[Federal Register: March 3, 2009 (Volume 74, Number 40)]
[Notices]
[Page 9267-9277]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr09-92]
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DEPARTMENT OF JUSTICE
Antitrust Division
Public Comment and Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comment
received on the proposed Final Judgment in United States et al. v.
Verizon Communications Inc. and Alltel Corporation, No. 1:08-CV-01878-
EGS, which were filed in the United States District Court for the
District of Columbia, on February 17, 2009, together with the response
of the United States to the comment.
Copies of the comment and the response are available for inspection
at the Department of Justice Antitrust Division, 325 Seventh Street,
NW., Room 200, Washington, DC 20530, (telephone (202) 514-2481), and at
the Office of the Clerk of the United States District Court for the
District of Columbia, 333 Constitution Avenue, NW., Washington, DC
20001. Copies of any of these materials may be obtained upon request
and payment of a copying fee.
Patricia Brink,
Deputy Director of Operations, Antitrust Division.
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
United States of America, State of Alabama, State of California, State
of Iowa, State of Kansas, State of Minnesota, State of North Dakota,
and State of South Dakota, Case No. 1:08-Cv-01878 (Egs), Plaintiffs, v.
Verizon Communications Inc. and Alltel Corporation, Defendants
Plaintiff United States's Response to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''),
plaintiff United States hereby responds to the public comment received
regarding the proposed Final Judgment in this case. After careful
consideration of the comment, plaintiff United States continues to
believe that the proposed Final Judgment will provide an effective and
appropriate remedy for the antitrust violation alleged in the
Complaint. Plaintiff United States will move the Court for entry of the
proposed Final Judgment after the public comment and this Response have
been published in the Federal Register, pursuant to 15 U.S.C. Sec.
16(b), (d).
On October 30, 2008, plaintiff United States and the States of
Alabama, California, Iowa, Kansas, Minnesota, North Dakota, and South
Dakota filed the Complaint in this matter alleging that the proposed
merger of two mobile wireless telecommunications service providers,
Verizon Communications Inc. (``Verizon'') and Alltel Corporation
(``Alltel''), would violate Section 7 of the Clayton Act, 15 U.S.C. 18
in certain geographic areas of the United States. Simultaneously with
the filing of the Complaint, plaintiff United States filed a proposed
Final Judgment and a Preservation of Assets Stipulation and Order
signed by plaintiff United States, the plaintiff States and the
defendants consenting to the entry of the proposed Final Judgment after
compliance with the requirements of the Tunney Act. Pursuant to those
requirements, plaintiff United States filed a Competitive Impact
Statement (``CIS'') in this Court on October 30, 2008; published the
proposed Final Judgment and CIS in the Federal Register on November 12,
2008, see 73 FR 66,922 (2008); and published a summary of the terms of
the proposed Final Judgment and CIS, together with directions for the
submission of written comments relating to the proposed Final Judgment,
in the Washington Post for seven days beginning on November 19, 2008
and ending on November 25, 2008. The defendants filed the statements
required by 15 U.S.C. Sec. 16(g) on November 7, 2008. The 60-day
period for public comments ended on January 24, 2009, and one comment
was received as described below and attached hereto.
I. Background
As explained more fully in the Complaint and the CIS, the likely
effect of this transaction would be to lessen competition substantially
for mobile wireless telecommunications services in 94 geographic areas
in the states of Alabama, Arizona, California, Colorado, Georgia,
Idaho, Illinois, Iowa, Kansas, Minnesota, Montana, Nebraska, Nevada,
New Mexico, North Carolina, North Dakota, Ohio, South Carolina, South
Dakota, Utah, Virginia, and Wyoming. To restore competition in these
markets, the proposed Final Judgment, if entered, would require
defendants to divest (a) Alltel's mobile wireless telecommunications
businesses and related assets in 85 Cellular Market Areas (``CMAs'');
(b) Verizon's mobile wireless telecommunications businesses and related
assets acquired from Rural Cellular Corporation in August 2008 in seven
CMAs; and (c) Verizon's mobile wireless telecommunications businesses
and related assets (excluding those acquired from Rural Cellular
Corporation in August 2008) in two CMAs. Entry of the proposed Final
Judgment would terminate this action, except that the Court would
retain jurisdiction to construe, modify, or enforce the provisions of
the proposed Final Judgment and punish violations thereof.
II. Legal Standard Governing the Court's Public Interest Determination
Upon publication of the public comments and this Response,
plaintiff United States will have fully complied with the Tunney Act.
It will then ask the court to determine that entry of the proposed
Final Judgment would be ``in the public interest,'' and to enter it. 15
U.S.C. 16(e)(1). In making that determination, the court, in accordance
with the statute as amended in 2004,\1\ is required to consider:
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\1\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for the court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
Sec. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also United
States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1, 11 (D.D.C. 2007)
(concluding that the 2004 amendments ``effected minimal changes'' to
Tunney Act review).
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A)-(B). In considering these statutory factors, the
court's inquiry is necessarily a limited one as the government is
entitled to ``broad discretion to settle with the defendant within the
reaches of the public interest.'' United States v. Microsoft Corp., 56
F.3d 1448, 1461 (DC Cir.
[[Page 9268]]
1995); see generally United States v. SBC Commc'ns, Inc., 489 F. Supp.
2d 1 (D.D.C. 2007) (assessing public interest standard under the Tunney
Act).
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement mechanisms are sufficient,
and whether the decree may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see
also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152
F. Supp. 2d 37, 40 (D.D.C. 2001). Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (citations omitted).\2\ In determining whether
a proposed settlement is in the public interest, a district court
``must accord deference to the government's predictions about the
efficacy of its remedies, and may not require that the remedies
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d
at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts
to be ``deferential to the government's predictions as to the effect of
the proposed remedies''); United States v. Archer-Daniels-Midland Co.,
272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant
due respect to the United States's prediction as to the effect of
proposed remedies, its perception of the market structure, and its
views of the nature of the case).
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\2\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
``reaches of the public interest'').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns,
489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that plaintiff United
States has alleged in its Complaint, and does not authorize the court
to ``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,''it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that plaintiff United States did not pursue.
Id. at 1459-60. As this Court recently confirmed in SBC Commc'ns,
courts ``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of using consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). The language codified what the
Congress that enacted the Tunney Act in 1974 intended, as Senator
Tunney explained: ``[t]he court is nowhere compelled to go to trial or
to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11.\3\
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\3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone''); S.
