WEBVTT - State AGs Fight T-Mobile Merger with Sprint at Trial

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you insight and analysis into the most

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<v Speaker 1>important legal news of the day. You can find more

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<v Speaker 1>episodes at the Bloomberg Law Podcast, on Apple Podcasts, SoundCloud,

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<v Speaker 1>and on Bloomberg dot com slash podcasts. It's a novel

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<v Speaker 1>trial that will determine the players in the nation's wireless

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<v Speaker 1>market whether that market will have the current four carriers

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<v Speaker 1>or drop to three. Thirteen states, led by New York

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<v Speaker 1>and California, are suing to block the twenty six point

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<v Speaker 1>five billion dollar merger of T Mobile, the third largest carrier,

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<v Speaker 1>and Sprint, the fourth largest, arguing that it will drive

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<v Speaker 1>up prices, reduce the level of service, and violate antitrust laws.

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<v Speaker 1>The Justice Department in the Federal Communications Commission gave their

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<v Speaker 1>blessings to the deal after the companies agreed to make

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<v Speaker 1>some concessions. Joining me as Spencer Waller, a professor at

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<v Speaker 1>Loyola University Law School and director of the Institute of

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<v Speaker 1>Consumer Antitrust Studies, is it on precedented for the states

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<v Speaker 1>to reject a settlement by the Feds and sue to

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<v Speaker 1>block the merger. It's not unprecedented, but it's very very

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<v Speaker 1>rare that the Streame Court for a long time has

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<v Speaker 1>said that the States operate independently from the Feds in

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<v Speaker 1>the antitrust area, and they can challenge things that the

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<v Speaker 1>Feds don't challenge at all, or that they settle in.

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<v Speaker 1>The States believe that they have a have a strong case,

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<v Speaker 1>but it's been few and far between. By and large,

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<v Speaker 1>the States prefer to work with either the FTC or

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<v Speaker 1>the do J and work together in a coalition to

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<v Speaker 1>attack mergers of this kind. How can removing a low

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<v Speaker 1>cost rival from a highly concentrated industry not have a

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<v Speaker 1>negative effect on competition? What T Mobile sprints argument at trial? Well,

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<v Speaker 1>you know, it's tough. T Mobile has played a really

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<v Speaker 1>unprecedented role in the cell phone industry as the maverick,

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<v Speaker 1>as the disruptor, as the one that not only was

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<v Speaker 1>aggressively competing on price and service and some other things,

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<v Speaker 1>but also was the carrier in particular that was keeping

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<v Speaker 1>a T and T and Verizon on their toes and

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<v Speaker 1>forcing them to respond and kind in numerous markets. So

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<v Speaker 1>the theory is strong. It was part of why prior

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<v Speaker 1>acquisitions of the mobile were challenge It was part of

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<v Speaker 1>why this particular murder was of great concern four years

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<v Speaker 1>ago under the Obama administration. The best I can tell

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<v Speaker 1>you is they're positioning this as a merger that would

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<v Speaker 1>create a strong number three and allow them to better

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<v Speaker 1>compete with A T and T and Verizon. That is

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<v Speaker 1>the story that they're pitching in their documents and their

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<v Speaker 1>testimony and trial. When the FEDS gave their blessing to

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<v Speaker 1>the merger, they required certain concessions. What were those concessions

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<v Speaker 1>that led the FEDS to say, Okay, this deal can

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<v Speaker 1>go through. It's not unusual for the FEDS to approve

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<v Speaker 1>a deal subject to restructuring. It is more often. You

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<v Speaker 1>could imagine, let's say, take supermarkets. If there's a merger

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<v Speaker 1>that creates a very highly concentrated local market, you could

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<v Speaker 1>sell off some supermarkets to another national chain and keep

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<v Speaker 1>things roughly the same. What's unusual about this deal is

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<v Speaker 1>that the divestitures are this rickety package of assets, spectrum,

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<v Speaker 1>legal rights, and other things. So basically, the two companies

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<v Speaker 1>are being forced to or agreed to spin off their

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<v Speaker 1>prepaid cellular plans to dish Um, the satellite TV provider

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<v Speaker 1>that does own some spectrum and has some plans to

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<v Speaker 1>enter the cell phone market. In addition, there's some spectrum transfers.

