AT&T, DT Offer Revised Economic Model Justifying Merger
AT&T and Deutsche Telekom released a highly redacted version of a revised economic analysis of their proposed merger, offering regulators a detailed analysis of synergies they say would result from the deal in 15 markets. Merger opponents were quick to criticize the revised model. Disclosure of the revised model led the Wireless Bureau last week to temporarily halt the 180-day shot clock on its review of the deal.
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"In each market, the merger simulations project that industry output will rise and average price adjusted for quality will fall as a result of the transaction,” AT&T said (http://xrl.us/bk29q2). “This finding of net consumer benefit from the proposed transaction holds for both the baseline assumptions and the assumptions made as robustness checks.” Output as elaborated on by AT&T reflects such factors as service quality, download speeds and call quality.
AT&T also counters economic arguments made against the deal. “Opponents of the proposed transaction have provided analyses using the Upward Pricing Pressure (UPP) framework,” the filing states. “As the Applicants have previously pointed out, a central failing of the UPP framework is that, when applied one price at a time, it does not account for the downward pressure on one merging party’s price created by the efficiencies-induced fall in the other merging party’s quality-adjusted price. Nevertheless, the Economic Analysis also presents results using the UPP framework, which does not support the claims of merger opponents that the proposed transaction will increase prices.”
"It looks like ATT is trying to expand the size of the cognizable synergies,” said Paul Gallant, analyst at MF Global. “It’s an important point because the companies want to pile up synergies to try to offset the harms from the merger. Stopping the clock to let ATT make this filing and get public comment isn’t unusual in big mergers, so I wouldn’t read too much into it."
"It’s hard to predict how the FCC will process additional data on merger synergies supplied by AT&T, given the multitude of policy and political factors already in the mix,” said Jeff Silva, analyst at Medley Global Advisors. “More than anything, I think the commission’s latest request for information and AT&T’s response tend to underscore the underlying tension at play in the commission’s assessment of whether the transaction is in the public interest. That is, can market removal of one of the four national wireless carriers produce consumer benefits that override such a diminishment of competition in major markets around the country? AT&T shoulders the burden of convincing the FCC and Justice Department the tie-up will do just that. It is unclear at this point whether Obama Administration policymakers are convinced."
Merger opponents, not surprisingly, were sharply critical of the filing Tuesday. “New models or not, this is the same bad deal for American consumers, workers and businesses,” said Free Press Policy Director Derek Turner. “After failing to make a credible case in the first go-round, AT&T is desperately trying a do-over. Yet while AT&T is spinning, support for the merger continues to unravel, from Capitol Hill to California. AT&T is asking the FCC for a do-over because its case for the merger was obliterated by the evidence. Free Press and others have demonstrated time and again before the FCC that both of AT&T’s central claims -- that the merger will lead to greater rural buildout and improved quality -- are nothing more than a facade. AT&T could accomplish both of these goals without this merger and without killing off a major competitor."
"AT&T’s ‘do-over’ submission is a last-ditch attempt to distract regulators, politicians and consumers from the fact that it has failed to provide any evidence that its proposed takeover of T-Mobile yields meaningful benefits. Its latest model, clearly constructed with predetermined results in mind, does nothing to change the negative consequences of the takeover for consumers in the form of higher prices, reduced innovation and decreased investment,” Sprint Nextel said. “The facts do not justify allowing that to happen, and we believe the ongoing investigations by the Department of Justice, the Federal Communications Commission and 11 state attorneys general and various state regulatory commissions will reach the same conclusions."
AT&T’s new model was developed by a team led by Dennis Carlton, an economist at the University of Chicago. The markets examined are New York, Los Angeles, Washington, San Francisco, Miami, San Diego, Charleston, S.C., Portland, Ore., Gainesville, Fla., Buffalo, N.Y., Waco, Texas, Portland, Maine, Boise City, Idaho, Shreveport, La., and San Juan, P.R.