Rep. No. 93-298, 93d Cong., 1st Sess., at 6 (1973) (``Where the
public interest can be meaningfully evaluated simply on the basis of
briefs and oral arguments, that is the approach that should be
utilized.''); United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade
Cas. (CCH) ] 61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing
of corrupt failure of the government to discharge its duty, the
Court, in making its public interest finding, should * * * carefully
consider the explanations of the government in the competitive
impact statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.'').
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III. Summary of Public Comment and Plaintiff United States's Response
During the 60-day public comment period, plaintiff United States
received one comment, from Public Service Communications, Inc., Public
Service Telephone Company, and their related affiliates (collectively
``PST''), which is attached hereto and summarized below. This comment
relates primarily to mobile wireless services in the State of Georgia.
Upon review, plaintiff United States believes that nothing in the
comment warrants a change in the proposed Final Judgment or is
sufficient to suggest that the proposed Final Judgment is not in the
public interest. Copies of this Response and its attachments have been
mailed to PST.
A. Factual Background
The plaintiffs' Complaint alleges that the merger of Verizon and
Alltel would tend to lessen competition substantially, in violation of
Section 7 of the Clayton Act, in the provision of mobile wireless
telecommunications services in geographic areas effectively represented
by 94 FCC spectrum licensing areas, including eight CMAs in the state
of Georgia.\4\ In recognition of the fact that wireless carriers
frequently are more
[[Page 9269]]
competitive where they serve contiguous areas, see CIS at 16, the
proposed Final Judgment requires that all the assets to be divested in
the State of Georgia be sold together to a single buyer.\5\ Proposed
Final Judgment, Section IV.I.
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\4\ The wireless assets to be be divested in Georgia
(collectively, the ``Georgia divestiture assets'') are located in
the Albany, GA Metropolitan Statistical Area (``MSA'') and Georgia
Rural Service Areas (``RSAs'') 6, 7, 8, 9, 10, 12, and 13.
\5\ Section IV.I of the proposed Final Judgment allows plaintiff
United States, in its sole discretion, upon consultation with the
relevant plaintiff State, to allow the sale of less than all the
wireless assets in Georgia to facilitate a prompt divestiture to an
acceptable buyer. In addition, if an acceptable buyer is not found
for the mobile wireless businesses, plaintiff United States, in its
sole discretion, upon consultation with the relevant plaintiff
State, can require defendants to include additional assets, for
example, in order to attract an acceptable buyer. Proposed Final
Judgment, Section V.E.
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B. Summary of Comment
PST provides wireline telecommunications services (though not,
currently, wireless) in the mostly rural area in Georgia between
Columbus and Macon. Its service area covers portions of two of the CMAs
to be divested in Georgia, including roughly half of Georgia RSA 6 and
a small portion of Georgia RSA 9. PST believes that the divestitures
contained in the proposed Final Judgment are inadequate.
PST first contends that plaintiffs should have challenged the
merger everywhere Verizon and Alltel competed and obtained ``national
relief'' in the proposed Final Judgment. In its view, the Verizon/
Alltel transaction is national in scope. PST Comment at 2, 4-6. PST
recognizes, however, that the relevant markets could be viewed as ``a
series of CMA markets,'' in which case ``a different analysis is
appropriate.'' PST Comment at 6. Therefore, PST also contends the
plaintiffs should have challenged the merger in additional CMAs in
Alabama and Georgia not alleged in the Complaint based on the market
shares and spectrum holdings in these areas. It notes that plaintiff
United States ``has not addressed the CMAs where market shares and
concentration are high enough to injure competition, though below the
artificial thresholds for divestiture in the proposed final Judgment.''
PST Comment at 7.
Second, PST argues that the wireless assets to be divested in the
Georgia CMAs alleged in the Complaint are inadequate to restore
competition to premerger levels in these CMAs because they do not
contain all the assets necessary for a divestiture purchaser to be a
viable long-term competitor. PST Comment at 8. In order to cure the
deficiencies it believes exist with respect to the proposed Final
Judgment, PST proposes that wireless assets in the Columbus GA-AL MSA,
Georgia RSA 5, and Alabama RSAs 5 and 8 be divested.\6\ PST Comment at
13. According to PST, the proposed Georgia divestiture areas are likely
to be less profitable than those in neighboring urban areas, due to the
higher costs of serving sparsely populated regions and the relatively
low per-capita income of rural residents. PST Comment at 8-9. In
particular, PST believes that a purchaser of the Georgia divestiture
assets must obtain wireless assets in the Columbus GA-AL MSA to
properly serve customers in the divestiture areas because Columbus is a
major economic and cultural center in the region. PST Comment at 9-12.
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\6\ These CMAs are adjacent to three of the eight CMAs in
Georgia and the two CMAs in Alabama where wireless assets are to be
divested pursuant to the proposed Final Judgment. See Attachment 1,
Map, Alabama and Georgia: Divested CMAs and PST Proposed
Divestitures.
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C. Response to Comment
PST does not object to the divestiture of assets in the 94 CMAs,
including the eight Georgia CMAs. Instead PST contends that the remedy
should be broader and encompass divestitures of wireless assets in
additional CMAs. PST contends that the merger will have an adverse
impact on competition nationwide, but notes that no national relief was
required. PST Comment at 2, 5. Also, PST claims plaintiff United States
should have identified, and alleged, competitive injury in four
additional geographic areas: ``Alabama RSAs 5 and 8, Georgia RSA 5, and
the Columbus GA-AL MSA'' and remedied harm in these areas in the
proposed Final Judgment. PST Comment at 5, 7.
These arguments are not ones that should concern the Court in its
public interest inquiry. As the Court of Appeals has warned, the APPA
does not authorize the court to ``construct [its] own hypothetical case
and then evaluate the decree against that case,'' Microsoft, 56 F.3d at
1459, and yet, PST invites the Court to do exactly that. The Complaint
alleges that the United States ``comprises numerous local geographic
markets for mobile wireless telecommunications services,'' Complaint
15, and the ``relevant geographic markets * * * where the transaction
would substantially lessen competition for mobile wireless
telecommunications services are effectively represented by the 94 FCC
spectrum licensing areas specified in Appendix A.'' Complaint 16.\7\
Thus, the Complaint does not allege competitive harm in specific CMAs
beyond the 94, nor did it allege a ``national market'' or harm in such
a market. Absent such allegations, it would be inappropriate for this
Court to inquire into the advisability of implementing a remedy to
address competitive concerns in geographic areas outside the 94 alleged
CMAs.\8\ The proposed Final Judgment's lack of a remedy for purported
harm in geographic markets that plaintiff United States neither found
nor alleged is not a flaw, but rather a perfectly appropriate tailoring
of relief to the alleged violation.\9\
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\7\ Plaintiff United States investigated all areas of the United
States in which Verizon and Alltel compete, including whether the
proposed merger would impact mobile wireless telecommunications
services nationwide. The 100 CMAs listed in the Complaint and
related decree modifications are the only areas where plaintiff
United States concluded the merger was likely to substantially
lessen competition.
