Over the last five years AT&T and Verizon have been desperately trying to pivot from stodgy, protectionist old telcos -- to sexy new Millennial media juggernauts. And while this pivot effort has been notably expensive, the net result has been somewhat underwhelming. Verizon, for example, spent billions to gobble up AOL and Yahoo, but its lack of savvy in the space has so far culminated in a privacy scandal, a major hacking scandal, a quickly shuttered website where reporters couldn't write about controversial subjects, and a fairly shitty Millennial streaming service that even Verizon's own media partners have called a "dud."

Verizon's new CEO Hans Vestberg appears to have gotten the message (that stodgy old telcos kind of suck at disruption and innovation) and has been shifting Verizon back toward its core competency: running networks.

AT&T's efforts have been notably more expensive than Verizon's, but just as underwhelming. The company first decided to shell out $70 billion for a satellite TV provider (DirecTV) on the eve of the cord cutting revolution. And, after a lengthy DOJ lawsuit, shelled out another $89 billion for Time Warner in a quest to gain broader media and advertising relevance. That was paired with the launch of a new streaming service, DirecTV Now, which the company hoped would help it beat back the tide of cord cutting.

Despite hundreds of billions in acquisition costs and debt, it's not working. The company saw a another net loss of 297,000 TV customers last quarter as the company's traditional TV services (DirecTV and AT&T's IPTV service) lost 346,000 subscribers, and the company's shiny new DirecTV Now service only added 49,000 subscribers during the third quarter. To be fair, AT&T actually is more forward thinking than a lot of other cable operators in that it's embracing cheaper streaming alternatives fully. But the company still couldn't help itself when it came to quickly pushing price hikes, the primary reason for last quarter's dip:

"In July, AT&T raised DirecTV Now prices by $5 per month across the board in hopes of making the service profitable. More importantly, AT&T also stopped offering incredible device deals to new subscribers. Until this summer, new customers could get a free Roku Streaming Stick (regularly $50) with a month of $35 prepaid service, or a free Apple TV 4K (regularly $180) with three months of prepaid service at $105. There was nothing stopping customers from signing up, immediately canceling, and walking away with a new streaming device at far below retail prices."

On the plus side, AT&T's strategy of getting out ahead of the streaming revolution isn't entirely unsound. You'd rather be ahead of a trend and take some early hits, than be utterly blindsided while sticking to old habits (oh hi ESPN, didn't see you standing there). But AT&T being, well, AT&T, you just know it won't be able to help itself when it comes to nickel-and-diming its users, something that's going to be made immeasurably easier if it's successful at gutting both federal and state consumer protection authority.

Filed Under: cord cutting, economics, mergers
Companies: at&t, verizon

Charter Spectrum Jacks Up Rates (Again) Thanks To Merger 'Synergies'

from the do-not-pass-go,-do-not-collect-$200 dept

When Charter Communications (Spectrum) proposed merging with Time Warner Cable and Bright House Networks in 2016, the company repeatedly promised that the amazing "synergies" would lower rates, increase competition, boost employment, and improve the company's services. Of course like countless telecom megamergers before it, that never actually happened. Instead, the company quickly set about raising rates to manage the huge debt load. And its service has been so aggressively terrible, the company recently almost got kicked out of New York State, something I've never seen in 20 years of covering telecom.

Cities like Lexington, Kentucky continue to explore their legal options in efforts to hold Charter accountable (something it's clear the Trump FCC won't do). Charter, meanwhile, has informed many of these users that they'll be seeing yet another rate hike in November across the company's entire, 41-state territory. All told, users will pay at least $100 more for the same service annually, thanks in part to increases in several of the sneaky fees Charter routinely tacks on to user bills to jack up the advertised price post sale:

"Broadcast TV surcharge will increase from $8.85 to $9.95/month, Charter said, "This reflects costs incurred from local broadcast TV stations."

• Spectrum receivers will increase from $6.99 to $7.50/month.

• An increase from $54.99 to $59.99/month for Spectrum Internet for current customers who subscribe to Spectrum TV.

• An increase from $64.99 to $65.99/month for Spectrum Internet for current customers who do not subscribe to Spectrum TV."

