As the DOJ and FCC research and sort through the competitive facts of the AT&T-T-Mobile acquisition for themselves in the months ahead, it will become clear that opponents’ current rhetoric and assertions are over-the-top, exaggerated and simply not credible.

  • FreePress and others’ claims that this transaction will enable AT&T to “monopolize everything” and reconstitute the “Ma Bell Monopoly,” are political demonization arguments devoid of evidence; they are designed to discredit U.S. competition policy, demonize free markets, and justify new FCC interventionist regulation like net neutrality, special access etc.

I.   The Relevant Facts:

Straightforward Local Market Analysis:  Repeated precedent has examined wireless markets at the local level and through that tried and true market definition lens, regulators will find most all local markets are competitive with strong regional competitors like: MetroPCS, Leap, U.S. Cellular, Cellular South, Cincinnati Bell Wireless, and Cox Communications.

  • When the regulators examine local markets they will find that the transaction in most all markets reduces competitors from ~6 to 5 or 5 to 4, not the 4 to 3 opponents generalize.
    • And regulators know that in the select markets where they may view concentration as problematic, they can employ the well-worn process of negotiating divestitures to easily cure the problem, a process the companies and the markets are very familiar with.

Faux & Overstated National Market Definition: Of the ~300m U.S. wireless subscribers AT&T has ~32% (~95m) T-Mobile ~11% (~32m) so the combination would have AT&T at less than 43% of national subscribers, not even in the ballpark of a monopoly of 75-90% of subscribers some opponents charge.

  • Even the combined subscriber shares of AT&T, T-Mobile, and Verizon, opponents specious “duopoly” charge would only reach ~73.5% meaning that the remaining share of wireless subscribers would be about 26.5% or about 85% the size of the remaining #2 competitor Verizon.
  • Even using the chosen market definition of opponents, the market share facts don’t support their specious monopoly and duopoly charges.

There are even more national market facts that prove AT&T has no chance of monopolizing anything, and is not reconstituting the 1970s Ma Bell Monopoly. And both the DOJ and FCC are intimately familiar with the real facts of the former monopoly voice market.

  • They know that over the last ten years that the Bell companies that now comprise AT&T have gone from about 43% share of the national voice market in 2000 to about 20% of the national voice market today.
    • Over the last decade, AT&T has lost roughly 50% of its landline voice subscribers to competition; and is continuing to lose them at a very substantial annual rate to cable, VoIP, and wireless competition/substitution.
  • And looking at the wireline broadband market, AT&T has only ~20% national share, and this transaction does little if anything to strengthen that landline business to warrant anti-competitive concerns.

If anything this merger actually accelerates the demise of the old Ma Bell Monopoly that opponents fear, while in no way reconstituting a new monopoly or duopoly.

Global Definition Provides Useful Perspective: Given that opponents claim that this combination could somehow harm device manufacturers, who compete globally because of economies of scale, the global market share facts obliterate opponents’ bogus monopoly/duopoly frame of the problem.

  • When the DOJ and FCC investigate they will find that AT&T is only the ~19th largest mobile operator in the world with less than 2% of global mobile subscribers.
  • Combining AT&T and T-Mobile would make AT&T only the ~15th largest mobile operator in the world with a little more than 2% of global mobile subscribers.
  • When the DOJ and FCC delve deeper they will see how hyper-competitive the global wireless handset market is.
    • There are over eight handset providers with greater global market shares than a combined AT&T-T-Mobile.
    • And there are more than 15 global manufacturers that have global handset sales larger than all of T-Mobile’s 32m subscribers.

II.   The Relevant Context

It is critical baseline context that T-Mobile reached out to AT&T to sell itself, because:

  • It was not willing or able to invest what was necessary to compete successfully in a 4G wireless broadband market going forward; and
  • It obviously concluded that the efficiencies, synergies and financial benefits of selling to Sprint and trying to integrate with Sprint’s highly-incompatible technology — simply did not work for a variety of legitimate network and business reasons.

If AT&T were trying to monopolize or duopolize the wireless market as charged, would they not have been the entity that was actively seeking out a T-Mobile acquisition?

