The week before Christmas, the financial world stirred with news that AT&T would no longer pursue a merger with its cellular competitor T-Mobile. Announcing that it and T-Mobile’s owner, Deutsche Telekom AG, intended to scuttle their $39 billion merger plan, AT&T cited opposition to the deal by the Federal Communications Commission (FCC) and the Antitrust Division of the Department of Justice (DoJ). The reasons for the merger were simple enough: AT&T needed T-Mobile’s wireless spectrum, and Deutsche Telekom wanted to get out of the American cellular market. DoJ’s primary concern seems to have been that the move from four major wireless providers to three would make the market for cellular-phone service less competitive.
DoJ’s position is reminiscent of a prior era of antitrust regulation, in which preventing market concentration was prized over economic efficiency and clear consumer interests (e.g., lower prices and higher quality). That trust-busting ethos no longer holds much currency at the Supreme Court, but it is alive and well in the Obama administration, thus demonstrating that the pursuit of a policy agenda—be it a throwback to an age of liberal monopoly regulation or an advancement of the common good through a pro-life agenda—relies not only on the courts, but also on the properly oriented engagement of the administrative state.
The $39 billion deal would have given AT&T access to more wireless spectrum in order to enhance its network with T-Mobile’s assets, and it would have taken the American company off Deutsche Telekom’s hands. Instead, as per the merger agreement, AT&T owes Deutsche Telekom $3 billion in penalties, and Deutsche Telekom is still looking for a way to unload T-Mobile. AT&T also had to relinquish spectrum to T-Mobile, thus presumably affecting adversely the needs of its existing customers. This result came about because, “in the end, [AT&T] decided it couldn’t come up with a package of divestitures or other changes to the deal to appease U.S. officials that had deemed it anticompetitive.” Indeed, “people familiar with the matter” told the Wall Street Journal that “no amount of divestitures would appease government lawyers.”
The result of the merger would have been to unite the number two and number four cellular providers, essentially creating a three-firm market with AT&T, Verizon, and Sprint. Verizon favored the merger, but Sprint did not, as it would have been the distant, third-ranked player in the market. Another loser in the deal was the broader mergers and acquisitions market, which, adding this failed merger to a string of other soured deals, finds that “the value of corporate deals struck in 2011 may be lower than the year before. The last time that happened was 2009, in the teeth of the financial crisis.”
DoJ’s interest in the merger made sense given the market context. Increased market concentration is a concern of the Obama Justice Department, as laid out in its merger guidelines. Here, the threshold application of the Herfindahl-Hirschman Index (HHI, the prescribed test for analyzing relative market concentration under the guidelines) shows a move from a moderately concentrated market to a highly concentrated one. The guidelines warn that such a situation might “raise significant competitive concerns and often warrant scrutiny.”
The Return of Liberal Antitrust
The appropriateness of this scrutiny is debatable. As one commentator noted about a leaked FCC report on the merger (and AT&T’s response),
Not only is there no actual evidence of consumer harm resulting from the sort of increases in concentration that might result from the merger, but the [FCC] staff seems to derive its negative conclusions despite the damning fact that the data shows that wireless markets have seen considerable increases in concentration along with considerable decreases in prices, rather than harm to competition, over the last decade. While high and increasing HHIs might indicate a need for further investigation, when actual evidence refutes the connection between concentration and price, they simply lose their relevance.
Others took away from the whole ordeal a simple lesson: “Don’t underestimate the Justice Department’s newfound toughness in policing mergers between rivals.” Those authors point out, “The tougher stance shouldn’t come as a surprise. President Barack Obama campaigned on reinvigorating antitrust enforcement, reversing the previous administration’s more hands-off approach to mergers between rivals.”