\8\ As this Court has held, courts ``cannot look beyond the
complaint in making the public interest determination unless the
complaint is drafted so narrowly as to make a mockery of judicial
power.'' SBC Commc'ns, 489 F. Supp. 2d at 15. Plainly, with
allegations of competitive harm in 94 geographic license areas
covering millions of potential subscribers, the Complaint in this
matter is not so narrowly drafted.
\9\ Plaintiff United States's determination of which areas to
allege in the Complaint was based on a thorough investigation of
each area that included consideration of: the number of mobile
wireless providers and their competitive strengths and weaknesses;
market shares and concentration; the availability of new spectrum;
whether any providers are spectrum constrained or otherwise limited
in their ability to add customers; the breadth and depth of coverage
by different providers (including coverage in relation to population
density); the retail presence of each provider; local wireless
number portability data; and the likelihood of new entry or
expansion. CIS at 10. PST's allegations of harm are based simply on
unreliable guesses about market shares and information about total
spectrum holdings. Shares and spectrum holdings are just two of many
factors that need to be considered, not a complete competitive
analysis. United States v. Baker Hughes, Inc., 908 F.2d 981, 984
(D.C. Cir. 1990) (stating that evidence of market concentration
``simply provides a convenient starting point for a broader inquiry
into future competitiveness''); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109, 130 (D.D.C. 2004) (recognizing that ``this circuit has
cautioned against relying too heavily on a statistical case of
market concentration alone'').
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PST's second argument is that the divestiture of wireless assets in
additional geographic areas in Georgia and Alabama is necessary because
the Georgia divestiture assets contained in the proposed Final Judgment
are insufficient to permit a divestiture buyer to fully replace the
competition that would otherwise be lost in the CMAs where harm is
alleged. PST Comment at 8. According to PST, a purchaser of the Georgia
assets cannot be a viable long-term competitor unless it also obtains
the assets of neighboring areas of Georgia and Alabama, in particular
the Columbus GA-AL MSA. PST Comment at 9-12. However, the information
reviewed by plaintiff United States suggests that this contention
regarding
[[Page 9270]]
the sufficiency of the remedy is ultimately without merit.
Plaintiff United States has substantial expertise in constructing
remedies and reviewing potential buyers of mobile wireless assets.\10\
Plaintiff United States carefully considers all relevant factors before
agreeing to a divestiture settlement taking into account that the
ability of a divestiture buyer to succeed in a particular area will
depend on the specific nature of the area, the assets it is acquiring,
and what other businesses and expertise the buyer already possesses.
Plaintiff United States also carefully reviews the qualifications and
business plans of proposed purchasers before approving
divestitures.\11\ Divestiture packages are not tailored to favor one
potential buyer over another.\12\ Instead, plaintiff United States
seeks to ensure that the collection of assets will allow the purchaser
to adequately compete. In order to replace the competition lost as a
result of the merger, the buyer need not be the preferred provider of
every customer but only be attractive to a large enough number of
potential customers so as to be a viable competitor.
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\10\ This is the sixth case in which plaintiff United States has
required such a divestiture in the last five years. United States et
al. v. Cingular Wireless Corp., SBC Communications Inc., BellSouth
Corp. and AT&T Wireless Services, Inc., Civ. No. 1:04CV01850 (RBW)
(D.D.C. filed Oct. 24, 2004); United States v. Alltel Corp. and
Western Wireless Corp., Civ. No. 1:05CV01345 (RCL) (D.D.C. filed
July 6, 2005); United States v. Alltel Corp. and Midwest Wireless
Holdings, L.L.C., Civ. No. 06-3631 (PJS/AJB) (D. Minn. filed Sept.
7, 2006); United States v. AT&T Inc. and Dobson Communications
Corp., Civ. No. 1:07CV01952 (RMC) (D.D.C. filed Oct. 30, 2007); and
United States et al. v. Verizon Communications Inc. and Rural
Cellular Corp., Civ. No. 1:08CV00993 (EGS) (D.D.C. filed June 10,
2008).
\11\ The proposed Final Judgment states that plaintiff United
States, in its sole discretion, upon consultation with the relevant
plaintiff State, must be satisfied that the purchaser has the
managerial, operational, technical and financial capability to
compete effectively with the divested assets. Proposed Final
Judgment, Section IV.H.
\12\ Although PST may wish to have the combination of wireless
assets that is most attractive to its existing wireline customers in
portions of Georgia RSAs 6 and 9 (close to the Columbus GA-AL MSA),
plaintiff United States needs to consider what assets are necessary
for a buyer, in general, to effectively compete.
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Plaintiff United States recognizes that there are efficiencies of
scale associated with serving a broad, contiguous geographic area, and
it is largely for this reason that the proposed Final Judgment requires
the Georgia divestiture assets to be sold together to a single
acquirer.\13\ See CIS at 16-17; proposed Final Judgment, Section IV.I.
The divestitures in Georgia required by the proposed Final Judgment
include not only Georgia RSAs 6 and 9, PST's existing service areas,
but five other RSAs and the metropolitan area of Albany, GA. See
proposed Final Judgment, Section IV.I.
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\13\ It is not, however, always necessary or appropriate to
divest multiple CMAs in a state as a single group. See Proposed
Final Judgment, Section IV.I (providing that three CMAs in Virginia,
one CMA in Arizona, one CMA in California, and one CMA in New Mexico
can be sold separately).
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PST's comment suggests that the assets being sold are insufficient
to allow the purchaser to be a long-term viable competitor given the
rural nature of the area. PST Comments at 8. However, the Georgia
mobile wireless business assets cover a large portion of the state of
Georgia, serving a population of more than 1.3 million people.\14\ The
purchaser will acquire approximately 200,000 subscribers and a business
that generates annual revenues of over $150 million. The asset package
also includes a substantial amount of cellular spectrum which has
significant advantages in serving rural areas, see CIS at 5-6, and the
potential to not only provide mobile wireless services to local
residents but also to sell roaming services to other providers who do
not have networks in these areas of the state. Given the extent of the
assets being sold, plaintiff United States believes that a buyer will
be found that can effectively compete in the long term.
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\14\ See http://wireless.fcc.gov/auctions/data/maps/cntysv2000_
census.xls.