  • As the DOJ and FCC investigate the underlying rationale for this transaction, they will learn how problematic the Sprint-Nextel merger turned out to be, because the technologies were incompatible and created dramatically less integration efficiencies than anticipated.
  • Regulators will probably also better grasp T-Mobile’s decision process to do what was best for its customers and shareholders.
    • In other words, combining with AT&T would provide T-Mobile customers with a much more competitive 4G infrastructure better and faster than T-Mobile could generate solo, or a T-Mobile-Sprint combination could generate together.

III.   The Relevant Market Dynamism

Both the DOJ and FCC will want to be assured that competition will remain dynamic post-transaction.

An important dimension of a competitive market is whether or not it enjoys “maverick” competitive behavior that does not try and just mimic the market leaders.

  • Sprint-Clearwire, with ~50m subscribers and ~16.5% subscriber share, is a quintessential “maverick competitor.”
    • Sprint constantly needles AT&T and Verizon in national marketing campaigns that they offer true “unlimited” usage and lower prices.
    • Sprint has invested more heavily in WiMax technology than anyone in the world via its ClearWire functional subsidiary.
    • Just recently, Sprint became the first to integrate its network offerings with Google Voice’s applications.
    • Sprint is also the most likely partner with LightSquared, the “maverick” market entrant that envisions an “open” wholesale network alternative. (The FCC helped LightSquared proceed to market with a special waiver of normal policy and procedure in order to promote this “maverick” market dynamism.)

Another important dimension of a competitive market is how significant the reseller market is.

  • The impressive success of Tracfone, Virgin, Boost, Apple, Walmart and Best Buy prove it to be a vibrant competitive segment helping the whole ecosystem, and none of those MVNOs are likely to be negatively affected by this transaction.

Yet another important dimension of a competitive market is how innovative and diverse the offering is.

  • As regulators examine the market they will discover vibrant innovation in technology, pricing plans/models, handsets, Apps, products and services.

IV. Conclusion

When the DOJ and FCC do their own investigation, regulators will discover overwhelming evidence of vibrant competition in wireless that will not be substantially lessened by the AT&T-T-Mobile transaction.

  • The facts and the investigation will prove opponents charges of monopolization and/or duopolization do not square with the evidence or facts.
    • Core prices are falling; there is robust competitive entry; many are investing billions in infrastructure and differentiated networks, products, and services; and broad innovation is evident throughout the ecosystem.

The most plausible explanation for opponents’ over-the-top charges that the transaction will lead to monopolization and duopolization of the market in wireless — is politics.

  • Opportunistically, FreePress and its pro-regulation allies have found a process to ambush/exploit to try and discredit U.S. competition policy, demonize free markets, and justify new FCC regulation like net neutrality, special access etc.

If regulators decisions on this transaction are data-driven, fact-based, fair, and bound by law and legal-precedent, this transaction should have no difficulty ultimately getting approved.


FreePress’ campaign director, Tim Karr, continues to overuse its main political tactic of demonizing anyone that disagrees with FreePress’ goal of ridding the world of free market capitalism and property ownership.

FreePress’ play book is all about the politicization of issues — dividing people, not uniting them.

  • In “Astroturfing Net Neutrality” FreePress continues to demonize broadband companies with the nonsensical charge that it somehow is in communications companies’ interest to not allow their customers to communicate the way they want to communicate.
  • And FreePress continues its anti-democratic tactic of shouting down anyone that disagrees with their point of view by demonizing them as unprincipled astroturf for sale or shills for business.
  • Nowhere in FreePress’ perverse concept of democracy is there room for political alliances of views opposed to FreePress’ views, based on shared values or interests.
    • To FreePress if anyone supports free markets or property rights they are evil capitalists or capitalist sympathizers.
    • In FreePress’ world no dissent from their dogma is tolerated; it will be attacked.
  • FreePress knows by focusing almost entirely on ad hominem attacks, FreePress can divert attention from the reality that they don’t have facts, evidence or merit on their side, only the politics of demonization.

The problem for everyone else, is that FreePress’ politicization strategy on net neutrality and mergers largely has set the tone for overall Internet and communications policy making.

Simply, FreePress is poisoning the well of the policy making process.

  • Up until FreePress injected its politics of demonization into the overall political process, and perfected it, major Internet/communications policy like the 1996 Telecom Act and the repeated Internet Tax Moratoriums were overwhelmingly bipartisan and relatively non-controversial.