Modest hikes, but they add up. It's worth noting that that "Broadcast TV fee" is simply a part of the cost Charter pays for programming, broken out of the bill, and tacked on below the line to help covertly jack up the advertised rate post sale. It's something most cable operators have been routinely sued for, and regulators enjoy turning a blind eye to (despite largely being false advertising). The company, for its part, continues to insist that these price hikes simply reflect the wonderful service users are now getting from the nation's second biggest cable provider:

"The price of Spectrum Internet reflects the dramatically faster speeds and investments we’ve made in reliability and quality," Michel said. "Earlier this year, we doubled the starting download speed of Spectrum Internet from 100 to 200 megabits per second. Lastly, our receivers are still comparable or lower in price than our major competitors'."

Charter omits that many of these speed hikes only came about thanks to merger conditions, or that its speed increases lagged dramatically behind contemporaries like Comcast as it focused primarily on its last megamerger. Of course higher prices, poor service, and some of the worst ranked customer support of any company in America (no easy feet given the airline and banking industries expertise) are the net result of both the blind deregulation of natural monopolies and our adoration of blindly buying into megamerger promises, a reality that our tech policy never quite seems capable of keying in on.

This is, unfortunately for you, a problem that's only going to get worse before it gets better thanks to a lack of competition in broadband and a refusal to embrace policies that actually encourage said competition. Instead, the telecom industry (with the Trump FCC's help) has been waging a not subtle war on both federal and state consumer protections, while at the same time quietly securing a significant monopoly over faster broadband speeds. You'd think the end result of this would be obvious, but given our refusal to address this reality, you'd apparently be mistaken.

Filed Under: fees, mergers, rates, synergies
Companies: charter, charter communications

DOJ Continues To Point Out A Mega-Merged AT&T Will Jack Up Prices On Everybody

from the do-not-pass-go,-do-not-collect-$200 dept

AT&T recently defeated the DOJ's challenge to their $86 billion merger with Time Warner thanks to a comically narrow reading of the markets by U.S. District Court Judge Richard Leon. At no point in his 172-page ruling (which approved the deal without a single condition) did Leon show the faintest understanding that AT&T intends to use vertical integration synergistically with the death of net neutrality to dominate smaller competitors.

In fact, net neutrality was never even mentioned by the DOJ at the multi-week trial. Likely in part because the DOJ didn't want to highlight how the Trump FCC was screwing everybody over with one hand, while the Trump DOJ was allegedly suing AT&T to "protect consumers" with the other (some argue that Trump's disdain for CNN and adoration of Rupert Murdoch were the more likely motivators). But if you ignore the fact that AT&T plans to use its monopoly over many broadband markets (from residential to cellular tower backhaul) combined with the death of net neutrality to make life difficult for consumers and competitors alike, you're not paying any attention to history or to AT&T's repeated nods in that general direction.

During the first trial, you'll recall the DOJ and its hired economists repeatedly pointed out how AT&T's vertical integration and ownership of "must have" content (like HBO) would provide the Dallas-based giant every incentive to raise TV rates. AT&T lawyers laughed those findings off, then immediately proceeded to...raise rates and hammer users with bogus new fees as it attempted to deal with the massive debt incurred from the merger. Those rate hikes were a major reason the DOJ decided it should try and appeal Leon's initial ruling.

As the DOJ works on its appeal of Leon's ruling, the government continues to point out in filings (pdf) that all of its economic models show that AT&T's ownership of Time Warner and DirecTV will provide the company with endless opportunities to raise rates on competitors and consumers:

"The bargaining model is an accepted and reliable predictor of competitive effects in the pay-television industry, and Professor Shapiro used reasonable inputs to quantify the magnitude of cost increases that AT&T would impose on rivals through negotiations—and the consequent higher prices for consumers—separate and apart from the non-quantifiable harms of the merger, such as reduced choice and stymied innovation...Given the district court’s illogical conclusion that the merger will lead to no change in bargaining leverage, and its erroneous finding of no consumer harm, a remand is necessary."