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Moreover, there are a number of viable wireless businesses in the
United States that operate in a small number of license areas with
similar revenues and subscriber counts. For example, Bluegrass Cellular
offers service in approximately 10 license areas and has approximately
130,000 subscribers, and Alaska Communications Systems provides service
in approximately seven license areas, has approximately 144,000
subscribers and its 2007 wireless revenues were approximately $137
million.
PST's other argument for additional divestitures hinges in large
part on its belief that a wireless carrier seeking to provide service
to the Georgia divestiture areas needs to be able to serve the Columbus
GA-AL MSA as well because two of the Georgia divestiture RSAs (Georgia
RSA 6 and 9) are economically interconnected with the Columbus GA-AL
MSA.\15\ But plaintiff United States found insufficient evidence to
support the contention that a buyer needs wireless assets in Columbus
in order to successfully serve the proposed Georgia divestiture
areas.\16\ For example, less than 1% of the residents of the eight CMAs
in Georgia where wireless assets are to be divested commute to Columbus
to work.\17\ Even if only Georgia RSAs 6 and 9 are considered, less
than 3% of residents commute to Columbus.\18\ The addition of the
Columbus GA-AL MSA to the divestiture package would therefore have
little, if any, impact on the buyer's ability to serve customers in the
divestiture area at their homes and workplaces. Moreover, to the extent
the divestiture buyer needs coverage of the Columbus GA-AL MSA for some
small percentage of its minutes, it can likely achieve that via a
roaming agreement, which wireless carriers routinely enter to expand
their coverage to areas where they own no wireless facilities.\19\
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\15\ PST Comment at 9-10. For instance, PST claims that Columbus
is connected with Georgia RSAs 6 and 9 because of the colleges,
hospitals, and cultural attractions located in Columbus. Id.
\16\ Plaintiff United States also found insufficient evidence to
suggest that the proposed merger would cause competitive harm in the
Columbus GA-AL MSA itself.
\17\ See http://wireless.fcc.gov/auctions/data/maps/cntysv2000_
census.xls (population of each county in 2000); http://
www.census.gov/population/www/cen2000/commuting/index.html (number
of residents per county commuting to other counties for work in
2000).
\18\ Id.
\19\ There are reasons to question whether the purchaser will
need to be ``unduly dependent on roaming.'' PST Comment at 9. First,
the purchaser may already own a wireless network that serves the
surrounding area or other major portions of the country. Second, the
purchaser may be able to offer carriers in the surrounding
metropolitan areas of Macon, Columbus and Atlanta roaming services
in the rural portions of the state in exchange for an agreement to
allow its customers to roam in these metropolitan areas.
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This Court has held that the United States need not prove that the
settlement represents a ``perfect'' remedy of the harms alleged in the
Complaint. Rather, it needs to provide ``a factual basis for concluding
that the settlements are reasonably adequate remedies for the alleged
harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17. In addition, the DC Court
of Appeals has held that district courts should be ``deferential to the
government's predictions as to the effect of the proposed remedies.''
Microsoft, 56 F.3d at 1461. There is no basis to believe that
divestitures in the Columbus GA-AL MSA, or any other CMAs mentioned by
PST, are necessary to ensure the success of the divested business,
either because of a particularly strong nexus between Columbus and the
divestiture properties, or because of a need to achieve greater
scale.\20\
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\20\ Although plaintiff United States does not expect there to
be a lack of bidders for the Georgia divestiture assets, if no
acceptable purchaser was proposed, plaintiffs could reconsider,
under Section V.E of the proposed Final Judgment whether to require
defendants to add additional assets to the divestiture package.
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[[Page 9271]]
The settlement contained in the proposed Final Judgment ensures
that a buyer of the proposed Georgia divestiture assets will have the
assets necessary to establish a viable competitor in each of the CMAs
alleged in plaintiffs' Complaint. Accordingly, the settlement is within
the reaches of the public interest and the proposed Final Judgment
should be entered by this Court.
IV. Conclusion
After careful consideration of this public comment, plaintiff
United States still concludes that entry of the proposed Final Judgment
will provide an effective and appropriate remedy for the antitrust
violation alleged in the Complaint and is, therefore, in the public
interest. Pursuant to Section 16(d) of the Tunney Act, plaintiff United
States is submitting the public comment and its Response to the Federal
Register for publication. After the comments and its Response are
published in the Federal Register, plaintiff United States will move
this Court to enter the proposed Final Judgment.
Respectfully submitted,
/s/ Hillary B. Burchuk-------------------------------------------------
Hillary B. Burchuk (D.C. Bar No. 366755),
Lawrence M. Frankel (D.C. Bar No. 441532),
Jared A. Hughes,
Attorneys, Telecommunications & Media Enforcement Section, Antitrust
Division, U.S. Department of Justice, City Center Building, 1401 H
Street, N.W., Suite 8000, Washington, D.C. 20530, (202) 514-5621,
Facsimile: (202) 514-6381.
Certificate of Service
I hereby certify that on February 17, 2009, a copy of the foregoing
Plaintiff United States's Response to Public Comments was mailed via
first class mail, postage prepaid, upon counsel for Public Service
Communications, Inc., addressed as follows:
David U. Fierst, Esq., Stein, Mitchell & Muse L.L.P., 1100
Connecticut Ave., NW., Suite 1100, Washington, DC 20036.
/s/--------------------------------------------------------------------
Hillary B. Burchuk (D.C. Bar No. 366755)
Telecommunications & Media Enforcement Section, Antitrust Division,
U.S. Department of Justice, City Center Building, 1401 H Street,
NW., Suite 8000, Washington, DC 20530 (202) 514-5621, Facsimile:
(202) 514-6381.
January 12, 2009
HAND DELIVERED
Nancy M. Goodman
Telecommunications & Media Enforcement Section
Antitrust Division
U.S. Department of Justice
1401 H Street N.W., Suite 8000
Washington D.C. 20530
Re: United States et al v. Verizon Communications, Inc. and Alltel
Corp. Case No. 1:08-cv-01878-EGS
Dear Ms. Goodman:
This comment is submitted on behalf of Public Service
Communications, Inc., Public Service Telephone Company, and their
related affiliates (collectively ``PST''), in response to the
Competitive Impact Statement filed with the United States District
Court for the District of Columbia on October 30, 2008 by the Plaintiff
United States of America in the above referenced case. The Impact
Statement was published in the Federal Register on November 12, 2008.
