When the Justice Department stomps in to block a $39 billion deal that would have brought 5,000 jobs to the United States, you have to believe that regulators are serious about wielding their antitrust enforcement power. DOJ's 25-page complaint seeking to bar AT&T's acquisition of T-Mobile USA is an emphatic document that asserts competition in the wireless industry is essential to ensuring continued innovation and maintaining low prices. So if that's the case, what about the other enormous wireless deal under Justice Department antitrust scrutiny, Google's proposed $12.5 billion merger with Motorola Mobility?
From my reading of the AT&T complaint, Google and Motorola don't need to worry. The Justice Department's suit to block the AT&T deal is a classic protest of a classic horizontal merger, in which market competitors join up. DOJ maintains that AT&T and T-Mobile compete directly in both the product and geographic markets for wireless service, since both companies are looking to sign up ordinary consumers and corporate and government wireless customers (the product market) who want nationwide wireless coverage (the geographic market). Combining AT&T and T-Mobile would reduce the number of competitors in those markets from four to three and would give the combined company more than 40 percent of the wireless business in more than half of the Federal Communication Commissions' defined cellular market areas, according to the Justice Department's analysis.
The Justice Department suit turns AT&T and T-Mobile's own words against them to argue that competition between the companies is good for consumers. T-Mobile's December 2010 strategy statement, quoted in the complaint, is a good example: (T-Mobile) will attack incumbents and find innovative ways to overcome scale disadvantages, it says. Our approach to market will not be conventional, and we will push to the boundaries where possible. (T-Mobile) will champion the customer and break down industry barriers with innovations. AT&T, meanwhile, fretted about T-Mobile's system upgrade, noting in an internal 2010 document that the more immediate threat to AT&T is T-Mobile.
Regulators aren't going to find similar evidence of direct competition between Google and Motorola. In antitrust terms, their deal is a vertical merger, in which companies at different points in the product stream join forces. Google doesn't make smartphone handsets or set-top boxes; Motorola doesn't offer an operating system. Antitrust challenges to vertical deals are much, much rarer than regulatory action to block or force changes to proposed horizontal mergers.
To be sure, Google's acquisition of Motorola's patent portfolio complicates the horizontal-versus-vertical analysis, since standard-setting patents give the lucky owner of that IP leverage across an industry. But as I've previously reported, Google and its smartphone operating system competitors can tell antitrust regulators that they're all now fortified with smartphone patents: Google with Motorola IP; and Microsoft and Apple with Nortel patents.
In fact, just as Google's Motorola bid may help Microsoft and Apple win antitrust clearance for their Nortel purchase, the AT&T suit may wind up benefiting everyone with deals awaiting an antitrust determination. The Justice Department has said it's open to more discussions with AT&T and T-Mobile, but based on the DOJ's complaint, it's hard to figure out how the companies can restructure their merger to assuage regulators, short of carving out a low-cost, nationwide competitor for their merger business. AT&T has said it intends to fight the Justice Department in court. That means DOJ is going to have to devote a lot of resources to the AT&T case, keeping the spotlight on wireless networks and off smartphones.
There's a bit of irony in that: the biggest antitrust target of the 1970s (AT&T) distracting regulators from the biggest targets of the 1990s (Microsoft) and 2010s (Google).
This blog post first appeared here: http://link.reuters.com/dyp53s
Alison Frankel writes the On the Case blog for Thomson Reuters News & Insight . The views expressed are her own.
(Reporting by Alison Frankel; Editing by Eileen Daspin)