If FreePress was sincere in wanting to “Save the Internet,” and not advancing its anti-business, anti-property agenda, it wouldn’t be dividing the Nation over Internet policy, but trying to unite it.

The Internet policy mess we are in, where a majority of the U.S. House of Representatives, voted 240-179 against the FCC’s controversial Open Internet rules, and the Senate has the potential to do so this summer, is an ominous proof point that — FreePress’ multi-year campaign to preemptively regulate the Internet based on its bogus demonization threat — has divided the Nation not united it.

  • Long term, the FreePress-ization of Internet politics serves no ones’ interests save for the radical anti-business, anti-property sliver of America that FreePress agitates for.

Kudos to Randy May of the Free State Foundation for his outstanding must-read piece in the National Review Online: “Rolling Back Regulation at the FCC –How Congress Can Help Competition Flourish.”

It is a very important reminder that Congress nearly unanimously set U.S. communications policy in 1996 “to promote competition and reduce regulation,” in stark contrast to the FCC’s Open Internet de-competition policy.

  • Randy is also spot on in encouraging Congress to re-fortify its extremely successful 1996 pro-competition policy by changing the burden-of-proof to assuming competition is superior to regulation, in order to counter the FCC’s deep-seated bureaucratic instinct to regulate in order to perpetuate itself.

Randy is also dead right that the FCC looks backward to preserve its regulatory raison d’etre, rather than looking forward, obeying the law and trusting competition to drive consumer benefits.

We so need an FCC that genuinely encourages competition and lets consumers and the market choose market winners and losers, not the FCC.

Expect Google’s bull-in-a-china-shop entry into social, to try and neutralize FaceBook, to bring lots more major unwanted privacy attention to the privacy-challenged social media business model, and to contribute to the eventual bursting of the Internet investment Bubble 2.0.

  • The hot air that is inflating the social media Bubble 2.0 is that people somehow want to forfeit their privacy to socialize more efficiently, and that social media business models can indefinitely monetize privacy arbitrage against users’ interests without consequence.
    • (See Part I of this series here)
  • Ironically, the investment fate of social media, and Bubble 2.0, will depend less on what social media companies do, and more of what the leviathan Google does in social media.
    • The venture capital community has long been painfully aware of the Google-leviathan’s outsized effect on every other VC investment, because they always ask start-ups “What if Google Does It?” 

I.   Privacy Baseline is on the Move: Bipartisan Interest in Privacy Protection Strengthening

Anyone following social media or Google would be remiss to not notice the flurry of recent bipartisan, bicameral, and bi-branch interest in increasing privacy protection of online users in just the last few weeks.

II.   Google’ Continuing Flouting of Privacy Concerns is Key Catalyst for Privacy Law/Rules

In late March the FTC charged Google with deceptive and unfair privacy practices (for its launch of its social media service “Buzz” which made people’s gmail contacts public by default when their privacy policy representations did not allow it), and in the FTC’s settlement of its enforcement action against Google, Google must devise a comprehensive privacy policy and be audited for compliance for twenty years.

In just the few weeks since the FTC’s enforcement action against Google, Google appears to be making a mockery of the FTC’s enforcement action. The evidence:

The Glaring Google Loophole: Google cleverly negotiated itself a privacy loophole so huge that it could drive a world-leading mobile operating system through it without being touched.

  • Unlike the Kerry-McCain Senate privacy bill, the Google-FTC agreement amazingly does not specifically include “device identifiers” as “covered” privacy information (See Definition 5) when “device identifiers” are just as private or more private than an IP address.
  • Why this FTC device identifier omission is so egregious and important is that the whole Google Streetview WiSpy scandal was about Google essentially wiretapping tens of millions of Americans homes and recording their device identifiers, in addition to emails and passwords.
    • And remember, the FTC closed its investigation of the Google Streetview WiSpy scandal after Google promised in a blog post to try and do better next time.
  • Apparently Google gamed the FTC in negotiating itself a huge privacy invasion loophole that enables it to continue to vacuum up private device identifier information via its Android operating system.
    • Its pretty obvious that Google is gigglingly aware of this critical nuance of the FTC not explicitly “covering” “device identifiers” as private information:
      • Just last week, “Google decided to use the device identifier going forward” per a Search Engine Land post.
      • And shortly after the FTC settlement, Google VP Marissa Mayer in a TV interview with the Wall Street Journal (see 2:50), made the distinction that it is “not Google, its your phone under your control” that’s tracking your every whereabouts, despite the obvious fact that Android is a cloud operating system that operates on Google’s servers!
    • If this FTC-Google privacy enforcement action to prevent deceptive privacy practices is to have any credibility going forward, Google must fairly represent that Google is indeed tracking Android users locations by default in order to map WiFi hotspot locations, because Streetview can no longer overtly wiretap WiFi signals due to WiSpy privacy concerns.
    • It is an outrageous misrepresentation for Google to publicly claim that Android, a cloud based operating system that tracks users location by default from Google’s cloud servers is not Google, but the users’ system.
  • Unless the FTC fixes this huge and dangerous privacy loophole and makes it explicit that “device identifiers” are included as covered private information to be protected, the FTC-Google agreement won’t have much teeth.
    • (For those who would like to submit comments on the FTC-Google agreement, see EPIC’s “Fix Google Privacy” page which makes it easy to do.)