PST respectfully submits that the proposed acquisition by Verizon
Wireless of Alltel Corporation will injure competition among wireless
mobile telephone service providers nationwide and in multiple CMAs in
Georgia and adjacent Alabama. The United States Department of Justice
also concluded that the acquisition will injure competition in many
CMAs around the country.
We contend that the Department should modify the proposed
settlement with the Defendants Verizon Communications, Inc.
(``Verizon'') and Alltel Corporation (``Alltel''), by requiring them to
divest overlapping cellular systems in four Georgia and Alabama CMAs,
namely CMA 153 (Columbus, GA MSA), CMA 375 (Georgia 5--Haralson RSA),
CMA 311 (Alabama 5--Cleburne RSA) and CMA 314 (Alabama 8--Lee RSA).
As we will explain, the central flaw in the proposed Consent
Judgment is that it does not adequately ameliorate the competitive
injury found by the Department, and lacks any reasoned analysis why the
relief obtained is limited.
More specifically, the Department recognized that this acquisition
will combine the second and fifth ranked competitors in a highly
concentrated national market, but did not require any national relief.
The Department also recognized that the acquisition will cause injury
in many CMAs, but required divestitures only in 94 CMAs where the
combined post-acquisition market share for Verizon and Alltel exceeds
55% and the post-acquisition Herfindahl-Hirschman Index (HHI) exceeds
4000. We do not object to the requirement that overlapping assets in
these 94 CMAs be divested. We object to the failure to require
divestiture in CMAs where post-acquisition shares do not reach these
astronomical levels but nonetheless exceed normal thresholds. In other
words, according to the competitive impact statement, no divestiture is
required where the combined share is less than 55% or the post-
acquisition HHI is less than 4000 even though normal merger analysis
finds competitive injury at much lower levels.
The Department also failed to consider whether it is practicable to
divest mobile phone assets in rural CMAs with small populations without
also divesting neighboring urban areas. Entry costs in the mobile
telephone industry are steep, and entry is not feasible without a
significant population base in a defined geographic area.
Description of PST
PST is a family-owned telecommunications company providing wireline
telephone, cable television and internet services in 1,050 square miles
of territory between Macon and Columbus, Georgia. Its headquarters is
in Reynolds, a small town with a population of slightly more than 1,000
persons.
The service area covered by PST is mostly rural, with a number of
small mostly farming communities. It is sparsely populated. PST serves
a total of 10,724 wireline customers in the following counties: Bibb
(1,829 lines), Crawford (3,169 lines), Macon (108 lines), Marion (64
lines), Monroe (288 lines), Muscogee (20 lines), Talbot (1,590 lines),
Taylor (3,492 lines), and Upson (164 lines). PST is interested in
entering the mobile cellular market in its current service area, and in
surrounding, more populous areas. However, as described below, PST does
not believe that the proposed divestiture of cellular markets in the
State of Georgia, as presently endorsed by the Department, will yield a
viable competitive operation, unless the Columbus market and certain
adjoining properties are added.
Description of Acquisition
Verizon Wireless, a joint venture of Verizon Communications, Inc.
and Vodafone, has entered into an agreement to acquire Alltel. Verizon
is paying $5.9 billion, and will become responsible for debt of $22.2
billion. The total value of the acquisition is therefore approximately
$28.1 billion. Verizon is the second largest mobile wireless service
provider in the United States. It has recently acquired the 10th
largest service provider. Alltel is the fifth largest mobile wireless
service provider. The Competitive Impact Statement indicates (at p. 4)
that the combined entity will control approximately 36 percent of all
revenues generated in the United States
[[Page 9272]]
from mobile wireless communications services.
This is the second major wireless acquisition by Verizon in recent
months. On June 10, 2008, Verizon and the Department entered into a
consent Judgment as a result of the acquisition of Rural Cellular
Corporation (``RCC''). According to the Competitive Impact Statement
filed in that case, prior to that acquisition, Verizon was the second
largest provider of mobile wireless telecommunications services in the
United States. At the time that acquisition was announced (mid 2007),
Verizon had more than 65 million subscribers, and annual revenues of
$43 billion. According to the FCC's Twelfth Annual Report and Analysis
of Competitive Market Conditions With Respect to Commercial Mobile
Services (January 28, 2008), Verizon, with 59 million subscribers, was
second only to AT&T, which had 60.9 million subscribers. The
Competitive Impact Statement (at p. 3) indicates that Verizon's
subscriber count has now grown to 70 million.
In the State of Georgia, the proposed Final Judgment would require
that Verizon and Alltel divest the following markets:
Albany MSA (CMA 261)
GA RSA 6 (CMA 376)
GA RSA 7 (CMA 377)
GA RSA 8 (CMA 378)
GA RSA 9 (CMA 379)
GA RSA 10 (CMA 380)
GA RSA 12 (CMA 382)
GA RSA 13 (CMA 383)
In the State of Alabama, the proposed Final Judgment would require
that Verizon and Alltel divest the following markets:
Dothan MSA (CMA 246)
AL RSA 7 (CMA 313)
PSC is on record asking the Federal Communications Commission
(``FCC'') and the Department to order the divestiture of the following
additional markets, in order to ensure the creation of a viable
competitor within the States of Georgia and Alabama:
Columbus MSA (CMA 153)
GA RSA 5 (CMA 375)
AL RSA 5 (CMA 311)
AL RSA 8 (CMA 314)
PST notes that the Albany MSA and GA RSA 6 were not included in the
original divestiture proposal formulated by Verizon and Alltel, but
were added only upon review by the Department, following comments by
PST showing the need to add these (and other) markets to the
divestiture list.
Injury to Competition
It is generally accepted that the relevant product market for
analyzing an acquisition of mobile wireless service providers is mobile
wireless telecommunications. See, for example, United States v. Verizon
Communications, Inc. and Rural Cellular Corporation, (D.D.C. 2008),
Competitive Impact Statement at 4 (``there are no cost-effective
alternatives to mobile wireless telecommunications services'') (RCC
Impact Statement). See also In the Matter of AT&T Inc. and Dobson
Communications Corp., WT Docket 07-153 (11/15/07) at ] 21
(``mobile telephony service,'' including both voice and data over
mobile wireless telephones).
Geographic markets in mobile telephone acquisitions are generally
based on the FCC spectrum licensing areas, called Cellular Market Areas
(CMAs), consisting of Metropolitan Statistical Areas (MSAs) and Rural
Service Areas (RSAs). See, e.g., RCC Impact Statement at 4.