One of the major problems here is that lobbying has weakened antitrust enforcement so severely, government lawyers are now trapped within very narrow confines of economic theory to prove a point that should be common sense (especially if you've watched AT&T do business for more than five seconds): AT&T has a long history of behaving anti-competitively, and being even larger is going to make that even easier. There's roughly a million examples out there showing how AT&T exploits and abuses its captive customers with an ocean of bad behaviors.

That this will get worse as AT&T grows larger and more powerful shouldn't be a hard argument to make, even for lawyers trapped in the narrow hallways of accepted economic theory. And again, this is all before you even get to the fact that AT&T lobbyists just convinced the FCC to neuter itself on demand for no adult policy reason beyond it was what AT&T executives wanted.

Filed Under: antitrust, doj, mergers, prices
Companies: at&t, time warner

New York State Votes To Kick Charter Out Of The State For Poor Service, Failing To Meet Merger Conditions

from the goes-around-comes-around dept

In an unprecedented move, the New York State Public Service Commission has voted 4-0 to kick Charter out of the state. According to the announcement (pdf) by the PSC, Charter has been given sixty days to file a plan with the PSC that will "ensure an orderly transition to a successor provider," including offloading the Time Warner Cable territories acquired in the merger. The PSC also notes the vote was only taken after more than a year of trying to get Charter to adhere to some pretty modest broadband build-out requirements affixed to the deal:

"Charter's repeated failures to serve New Yorkers and honor its commitments are well documented and are only getting worse. After more than a year of administrative enforcement efforts to bring Charter into compliance with the Commission’s merger order, the time has come for stronger actions to protect New Yorkers and the public interest," said Commission Chair John B. Rhodes. “Charter’s non-compliance and brazenly disrespectful behavior toward New York State and its customers necessitates the actions taken today seeking court-ordered penalties for its failures, and revoking the Charter merger approval."

As noted previously, the state has been trying unsuccessfully for more than a year to get Charter to actually comply with merger conditions. Among them was the promise to expand broadband availability to around 149,000 homes across New York State, something Charter not only didn't do, but actively misled regulators into thinking had already been completed. In part, by claiming older, existing expansions were new builds.

If you follow telecom (or other major megamergers) for any amount of time, you'll quickly find that most merger conditions are pretty theatrical in nature. Usually, said conditions are often proposed by the companies themselves and were things they already had planned anyway, making "accomplishing them" rather trivial, zero calorie affairs. Companies sign off on these conditions because it helps them pretend the merger actually benefits the public, and regulators sign off because it provides cheap political brownie points and the illusion that companies are being held accountable. Neither is usually true, especially in telecom.

Even when the conditions are meaningful, it's pretty routine to see telecom giants like Charter or Comcast ignore them completely, usually with zero real repercussions. For its part, Charter issued a statement claiming that this was all just an election year stunt by New York Governor Andrew Cuomo:

"In the weeks leading up to an election, rhetoric often becomes politically charged. But the fact is that Spectrum has extended the reach of our advanced broadband network to more than 86,000 New York homes and businesses since our merger agreement with the PSC. Our 11,000 diverse and locally based workers, who serve millions of customers in the state every day, remain focused on delivering faster and better broadband to more New Yorkers, as we promised."

And while Cuomo's quest to protect his Governorship from challenger Cynthia Nixon likely isn't entirely absent from the move (beating up on hated cable companies often provides easy political brownie points), the state was forced toward tougher options after Charter ignored $3 million worth of fines for missing merger commitments and misleading regulators.

This is also one of several long-standing state efforts to hold Charter accountable to the public. New York is one of 23 states filing suit against the FCC for its net neutrality repeal, and the state is also in the middle of an ongoing lawsuit against Charter for not only providing terrible service and slow speeds, but also for attempting to mislead regulators on other fronts (including gaming an FCC system that uses custom-firmware-embedded routers to test real-world speeds).

The move also has to be viewed in context of the newfound federal apathy toward consumer welfare as illustrated by the elimination of broadband privacy rules and net neutrality consumer protections. States are increasingly trying to fill the void left by a Trump administration that has made it abundantly clear (at least at the FCC) that openly pandering to despised telecom monopolies and then trolling users about it is now considered brainy tech and telecom policy.