Google +1 Diversion: The same day the FTC announced the FTC-Google privacy settlement, Google just happened to be ready to announce its new +1 social media offering. Google knew the best way to misrepresent the importance of the FTC action was to downplay its importance in its blog post on it, while at the exact same time publicly releasing its much-awaited new product entry into social media “+1.”

  • Moreover, the +1 offering is about taking recommendations that someone might be interested in sharing with select friends, and sharing them with the world in Google search; or in other words making what used to be mostly private and making it completely public.

New Google CEO ties everyone’s bonuses to Google’s social success — Buzz deja vu? One of the most significant changes new Google CEO Larry Page has instituted is to tie 25% of all Googlers bonuses to Google’s success in entering social as fast as possible.

  • Remember Google totally missed the deep privacy problems of Google’s social service Buzz when it rushed  it out without appropriate vetting for potential privacy concerns.
  • Now Google’s CEO has made fastest broadest  exploitation of Google’s private information for the success of Google’s new social media products and services Google’s main goal this year, while also making it clear that privacy protection is not on the radar screen of the new CEO.
    • Does Mr. Page’s social media bonuses + his apparent blind eye to privacy = Buzz +1 more privacy scandal?

Only Google’s Browser does not offer Do Not Track: This is because the entire purpose of Google Chrome and Google Android is to track users every movement and action. Chrome/Android are no privacy by design as they vacuum up all private information.

  • It is telling that Microsoft Explorer, Mozilla’s Firefox, and Apple’s Safari all now support Do Not Track capabilities on their browser, and Google’s Chrome does not.
  • If the FTC and DOJ want more evidence why privacy is deeply relevant to antitrust, it is that Google uses privacy arbitrage as a key anti-competitive advantage to enhance and extend its monopoly power.
    • On Google’s investor conference call last week, Google bragged about how “…everybody that uses Chrome is a guaranteed locked-in user…” for Google.
      • Please see  Larry Dignan’s outstanding ZDNet post on this.

In sum, I see two big takeaways here.

  • First, Google remains on a collision course with the FTC, Congress and other privacy authorities on privacy.
    • It is clear that privacy protection is not important or a priority to Google’s leadership, at the same time it is becoming increasingly important to users and government officials at all levels.
  • Second, Google’s outsized and loud crashing of the social media party known as investment Bubble 2.0, will bring unwanted privacy protection attention by Federal/state law enforcement, legislators, and regulators — to Silicon Valley’s social media party where privacy offenses of all kinds are happening in full view of anyone willing to look.


Part I: Privacy Will Burst Bubble 2.0

The House’s rejection of the FCC’s December Open Internet order 240-179 is just the latest in an ongoing high-profile accountability gauntlet for the FCC’s unauthorized, unwarranted and unjustified net neutrality rules.

  • While the wheels of democracy, public accountability, and the rule of law can turn slowly, they do turn steadily.
  • And from what we have seen so far, the FCC’s out-of-the-mainstream, over-reach effort to regulate the Internet for the first time, has been pummeled in our Government’s accountability process gauntlet to date, and it can be expected to continue to be pummeled going forward.

The Net Neutrality Accountability Gauntlet:

First, the President’s January Executive Order, “Improving Regulation and Regulatory Review” to seek the “least burdensome” regulations, was a big post-mid-term election political pivot by the Administration to be more sensitive to business, economic growth and job creation concerns.