In this case, Verizon in its application with the FCC for approval
of the acquisition described wireless competition as being national in
scope. Description of Transaction, In re Applications of Atlantis
Holdings LLC and Cellco Partnership d/b/a Verizon Wireless, June 13,
2008 at 29. Verizon's expert report submitted to the FCC addressed only
the national markets, not the CMAs. Declaration of Dennis Carlton,
Allan Shampine, and Hal Sider, June 13, 2008 at 4, 20. The Department
noted the nationwide impact (Competitive Impact Statement at 3) but
ordered divestitures only at the CMA level.
If the market is viewed as nationwide, the acquisition will clearly
have an adverse impact on competition. Market shares and concentration
are high. According to the FCC, the HHI was nearly 2700 at the end of
2006, and the market has become more concentrated since then. FCC's
Twelfth Annual Report and Analysis of Competitive Market Conditions
With Respect to Commercial Mobile Services (January 28, 2008)
(``Twelfth Annual Report'') at 6. It is not possible to calculate the
post-acquisition HHI without knowing more about Alltel's volume in the
94 CMAs to be divested and the CMAs to be retained, but the increase is
highly likely to exceed the thresholds in the merger guidelines.
According to the Twelfth Annual Report at 17, Verizon's nationwide
share in 2006 was about 26%. Thus, any non-negligible acquisition of
Alltel will necessarily cause the HHI to increase by more than 50, and
a very small acquisition will cause an increase of 100.
As noted in the Competitive Impact Statement (at page 4), the
Department found in the case of this mega-merger that ``the proposed
transaction, as initially agreed to by the defendants, would lessen
competition substantially for mobile wireless telecommunications
services in a large number of CMAs,'' including CMAs in the States of
Georgia and Alabama. Pursuant to their analysis of the merger, the
Plaintiffs United States of America and several individual states
(including Georgia and Alabama) have ``concluded that Verizon's
proposed acquisition of Alltel likely would substantially lessen
competition, in violation of Section 7 of the Clayton Act, in the
provision of mobile wireless telecommunications services in the
relevant geographic areas alleged in the Complaint.'' The primary
remedy for this impending adverse affect on competition is the proposed
requirement that Verizon divest the affected markets.
As discussed below, it is not clear from the Competitive Impact
Statement that competition will not be harmed within the CMA 153
(Columbus, GA MSA), CMA 375 (Georgia 5--Haralson RSA), CMA 311 (Alabama
5--Cleburne RSA) and CMA 314 (Alabama 8--Lee RSA) markets. However,
even if it is assumed arguendo that these individual markets will not
be adversely affected, divestiture of these markets is necessary to
ensure that the competitor to be created in the State of Georgia is a
viable one, and will be able to continue effective operations as
necessary to offset the harms caused by the combination of two of the
biggest competitors in the state.
Competitive Harm in Columbus and Surrounding CMAs
If the market is viewed as a nationwide market, then limited
divestitures in smaller geographic markets scattered around the country
may be insufficient to restore competitive vigor. Given that the pre-
acquisition nationwide HHI is already approximately 2700,\1\ it is a
fair assumption that the post-acquisition HHI, even assuming some
divestitures, will still be very high, and that the increase will
exceed the recognized benchmarks for injury to competition.
---------------------------------------------------------------------------
\1\ FCC's Twelfth Annual Report and Analysis of Competitive
Market Conditions With Respect to Commercial Mobile Services
(January 28, 2008) at 6, There have been a number of significant
acquisitions since the 12th Annual Report, including Verizon's
acquisition of RCC, AT&T's acquisition of Dobson, and the T-Mobile
acquisition of SunCom. As a result of these acquisitions,
concentration is likely to be higher than it was at the time of the
12th Annual Report, but that information is not available to the
public.
---------------------------------------------------------------------------
If the market is viewed as a series of CMA markets, a different
analysis is
[[Page 9273]]
appropriate. As noted above, the Department has found 94 CMAs where the
acquisition will result in concentration that far exceeds normal
thresholds, but the Department has not addressed whether there are
other CMAs where the acquisition will lead to concentration that
exceeds threshold levels, though not by such gross amounts.
Nationwide HHI, according to the FCC, was 2674 at the end of 2006.
12th Annual Report at 6. According to the 1997 Horizontal Merger
Guidelines, a market is considered highly concentrated when its HHI
exceeds 1800, which this does by a substantial amount. According to the
FCC figures for year end 2006, the Verizon acquisition of Alltel
(assuming no divestitures) will increase the HHI by about 260.\2\
According to the Merger Guidelines, in a highly concentrated market, an
increase in the HHI of 50 or more points potentially raises significant
competitive concerns. Increases of more than 100 points are
presumptively likely to create or enhance market power or facilitate
its exercise.
---------------------------------------------------------------------------
\2\ The Department will have access to more recent market share
information. We believe that the market will have grown more
concentrated in the last year and a half, and the Verizon share
(post-acquisition of RCC) will be larger than it was in December
2006.
---------------------------------------------------------------------------
Thus, on a nationwide basis, the market is highly concentrated, and
this acquisition will increase concentration significantly. It is not
possible for a party other than the Department or the FCC to compute
HHI in any particular CMA. However, the post-acquisition HHI on a
nationwide basis is highly likely to exceed 2800 with an increase well
in excess of 100. Moreover, the nationwide increase in HHI is likely to
exceed 250. Thus, it is a fair inference that in individual CMAs the
post-acquisition HHI will exceed acceptable levels. The Department is
requiring divestitures only where the post-acquisition HHI exceeds
4000. No divestitures are required where the post-acquisition HHI is
between 2800 and 4000, although by any realistic analysis, an
acquisition resulting in such high concentrations is likely to injure
competition. The Department has not addressed the CMAs where market
shares and concentration are high enough to injure competition, though
below the artificial thresholds for divestiture in the proposed final
Judgment.
There is another way to identify CMAs where the acquisition will
lead to injury. The FCC finds likely injury to competition where, in
any particular CMA, there is either (1) a post-acquisition HHI of 2800
with an increase of 100,\3\ or (2) an increase of 250 regardless of the
HHI, or (3) the acquiring party will hold a 10 percent or greater
interest in 95 MHz of cellular, PCS, SMR and 700 MHz spectrum. In the
Matter of AT&T, Inc. and Dobson Communications Corp., WT Docket, 07-153
(11/19/07) at ] 40. It is possible to measure Verizon's and Alltel's
spectrum in specific CMAs. For example, in CMA 153, the Verizon/Alltel
combination will hold 104 MHz in each of the three constituent counties
(one in Alabama and two in Georgia); and in CMA 314, covering 5
counties in adjacent Alabama, the combination will hold 107 MHz in one
county, and varying amounts ranging from 72 to 92 in the other four.\4\
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\3\ The Department does not address the possibility of a CMA
with a post-acquisition HHI in excess of 2800 but less than 4000. In
any such CMA, the FCC would find an injury to competition, as would
the normal Department merger analysis, but no divestiture will be
required.
