Economics and Technology, Inc. -- Views and News, September2011

September 2011

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3G, 4G, LTE, WiMAX: what do they all mean?

In their April 2011 Merger Petition, AT&T and T-Mobile argued that for purposes of examining the potential impact their merger would have on competition, the relevant geographic market is local, not national in scope. They emphasized that "[a]s the Commission has explained, 'the geographic market is the area within which a consumer is most likely to shop for mobile telephony/broadband services,' and '[f]or most individuals, this market will be a local area, as opposed to a larger regional or nationwide area.'" But having taken that stance, the Petition itself offered scant analysis of the state of competition in these "local" markets, such as might be demonstrated by the post-transaction Herfindahl-Hirschman Index ("HHI") of market concentration and the pro forma change in the HHI. Telecom markets will almost always be more concentrated when viewed at a local rather than a national level: For example, AT&T's and Verizon's wireline market shares are much higher within their respective ILEC footprints than when aggregated nationwide.

In its August 31 lawsuit aimed at blocking the merger, the US Department of Justice has brought this point home: "Preliminary market share estimates demonstrate that in 96 of the nation's largest 100 CMAs [Cellular Market Areas] ... representing relevant geographic markets for mobile wireless telecommunications services – the post-merger HHI exceeds 2,500. Such markets are considered to be highly concentrated." DoJ further noted that "[i]n 91 of the 97 CMAs ... including all of the nation's 40 largest markets – preliminary market share estimates demonstrate that AT&T's acquisition of T-Mobile would increase the HHI by more than 200 points. Such an increase is presumed to be likely to enhance market power. ..."

The table below was prepared using the DoJ HHIs for the top-30 CMAs. All but one market would exceed (and, for most, by a considerable amount) the DoJ Horizontal Merger Guidelines' threshold for a "highly concentrated" market – and the one market that doesn’t (Milwaukee) just barely misses it. HHI would increase by more than 200 in all of the top-30 CMAs, indicating that the merger would be "likely to enhance market power." A trial date for the DoJ lawsuit is set for February 2012.

HOW THE MERGER WILL INCREASE CONCENTRATION IN LOCAL WIRELESS MARKETS
Cellular Market Area (CMA)	Post-merger AT&T/T-Mobile Market Share	Pre-merger HHI	Post-merger pro forma HHI	Change in HHI	"Highly Concen- trated" (HHI>2500)	"Likely to Enhance Market Power" (increase in HHI>200)
1 New York, NY-NJ	43.7%	2384	3335	951	X	X
2 Los Angeles-Long Beach, CA	41.4%	2380	3174	794	X	X
3 Chicago, IL	48.1%	2075	3189	1114	X	X
4 Philadelphia, PA	45.2%	2467	3385	918	X	X
5 Detroit/Ann Arbor, MI	31.9%	2437	2857	420	X	X
6 Boston, MA-NH	40.9%	2764	3495	731	X	X
7 San Francisco-Oakland, CA	50.3%	2675	3438	763	X	X
8 Washington, DC-MD-VA	39.6%	2646	3282	636	X	X
9 Dallas-Fort Worth, TX	58.0%	2713	3980	1267	X	X
10 Houston, TX	52.1%	2228	3578	1350	X	X
11 St. Louis, MO-IL	46.7%	2530	3269	739	X	X
12 Miami-Fort Lauderdale, FL	48.1%	2314	3341	1027	X	X
13 Pittsburgh, PA	31.8%	3303	3650	347	X	X
14 Baltimore, MD	36.5%	2724	3294	570	X	X
15 Minneapolis-St. Paul, MN-WI	45.5%	2563	3596	1033	X	X
16 Cleveland, OH	29.7%	3352	3717	365	X	X
17 Atlanta, GA	46.6%	2337	3223	886	X	X
18 San Diego, CA	40.8%	2537	3248	711	X	X
19 Denver-Boulder, CO	41.9%	2370	3227	857	X	X
20 Seattle-Everett, WA	53.2%	2668	4044	1376	X	X
21 Milwaukee, WI	34.3%	2099	2493	394		X
22 Tampa-St. Petersburg, FL	39.1%	2194	2935	741	X	X
23 Cincinnati, OH-KY-IN	22.6%	2360	2575	215	X	X
24 Kansas City, MO-KS	44.0%	2381	3329	948	X	X
25 Buffalo, NY	31.6%	3023	3385	362	X	X
26 Phoenix, AZ	32.9%	2642	3178	536	X	X
27 San Jose, CA	48.6%	2791	3466	675	X	X
28 Indianapolis, IN	41.5%	2799	3314	515	X	X
29 New Orleans, LA	43.9%	2972	3579	607	X	X
30 Portland, OR-WA	47.2%	2666	3629	963	X	X

For more information, contact Lee L. Selwyn at lselwyn@econtech.com

Read the rest of Views and News, August 2011.

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