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<v Speaker 1>There is provision of services so that the new dish

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<v Speaker 1>cell phone entity can use the facilities of the two

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<v Speaker 1>merging parties so that all the calls can be completed.

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<v Speaker 1>That's basically the package. And this is really a lot

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<v Speaker 1>differently than just selling off some supermarkets and having a

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<v Speaker 1>new operator. This is getting someone who's not been in

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<v Speaker 1>the business before and will be dependent on the very

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<v Speaker 1>parties who are merging in order to compete with these

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<v Speaker 1>parties and with the two large carriers that are already

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<v Speaker 1>dominating the market. So on Tuesday, the States presented company

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<v Speaker 1>internal and analysis done before reaching the agreement with Sprint,

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<v Speaker 1>showing the deal as a way to reduce competition and

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<v Speaker 1>raise prices. But while on the stand, Deutsche Telecomms chairman

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<v Speaker 1>testified that sell customers will see lower prices if the

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<v Speaker 1>deal goes through. He said, we commit that prices are

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<v Speaker 1>going down in this market. So how does a judge decide, Well,

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<v Speaker 1>just you know, as a former trial lawyer, all I

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<v Speaker 1>can tell you is documents that were written, you know,

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<v Speaker 1>contemporaneously to before litigation and you know by the parties

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<v Speaker 1>in the ordinary course of their business are are just

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<v Speaker 1>you know, it's very traditional evidence, no matter what kind

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<v Speaker 1>of a case. And it's very compelling because no one

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<v Speaker 1>is looking over their shoulder. Uh, They're going about their

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<v Speaker 1>business and they're talking to each other presumably in in

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<v Speaker 1>in candor. And that's very different than um testimony on

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<v Speaker 1>the stand after a complaint has been filed. The judge

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<v Speaker 1>is going to have to weigh that, Uh, this is

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<v Speaker 1>not a jury trial. The judge gets to decide what

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<v Speaker 1>is credible and what is convincing. And I think having

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<v Speaker 1>these documents are are very helpful to the state's case,

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<v Speaker 1>although it is not by itself the end of the case.

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<v Speaker 1>They will need other testimony from the companies, from competitors,

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<v Speaker 1>from customers, from expert witnesses that talk about the effects

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<v Speaker 1>of this further consolidation of a market where there are

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<v Speaker 1>only four national players. This will go down to three

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<v Speaker 1>plus the possibility that Dish will eventually become to some

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<v Speaker 1>extent of a fourth player coming back into the market.

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<v Speaker 1>The judge takes all this into consideration, but is he

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<v Speaker 1>going to have to rely most on what analysts say

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<v Speaker 1>is going to happen. Well, normally speaking, companies don't get

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<v Speaker 1>a free pass because they promised not to raise prices. Uh.

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<v Speaker 1>What they're trying to do is predict the likely effects

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<v Speaker 1>will they harm or hurt consumers as the main focus

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<v Speaker 1>of the inquiry, and promise not backed up by other evidence, UM,

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<v Speaker 1>isn't by itself going to be compelling. And the States

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<v Speaker 1>also need more than just a couple of hot doc

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<v Speaker 1>meants to make their case. So both sides really have

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<v Speaker 1>to lay out it's a crystal ball exercise because by definition,

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<v Speaker 1>this deal hasn't happened yet. Both sides are trying to

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<v Speaker 1>look into the future and say, here's the most likely scenario.

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<v Speaker 1>And as you mentioned, a judge is going to make

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<v Speaker 1>the decision in this case, not a jury, and he

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<v Speaker 1>told them to skip their opening statements, trim the witness

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<v Speaker 1>list to avoid beating him over the head with testimony.