\4\ In the six Georgia CMAs where the proposed Final order
requires divestitures, the overlap is typically less. In CMA 377 (6
Georgia counties) there is no overlap in two of the counties, and an
overlap of 82 in the other four. In CMA 378 (10 Georgia counties),
the overlap is 72 MHz in 9 of the counties and 82 in the tenth. In
CMA 379 (12 Georgia counties), the overlap is 82 in 6 counties and
92 in the other 6. In CMA 380 (12 Georgia counties), the overlap is
102 in one county, 82 in 9 and 72 in two. In CMA 382 (6 Georgia
counties), the overlap ranges from 72 to 112. In CMA 383 (9 Georgia
counties), the overlap is 102 MHz in two counties and 82 in the
other 7. Combined spectrum is therefore likely to indicate a
competitive problem in the CMAs to be divested and even more so in
the adjoining CMAs Verizon wants to retain.
---------------------------------------------------------------------------
Despite PST's comments raising concerns about the above additional
markets in Georgia and Alabama, the Competitive Impact Statement does
not furnish an HHI analysis for, or otherwise specifically address,
these markets. PST respectfully requests that the Department amend the
Competitive Impact Statement to do so. However, as discussed below,
even if the HHI for the additional divestiture markets does not surpass
the anticompetitive level, the relationship of these markets to the
areas that will suffer harm must be evaluated.
Divestitures
The proposed divestitures must also be evaluated from the
perspective of what is necessary to restore competition. As the
Department recognizes in the Antitrust Division Policy Guide to Merger
Remedies, a divestiture will be ineffective to restore competition
unless it includes all assets necessary for the purchaser to be an
effective long-term competitor. Indeed, the Competitive Impact
Statement confirms (at p. 13) that the States of Georgia and Alabama
have an interest in, and consultation right to, ensure that the
purchaser of the divested Alltel assets in their states will be ``a
viable, ongoing business that can compete effectively in each relevant
area.''
In this instance, the proposed divestitures in Georgia will not
include necessary assets. The inadequacy flows from the fact that the
divestiture in Georgia will be restricted to certain CMAs, and those
CMAs do not include the high density urban areas and corridors of
commerce (including neighboring portions of Alabama) needed for
successful operation of a wireless network. The CMAs where the proposed
divestitures will occur are generally populated by lower income
residents than in the CMAs to be retained. Consequently, the residents
of the to-be-divested CMAs are less likely to have mobile devices and
more likely to be price conscious. In other words, profits in those
areas are likely to be lower than in the CMAs in which Verizon seeks to
retain assets and customers of Alltel. Moreover, the CMAs in Georgia
where assets will be divested are sparsely populated in relation to the
areas to be retained by Verizon, resulting in increased operational
costs.
PST analyzed the counties included in the six Georgia CMAs in which
Verizon originally proposed to divest overlapping properties. PST
compared them to the counties in the additional CMAs the overlapping
assets of which PST contended should also be divested. This analysis
was provided to the Department. The analysis showed that in the
Verizon-chosen CMAs, populations are generally lower than in the CMAs
proposed by PST. As recognized in the Remedies Guide, where an
installed base of customers is required in order to operate at an
effective scale, the divested assets should convey that base, or
quickly enable the purchaser to obtain an installed customer base. The
mobile wireless market requires significant infrastructure or it will
be unduly dependent on roaming, which under the best of circumstances
will not be profitable.
In CMA 377, where Verizon agreed to divest overlapping properties,
there are six counties. Two of them (as of the 2000 census) had
populations of about 45,000, one had 21,000, and the other three were
in the 8,000-10,000 range. By contrast, Muscogee County in CMA 153,
where Verizon and Alltel cumulatively hold 104 MHz of spectrum but
which Verizon is not required to divest, the 2000 population was about
[[Page 9274]]
186,000. The adjacent Russell County, Alabama (also in CMA 153) had a
2000 population of about 50,000.
The size disparity is important for reasons other than the obvious
need for a customer base large enough to earn a fair return. One aspect
of the competition among the wireless service providers is the
availability of attractive cell phone devices. For example, AT&T's
ability to offer its customers the iPhone was a major competitive
benefit for AT&T. The smaller wireless carriers are disadvantaged in
obtaining attractive devices, and the population disparity between the
CMAs Verizon will be permitted to retain and those it is will be
obligated to divest will make it that much more difficult for any new
entrant to obtain the customer base necessary to gain access to the
more desirable telephones. There are also certain mandates imposed by
the FCC. For example, there must be a system of automatic tracking of
cell phones used to call 911. These mandates involve substantial fixed
costs, which will constitute a significant barrier to entry by any
small provider of wireless service, but will not be a major problem if
the costs can be spread among a large enough customer base. For this
reason also, the proposed consent judgment allowing Verizon to keep
mobile phone assets in the more populous areas of Georgia while
divesting the less populous areas will not restore the competition lost
as a result of the acquisition.
Moreover, the average household income in the CMAs chosen for
divestiture by Verizon is lower than in the state as a whole or in the
CMAs where we contend additional divestitures should be ordered. Median
household income in Georgia in 2004 was $42,600. In the 6 counties in
CMA 377, the median household income in 2004 ranged from about $24,000
to $33,500. In CMA 153, median household income in 2004 was $35,100 in
Muscogee, nearly $35,500 in Chattahoochie, and $29,600 in Russell
County, Alabama.
The inclusion of CMA 261 and CMA 376 in the divestiture markets,
following PST's showing that these markets should be included,
constituted a step in the right direction. However, this step does not
go far enough, because the linchpin for the areas to be divested in
Georgia is the Columbus CMA, and surrounding suburban areas. In this
regard, Columbus furnishes the residents of markets such as the GA 6
RSA and GA 9 RSA with the following:
a. Nine colleges, including Columbus State University, Columbus
Technical College, Beacon College, Meadows Junior College, Calvary
Christian Life Ministries, the Medical Center, Inc. School of
Radiologic Technology, and others. It is well-known that college
students are prime users of mobile telephones, and often use only
mobile phones rather than landlines.
b. Columbus Georgia Convention and Trade Center provides access to
182,000 sq. ft. usable floor space, 27 breakout rooms, Ballrooms and
Exhibit Halls.
c. RiverCenter for the Performing Arts provides regional access to
the Columbus Symphony Orchestra, Broadway performances, comedy, and
musical entertainment.
d. Multiple hospitals, including the St. Francis Hospital; Columbus
Doctors Hospital; Hughston Orthopedic Hospital; and Columbus Regional
Medical Center, among other medical facilities.