It's very likely that New York State is simply trying to force Charter to stop bullshitting and simply adhere to existing conditions, and most consumer advocates I've spoken to think this simply ends with a Charter settling and remaining in the state. Should Charter be forced to offload its New York State assets to another company, that company would likely be somebody like Comcast, which, based on consumer satisfaction studies, wouldn't likely be much of an improvement.

Filed Under: broadband, kicked out, mergers, new york, ny psc, poor service, public service commission
Companies: charter

Trump Throws His FCC Under The Bus For Pointing Out Sinclair May Have Lied During Its Merger Sales Pitch

from the damn-you-for-doing-your-job dept

So back in 2015 you might recall that Republicans threw a tremendous hissy fit when the then Obama administration surprisingly threw its full support behind Title II classification of ISPs and real net neutrality. It was surprising in large part because Obama's first FCC boss pick, Julius Genachowski, was comically wishy washy, often refusing to take hard positions on much of anything. It was also surprising because Genachowski's replacement, Tom Wheeler, appeared to be the type of person to change their mind after being presented with hard evidence, a notably unfashionable trait in DC these days.

The histrionic claim at the time, you might recall, was that Obama had broken some long-established law by expressing a preference for a direction of FCC policy. This despite the fact that there is no law preventing the White House from doing so, and history is filled with examples of both sides of the aisle doing just that (from George W. Bush urging former FCC Chairman Michael Powell to eliminate media ownership rules, to when Bill Clinton urged former Chairman Reed Hundt to ban hard liquor advertising on TV).

Fast forward to this week when President Trump decided to have a little hissy fit about the FCC's decision to kick the Sinclair Tribune merger over to an administrative law judge, largely because even Ajit Pai's FCC couldn't sign off on some of the logistical nonsense Sinclair was engaged in to try and seal the deal:

So one, you'll notice that the same folks that threw a hissy fit because of Obama's public support of net neutrality are suddenly nowhere to be found when the shoe's on the other foot (though again, Trump's Tweet is perfectly legal). Two, the FCC didn't block the deal, it simply passed an order passing off review to an administrative law judge. Why? Because, as the FCC's Hearing Designation Order (pdf) argues, Sinclair was engaged in all kinds of bullshit in a bid to fool regulators that the deal would fall under the current media ownership cap designed to protect smaller local news competitors (and quality discourse) from major industry domination.

That included efforts to try and pretend the merger (which would result in Sinclair reaching 72% of homes) would fall under the media ownership cap (which states no single broadcaster can reach any more than 39% of homes) by engaging in bogus broadcast station "divestitures." More specifically, Sinclair proposed a number of what critics say are "sham" transactions that involved "divesting" local broadcasters to shell companies or Sinclair partners still arguably controlled by Sinclair.

Some of these companies had zero experience in broadcasting (Like Steven Fader, CEO of a car dealership), would have nabbed the stations at seriously discounted rates, and there was every indication that Sinclair would either still control these divested stations, or simply buy them back for a song post merger. The distortions and falsehoods were so bad that even Pai, whose allergy to factual data was made glaringly obvious during the net neutrality repeal, was forced to balk, admitting that, as structured, Sinclair's merger pitch likely would have violated Sections 309(a) and 310(d) of the Communications Act of 1934.

Again if you've watched Pai routinely twist reality itself, his forced retreat should give you some idea how badly Sinclair botched its merger approval application. And while the fact that an FCC investigation into potential corruption and cooperation with Sinclair may have also motivated Pai's sense of political self-preservation to kick in, it still wound up being an overall good move, even if potentially for the wrong reasons. Especially if you've had a chance to see the kind of facts-optional nonsense Sinclair routinely forces its local broadcast stations to air in creepy, lobotomized unison.

That said, shoveling merger approval off to an administrative law judge, while sometimes fatal, doesn't guarantee the merger dies. As former FCC boss Tom Wheeler noted this week in a blog post, the administrative hearing could still be used as an "administrative smokescreen," with the broader deal still being approved thanks to a year's worth of efforts by Pai to weaken media ownership rules. Trump's Tweet would appear to be an attempt to pressure the Pai FCC toward approving the remainder of the deal anyway, regardless of how misleading Sinclair's sales pitch has been.