Such a result follows from the position established at the outset of the Obama administration by its first Assistant Attorney General for Antitrust, Christine Varner. As the New York Times reported on a speech she gave before the liberal Center for American Progress, she announced “that the administration would restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.” While she placed this commitment to preventing “market dominance” in the context of “consumer welfare,” at a more fundamental level, it harkens back to an earlier age of antitrust enforcement in which an ideological aversion to market concentration qua market concentration (or, arguably, to market concentration as a threat to competitors not competition) was read by the courts into the antitrust statutes, in particular the Sherman Act.
It is a view succinctly described by Judge Learned Hand in United States v. Aluminum Co. of America (1945): “We have been speaking only of the economic reasons which forbid monopoly; but, as we have already implied, there are others, based upon the belief that great industrial consolidations are inherently undesirable, regardless of their economic results.” Judge Hand cited as support the Supreme Court’s first decision on the merits of the Sherman Antitrust Act, United States v. Trans-Missouri Freight Association (1897), in which Justice Peckham denounced even those monopolies that drove down prices (that is, enhanced consumer welfare by one very important quantitative measure), saying,
In business or trading combinations they may even temporarily, or perhaps permanently, reduce the price of the article traded in or manufactured, by reducing the expense inseparable from the running of many different companies for the same purpose. Trade or commerce under those circumstances may nevertheless be badly and unfortunately restrained by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings.
Like Justice Peckham, the Obama administration seems willing to dismiss concrete consumer benefits (like lower cost or enhanced service with a more reliable wireless network) as ancillary to perceived non-economic negative effects (like hurting “worthy men” in competition or “keep[ing]” competitors “from gaining market share”).
The Supreme Court and the “New Learning” in Antitrust
While DoJ seems to be applying century-old ideological concerns about the inherent threats posed by market concentration to competition, the Supreme Court, over the past forty years, has moved away from non-economic consideration like harm to competitors, focusing instead on concrete harm to consumer welfare and economic efficiency. As Judge Douglas Ginsburg recently wrote, “Starting in the 1970s, the Supreme Court began systematically reworking antitrust doctrine in order to bring it into alignment with the modern economic understanding of competition.”
Describing this reworked doctrine as the “new learning” in antitrust, Judge Ginsburg lays out various antitrust trends at the Supreme Court. He notes that as a result of this new learning, “During the most recent decade, defendants won all thirteen, that is, one hundred percent of the Court’s antitrust cases. These figures reflect the Justices’ increasing embrace of the economic approach to antitrust law, which—relative to approaches based upon amorphous sociopolitical goals—limits liability to those relatively few business practices truly inimical to consumers.” Or, paraphrasing Judge Robert Bork, the current consensus is that our antitrust laws “would promote consumer welfare, not the various sociopolitical aims that judges had read into [them].”
Perhaps even more surprising to the outside observer, Judge Ginsburg shows that the Supreme Court not only employs the “economic approach” to antitrust in favor of defendants with regularity, but also does so with increasing agreement among the Justices. As he explains,
[Between 1997 and 2007], when the Court decided all thirteen cases for the defendants, a supermajority obtained in eighty-five percent (eleven of thirteen) of the cases. Over [the past] four decades, the percentage of all antitrust cases that the Court decided by a supermajority in favor of the plaintiff fell from fifty-five percent to zero. As these figures suggest, the economic approach to antitrust has conduced to clear and largely predictable outcomes in favor of defendants.
While this situation is not always reflected in all federal jurisdictions, the sharp change in antitrust posture at the Court today as compared to fifty years ago has altered the legal landscape. As Judge Ginsburg concludes, the triumph of economic efficiency “does significantly constrain the decision making of the Court and thereby narrow the range of plausible outcomes.”
The Importance of Agencies
Against this backdrop, the AT&T merger shows that the administrative state matters. While not making any definitive judgments on the specific antitrust implications of this merger, it remains the case that AT&T would at least have faced a favorable environment if it fought DoJ in court, given the Supreme Court’s defendant-preference in accordance with the modern economic understanding of antitrust. Indeed, given that AT&T, in response to the FCC, made, at minimum, colorable claims that the merger would benefit consumer welfare in a number of ways, surely AT&T and T-Mobile were not despairing of their chances in court.