More importantly, Columbus is where the residents of the more rural
markets go for jobs, major medical procedures, and to market their
produce and goods. This fact is confirmed by both pre-existing private
sector analyses of the commercial and societal factors impacting areas
to be divested in Georgia, performed by Rand-McNally.
The FCC uses the CMA in analyzing regulatory aspects of cellular
service transactions, because long ago, cellular licenses were awarded
along CMA boundaries. However, these boundaries do not necessarily
reflect the realities of the marketplace. In this regard, the FCC has
recognized that Rand McNally's Major Trading Areas (MTAs) and Basic
Trading Areas (BTAs) as more indicative of real-world marketplace
factors. Thus, the FCC decided to use the Rand-McNally areas for
certain mobile telecommunications spectrum auctions, stating:
We conclude that a combination of MTA and BTA service areas
would promote the rapid deployment and ubiquitous coverage of PCS
and a variety of services and providers. We recognize that the
majority of parties express support for MSA/RSAs as the definition
of PCS service areas. We conclude, however, that using MSAs/RSAs
likely would result in unnecessary fragmentation of natural markets.
MTAs and BTAs were designed by Rand McNally based on the natural
flow of commerce. Specifically, the trading area ``boundaries have
been drawn on a county-line basis because most statistics relevant
to marketing are published in terms of whole counties. The
boundaries have been determined after an intensive study of such
factors as physiography, population distribution, newspaper
circulation, economic activities, highway facilities, railroad
service, suburban transportation, and field reports of experienced
analysts [citing Rand McNally 1992 Commercial Atlas & Marketing
Guide at 39].
See Amendment of the Commission's Rules to Establish New Personal
Communications Services, Second Report and Order, 73 RR 2d 1477, 8 FCC
Rcd 7700, 7732 [1993 FCC LEXIS 6517] (October 22, 1993).
Rand McNally also rates cities individually based on their economic
function. Columbus is a 3-AA or ``major significant local business
center,'' meaning it is the most important city in the area for
purposes of local business. Rand McNally's formulation of its MTAs and
BTAs, and the designation of business centers, takes into consideration
whether a city or town is a natural center for shopping-goods
purchases, entertainment, education and medical care. See Rand McNally
Atlas, ``Economic Data for the United States'', p. 48 (1984). As shown
above, Columbus serves as the center of shopping, entertainment,
education and medical care for the Western Georgia-Eastern Alabama
area.
Significantly, the Columbus BTA includes the following counties:
------------------------------------------------------------------------
------------------------------------------------------------------------
Barbour................................... AL
Russell................................... AL
Chattahoochee............................. GA
Harris.................................... GA
Marion.................................... GA
Muscogee.................................. GA
Quitman................................... GA
Schley.................................... GA
Stewart................................... GA
Sumter.................................... GA
Talbot.................................... GA
Webster................................... GA
------------------------------------------------------------------------
Of the above counties, two (Harris and Talbot) are part of the GA 6
RSA area that the proposed Final Judgment proposes to divest. And six
of the counties (Marion, Quitman, Schley, Stewart, Sumter and Webster)
are part of the GA 9 RSA area that would be divested. Another county
(Barbour) is part of the AL 8 RSA. The remaining three counties
(Russell, Chattahoochee and Muscogee) make up the Columbus MSA. Thus,
Rand-McNally's analysis of key economic, health and social factors
indicates that a significant part of the Columbus Basic Trading Area
includes areas that are to be divested. The proposed divestiture will
not only create a gap in coverage, but will leave the purchaser without
the socio-economic heart of the market it is trying to serve. This is a
formula for failure as a competitor: Without the population contained
in the Columbus MSA and surrounding suburbs such as the AL 5 and 8 RSAs
and the GA 5 RSA, it will be difficult if not impossible for the
purchaser to achieve the efficiencies recognized by the Department as
important to a viable operation. See
[[Page 9275]]
Competitive Impact Statement at p. 16. And without this high density,
low cost population area, it will be more expensive and difficult for
the purchaser to meet the FCC's E911 and other regulatory mandates,
because there will be far fewer customers over which to spread the
fixed costs of such compliance. Moreover, without coverage into
Columbus, the area where a large part of the population of the divested
area travel for economic, health, entertainment and other reasons,
customers will see little benefit in keeping their service with the
purchaser.\5\ As a result, the purchaser will fail as a competitor in a
relatively short period of time; and all of the competitive harms to
consumers that the Plaintiffs have concluded could happen in the
absence of another source of competition will indeed happen.
---------------------------------------------------------------------------
\5\ The possibility of reaching a roaming agreement for coverage
of the Columbus MSA is of little comfort. A provider's only
significant protection against unreasonably high roaming fees is the
ability to comparison shop among multiple service providers in other
geographic areas. Thus, any acquisition that removes a significant
potential supplier of roaming services may increase roaming fees to
other, smaller competitors. That is the potential problem here.
Alltel provides service primarily in rural areas where roaming
alternatives may be limited. Removing it from the market enhances
Verizon's market power to raise roaming rates. Verizon reassured the
FCC that it will honor all existing roaming contracts. That is a
meaningless gesture. Of course it will honor existing contracts;
failure to do so is breach and exposes Verizon to litigation. The
real question is whether the acquisition will affect Verizon's
incentives to enter into future roaming contracts at a reasonable
price. Where one potential alternative source of roaming service is
removed from an already-highly concentrated market, the answer is
obvious. Verizon will have less incentive to offer low roaming fees
for future contracts.
---------------------------------------------------------------------------
The need to provide a fair opportunity to succeed is particularly
necessary given the current economic climate. Credit is tight, and
consumers are resistant to spending of all kinds. Prospective
purchasers (other than the major carriers, a purchase by which would
also increase concentration) will have a difficult time making an
acquisition in Georgia and Alabama and making it work. Excluding the
Columbus area from any divestiture will make it that much more
difficult to restore competition.
Conclusion
For these reasons, we urge on behalf of PST that the Department
modify the proposed Final Judgment, to require that Verizon divest the
acquired assets in CMA 153, 311, 314 and 375, as well as the other
Georgia and Alabama CMAs listed in Competitive Impact Statement.
Sincerely,
David U. Fierst
cc: Hillary B. Burchuk, DOJ, Lawrence M. Frankel, DOJ, Jared A. Hughes,
DOJ
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