Filed Under: ajit pai, donald trump, fcc, mergers
Companies: sinclair, sinclair broadcasting

Sprint, T-Mobile Execs Bullshit Congress On The Benefits Of Merger Mania

from the less-competition-means-more-competition dept

Sprint and T-Mobile last week went before Congress to literally argue that fewer competitors in the wireless space will magically result in... more competition in the wireless space. The two companies are trying to gain regulatory approval for their latest $23 billion merger attempt, the second time in four years this particular deal has been attempted.

The companies' previous merger attempt was blocked in 2014 after regulators noted that removing one of just four major carriers would result in a proportionally-lower incentive to actually compete on price, something that's really not debatable if you've paid attention to telecom and broadband industry history. That's especially true in Canada, where consolidation to just three players has resulted in some of the highest mobile data prices in the developed world. AT&T's attempt to acquire T-Mobile in 2011 was blocked for the same reason, a move that many forget resulted in T-mobile being more competitive than ever.

But while speaking before a Senate Judiciary subcommittee investigating the deal, T-Mobile and Sprint executives told Congress a decidedly different story. One in which the rules of competition, and mathematics, no longer apparently apply:

"This consolidation will lead to lower prices,” T-Mobile CEO John Legere told hearing attendees. "This is actually moving from two to three,” Legere claimed, insisting that joining forces with Sprint will make a more “viable competitor” for AT&T and Verizon.

But history has repeatedly shown in telecom that claims of competitive "synergies" never actually materialize. A major reason most ISPs are so hated is because they've spent decades prioritizing growth for growth's sake over anything else, and, more often than not, fail to scale things like customer service and support proportionally because that kind of growth erodes revenues. As a result you get an endless string of telecom mergers that, like Charter's recent acquisition of Time Warner Cable, simply result in higher prices and worse service than ever before.

Sprint and T-Mobile's central thesis in selling the merger (this time around) is that Sprint can't possibly survive without merging with T-Mobile. In fact, one of Sprint's recent filings with the FCC (pdf) comically tries to go out of its way to argue just how terrible the company currently is, in stark contrast to everything the company had been saying the last few years:

"Sprint’s standalone future will not be one that allows it to be an effective competitor to Verizon and AT&T on a nationwide basis. And though Sprint’s massive cost reductions have stabilized the company’s finances and yielded positive free cash flow for the first time in many years, the company achieved that result only by shrinking the company and reducing network investment to historically low levels."

But while Sprint does have a heavy debt load (which is not uncommon in the merger-obsessed telecom sector) and has struggled to find a real brand identity (which says more about leadership than finances), the threat of its imminent demise is being amplified for strategic effect. The company's balance sheet has been improving, with the company routinely propped up by deep-pocketed Japanese owner Softbank. Meanwhile there are numerous potential partners interested in the wireless industry that could have provided a meaningful partnership (Dish, Charter, Comcast) that wouldn't have reduced competition.

Of course claiming "fewer competitors improves competition and lowers prices" isn't the only falsehood being perpetuated by the company. They're also promising that the merger will be a boon for job creation, despite numerous Wall Street analyst estimates that the deal could eliminate up to 30,000 jobs as redundant positions (especially in retail and middle management) are inevitably eliminated.

For some reason, like Charlie Brown and his damn football, America doesn't seem to ever really learn any lessons from its love affair with mindless merger mania and our love of growth for growth's sake. These deals almost always exclusively only benefit shareholders and executives, a lesson we apparently love to ignore time and time again.

Filed Under: competition, congress, consolidation, john legere, mergers, synergies
Companies: sprint, t-mobile

Sprint, T-Mobile to FCC: Our Job Killing, Competition Eroding Megamerger Will Create Jobs & Competition

from the if-at-first-you-don't-succeed... dept

Americans tend to be oddly gullible when it comes to megamerger promises. Especially over in the telecom sector. Time after time we're told that the latest major deal will provide all manner of amazing synergies, jobs and added competition. And time after time we subsequently realize that the only people that usually benefit from these deals are investors and executives. Shortly after that, we realize that the slow consolidation and steady erosion in competition results in higher rates and even worse service, something AT&T, Comcast and Charter customers are intimately familiar with after decades of M&A mania.

And yet it's a historical lesson we refuse to learn much of anything from.