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<v Speaker 1>Explain the difference between a judge and a jury in

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<v Speaker 1>a case like this. Sure, UM, now I don't know

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<v Speaker 1>this uh judge's background, but there's two kinds of cases.

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<v Speaker 1>There's UH, there is a there's a jury trial where

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<v Speaker 1>you have either six between six and twelve jurors and

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<v Speaker 1>a civil case, who who you know? Get here, opening statements, here,

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<v Speaker 1>all the evidence to get jury instructions, get final arguments,

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<v Speaker 1>and then go back in the room where we don't

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<v Speaker 1>know exactly, uh, you know what happened, um, and then

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<v Speaker 1>they come out with a with a verdict that doesn't

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<v Speaker 1>have to be unanimous in a in most civil cases,

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<v Speaker 1>a bench child. This is not a case about any

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<v Speaker 1>asking anybody for damages. No one's going to jail. This

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<v Speaker 1>is just whether or not the judge will issue a

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<v Speaker 1>preliminary injunction stopping this transaction from going forward or not.

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<v Speaker 1>So the judge um will decide all this and has

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<v Speaker 1>to put forward um conclusions of law and findings of fact.

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<v Speaker 1>You know that that takes time. So the judge doesn't

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<v Speaker 1>need the oratory from the parties. Uh, you know in

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<v Speaker 1>the opening statements and the full flowery presentations that that

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<v Speaker 1>often go to a go to a jury. So the

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<v Speaker 1>judge has a fair amount of discretion in any kind

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<v Speaker 1>of case to streamline what amount of time and number

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<v Speaker 1>of witnesses and documents it can be introduced in the

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<v Speaker 1>bench trail, and it usually goes faster because you don't

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<v Speaker 1>have to worry about the jury. You don't have to

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<v Speaker 1>send the jury out when there's a legal argument. You

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<v Speaker 1>don't have to have arguments about evidence and uh, and

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<v Speaker 1>then come back, you know, with the jury in the

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<v Speaker 1>box to then hear whatever the the dispute of that is.

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<v Speaker 1>So you know, the judge has to make all the decisions.

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<v Speaker 1>And there are very few district court judges who have

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<v Speaker 1>a lot of experience with antitrust cases. They're just one

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<v Speaker 1>of dozens and dozens of types of cases that come

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<v Speaker 1>before an average federal judge. On average, each judge has

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<v Speaker 1>a between two and four cases, depending on where they're

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<v Speaker 1>sitting in how busy they are at any particular moment. Uh.

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<v Speaker 1>This judge has a has a distinguished background, but but

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<v Speaker 1>he to my knowledge that never worked in the nitrust

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<v Speaker 1>area in neither private practice or in government before he

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<v Speaker 1>became a judge. And um, you know, these are these

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<v Speaker 1>are tough cases and the probably it's one of the

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<v Speaker 1>very few ones in the nitrust area he has heard

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<v Speaker 1>or will ever hear in his time on the bench.

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<v Speaker 1>So you know, he uh, he's going to have to

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<v Speaker 1>go through and here some um economic expert testimony as

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<v Speaker 1>to what the market looks like, how competition will be affected.

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<v Speaker 1>Someone is going to have to introduce evidence that either

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<v Speaker 1>explains or debunks the efficiencies on the technological progress that

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<v Speaker 1>the party's claim is going to result from this deal,

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<v Speaker 1>and then the judge who will have to in short

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<v Speaker 1>order issue his ruling, although that wouldn't necessarily come from

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<v Speaker 1>the bench at the end of the trial itself. Thanks

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<v Speaker 1>Spencer that Spencer Waller of Loyola University Law School. Thanks

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<v Speaker 1>for listening to the Bloomberg Law Podcast. You can subscribe

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<v Speaker 1>and listen to the show on Apple Podcasts, SoundCloud, and

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<v Speaker 1>on bloomberg dot com slash podcast. I'm June Grosso. This

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<v Speaker 1>is Bloomberg