  • Through the new lens of the President’s Executive Order, the FCC’s pre-mid-term-election-mindset net neutrality rule making has been viewed as badly out-of-focus with the renewed bipartisan interest in economic growth and job creation.

Second, February and March had House hearings, Subcommittee/Committee votes, and Committee analysis on the legitimacy of the FCC’s order.

  • The Energy and Commerce Committee’s Report has an excellent and devastating analysis (see pages 2-13) of why the House disapproved the FCC’s Open Internet order.

Third, April resulted in the House officially rejecting the FCC rules 240-179 for the public record.

  • While opponents claimed there should be no vote, because the House could not realistically overturn a likely Presidential veto, the real accountability was the process of creating an official recorded vote for the next election, and informing the public of this serious overreach of regulating the Internet for the first time.
    • Interestingly, the White House, in signaling its opposition to the House’s rejection of the FCC’s order, did not use the strongest language available to it, that the President would veto the House’s  action, but only that “the President’s advisors would recommend a veto.”
    • This appears to signal that the White House does not relish the prospect of vetoing this Resolution of Disapproval.

Fourth, comes net neutrality accountability in the Senate.

  • Under the arcane rules of the Resolution of Disapproval process, the House vote will go to the Senate Commerce Committee, where the Chairman can decide whether or not to hold any hearings.
  • When the FCC finally publishes its December Order in the Federal Register, (probably in the summer) it then triggers an unusual special process in the Senate, where if thirty Senators sign a discharge petition, there must be a majority vote on the Senate floor in twenty days, without amendments, and no filibusters allowed.
  • While many have reiterated the conventional wisdom that the FCC Resolution of Disapproval will not pass the Senate, the political reality may not be as clear cut.
    • If all 47 republicans voted against the FCC order, only 4 Senate Democrats would be needed to disapprove the FCC Order.
    • Given that six House Democrats voted to disapprove, and so many Democratic Senators appear to face very tough reelection races in 2012, the accountability process in the Senate will be high as well.
    • The accountability process here is that some  Senate Democrats in tough 2012 races may not choose to defend regulating the Internet for the first time based on the FCC’s speculative harms.
    • The other key aspect of this accountability process is that the White House will be pushing Democratic Senators in very tough races to go on the record with a vote that may be against their individual political interests, so that the President does not have to go on the record with a veto defending the FCC’s regulation of the Internet in the 2012 Presidential race.
    • The point here, is that there could be much more to this Senate accountability gauntlet than first meets the eye.

Fifth, the Court process will add the ultimate in net neutrality accountability.

  • The jockeying for where appeals of the FCC order will be heard will create yet another accountability process point before the FCC order is even judged on its merits.
  • Defenders of the FCC order can be expected to perform filing gymnastics to try and increase the chances in a potential lottery that Appeals Circuit Courts known to give regulators more deference ultimately hear this case.
    • The takeaway from this jockeying likely will be that the FCC decision was more political than justified on the law or merits.
  • Once the Appeals Circuit Court is determined, another accountability process will play out as the trade press and analysts handicap the likely outcome (the conventional wisdom is the FCC will lose in court.)
    • The accountability story here will be about whether the FCC or Congress has the authority to set new U.S. Internet policy.
  • Once this accountability decision comes down, likely in 2012, the case could then be appealed to the Supreme Court for decision in 2013, and the earlier process would be played out on an ever bigger and more public accountability scale.

In sum, the FCC is just in the beginning of a rigorous 3-4 year accountability process for their preemptive economic regulation of an industry for a problem the FCC has yet to clearly define. Many important conclusions are likely to emerge from this net neutrality accountability gauntlet.

  • It will be clear that the FCC’s Open Internet order is the first major change in U.S. Internet policy in 15 years that:
    • Abandoned longstanding bi-partisan Internet policy consensus;
    • Abandoned longstanding competition policy and law; and
    • Attempted to supplant Congress’ Constitutional authority to legislate and set national Internet policy.

The net neutrality accountability gauntlet has not been kind to the FCC so far, and the next stages look to spotlight further the core flaws of the FCC order, i.e. that it is:

  • Unwarranted and unjustified on the facts;
  • Is the most controversial and divisive FCC rule making in the Internet era; and
  • Is an illegal usurpation of Congress’ Constitutional authority.