The latest megadeal du jour in the telecom space is Sprint and T-Mobile's latest attempt at a $23 billion super-union. The two companies filed their formal sales pitch with the FCC this week, and you'd be hard pressed to find anybody who thinks agency head Ajit Pai and friends won't rubber stamp the deal. The sales pitch is filled with all the usual promises, including the insistence that reducing the overall number of players in the wireless market from four to three will somehow, magically, improve wireless sector competition, a claim I've seen an awful lot of consumers actually buying into:

"New T-Mobile will have the scale and resources to take the Un-carrier movement to the next level and into new market segments. The combined company will have lower costs and the incentives to engage in aggressive pricing to expand its 4G LTE customer base as the industry continues its major transformation towards 5G. To date, T-Mobile and Sprint, individually, have not been able to materially erode Verizon and AT&T’s wireless market share or overcome their scale advantages. New T-Mobile, however, will be able to go toe-to-toe with the two larger rivals to the benefit of competition and consumers.

So the core justification for this deal is that the combined company will more easily be able to compete with AT&T and Verizon, reducing prices for everybody. But that's not how it works, especially in telecom. What really happens is when you reduce the overall number of competitors the incentive to engage in real price competition proportionally declines, resulting in less incentive to actually compete (go ask a Canadian wireless user). This reality is a major reason why both AT&T and Verizon have yet to oppose the deal. They still dominate cell tower backhaul and know this likely means less price competition at retail.

It's also why past regulators have moved to block this very deal and others like it (like AT&T's attempted acquisition of T-Mobile). And you'd be hard pressed to find a single major merger in telecom (be it by Comcast, Charter, AT&T, or CenturyLink) that hasn't made the already marginally-competitive sector worse. This mindless obsession with M&As is a major reason that this sector sees some of the worst customer satisfaction scores of any industry or agency in America (even the IRS). These companies spend so much time growing for growth's sake to please Wall Street, scaling up customer service always lags behind.

Sprint and T-Mobile are also trying to insist that the megadeal will somehow be a huge boon for job creation, another favorite claim of those lost in the throes of M&A mania:

"...the merger will create jobs on New T-Mobile’s first day and going forward. New T-Mobile will hire employees to build the new network; extend the Un-carrier customer care model to a wider subscriber base; and support customers in growing segments like in-home broadband, enterprise, and IoT. New T-Mobile’s increased investment and rapid growth—and resultant accelerated roll-out of 5G services—also will stimulate thousands of additional jobs throughout the U.S. economy.

Here too Sprint and T-Mobile ignore history and factual analysis. Megadeals almost always result in job loss, especially in telecom where countless support, retail, network operations and middle managers will quickly be found to be redundant. The claim also runs in stark contrast to predictions from Wall Street analysts, who believe the deal is likely to eliminate anywhere between 10,000 and 30,000 jobs:

"Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

"We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” (Wall Street analyst Craig Moffett said.

Each of those, he said, would mean the loss of five full time jobs, or 15,000 jobs in total. A merger also would threaten “overhead” jobs, the kind concentrated in headquarters such as Sprint’s and T-Mobile’s in the Seattle area.

And while some like to claim that Sprint will immediately collapse without such a deal (a stretch given it's owned by deep-pocketed Japanese giant SoftBank), there's a myriad of alternative options that would actually increase competition in the space. Comcast and Charter have shown repeated interest in jumping into the wireless space, and a Sprint partnership could prove to be a shortcut. Dish Networks has also routinely proclaimed interest in using its growing spectrum holdings to jump into wireless. Meanwhile, what's the point of "saving" Sprint if the end result is collectively bad for competitors and consumers alike?

It's not entirely clear why America loves to play Charlie Brown and Lucy style football when it comes to megamerger promises. Time and time again we're promised the world, and time and time again we give companies the benefit of the doubt as they promise an ocean of synergies, jobs and competition that never actually materialize. By every indication the millennials that have bought into T-Mobile's consumer friendly (except for opposing that whole net neutrality thing) branding schtick are about to learn their first real lesson on this front the hard way.

Filed Under: competition, fcc, jobs, megamerger, mergers
Companies: sprint, t-mobile