Yet, as is said sometimes of criminal law, the prosecution can be the punishment. Here, civilly, it was the litigation brought by DoJ, as AT&T and Deutsche Telekom’s stockholders can surely attest. (Shares of AT&T saw a series of drops in August, coincidentally the month when DoJ announced its antitrust suit.) This phenomenon is especially acute for ex ante merger regulation, in that, while AT&T may have prevailed in court, antitrust litigation is a long and costly process. As mergers are typically stayed while proceedings continue, the market conditions might no longer be ripe for the acquisition by the time the case is resolved and the merger can proceed. So, as was the case with AT&T, the parties will contort themselves into pretzels to appease the regulators and avoid the litigation, and when they can’t, the merger fails. Even the Supreme Court might have held AT&T to be in the right, but, in the end, it was the bureaucracy that scuttled the $39 billion deal. In an election year, there are lessons to be learned from this, which extend far beyond the realm of mergers and acquisitions.
If a president wishes to effectuate policies that advance the common good (as he ought to), he needs to do so on multiple fronts. Given President Obama’s policy interest in reviving a more activist conception of monopoly regulation, he not only placed traditional liberals on the courts, but also arranged the bureaucracy so that it would take a harder look at monopolies and—as with AT&T—provide an administrative backstop in case an antitrust defendant-preference persisted in the courts.
In many ways, this is the mirror image of what happened in the 1980s, when President Reagan appointed not only new-learning judges like Robert Bork and Richard Posner to important federal courts, but also economist James Miller to run the Federal Trade Commission. The synergy of the related actions in distinct branches—according to James Q. Wilson’s Bureaucracy—allowed “economists [to] increase their strength at the Federal Trade Commission,” with the result that “as the courts became skeptical of the argument that big corporations were inherently less desirable than small ones, the FTC became less likely to bring cases that asserted the proposition that big was bad.”
Candidates for the Republican presidential nomination should pay heed to Reagan and Obama’s multi-branch approach to achieving desired antitrust policies, which can inform how administrations can best achieve policy goals, not only in market regulation but also in areas such as the regulation of abortion and its related policy issues. There is a temptation for Republican candidates to respond to the judiciary’s arrogation of the abortion issue in Roe v. Wade by simply promising to appoint “originalist” Justices to the Supreme Court, whose “faithful application” of the Constitution will overturn federal judicial abortion protections.
While judicial appointments are surely an essential element of any coherent policy to extend greater legal protection to the unborn, the AT&T lesson demonstrates that it is not sufficient. It was not the confirmation of Sonia Sotomayor to the Supreme Court or David Hamilton to the Seventh Circuit that killed the AT&T merger and thus preserved “competition” and forestalled “excessive” concentration in the cellular-provider market; on the contrary, ex post antitrust enforcement in the courts would likely have faced bleak prospects even with Obama’s appointments. Obama’s antitrust policies were adopted by DoJ, and that is where they were effectively applied, even in the face of likely unsympathetic courts.
In addition to appointing originalist judges, a Republican administration will have numerous opportunities to advance pro-life policies at the administrative level. It can reinstate robust medical conscience regulations; it can rescind the broad new abortifacient insurance-coverage mandates; it can retrench the marketing of abortifacient drugs like ulipristal; it can pursue more active enforcement of federal laws like the Partial-Birth Abortion Ban Act and the Born-Alive Infant Protection Act. These policy goals can be sought either in conjunction with an increasingly sympathetic judiciary (as with Reagan’s FTC) or as an alternative avenue of effecting policy in the face of a hostile judiciary (as with Obama and the AT&T merger).
A sincere pro-life candidate needs to recognize that the same channels of power that the current administration uses to protect competitors can and should be used to protect the unborn.