Google announced yesterday that it has agreed to buy Motorola Mobility for about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares last Friday. Google’s CEO, Larry Page, said in a corporate blog post that the merger will “supercharge Android” and strengthen Google’s patent portfolio. Initial stories focused on Motorola’s patent portfolio, saying it is “the centerpiece of the deal.” I’m skeptical this deal is primarily a patent play. A 63% price premium for a major hardware manufacturer with ongoing operations is a lot to pay for patent defense. The largest patent verdict in U.S. history to withstand appellate review was only $290 million. That’s not chump change, but it is significantly less than $12.5 billion. It’s also telling that Google first raised Android patent issues less than two weeks before announcing the Motorola deal. Google’s recent post alleging patent attacks on Android looks like a transparent effort to focus deal commentary on Motorola’s intellectual property and divert attention from other aspects of the deal. Read the rest of this entry »
Posts Tagged ‘ wireless competition ’
The FCC Refuses to Analyze Wireless Competition – Again
The FCC released its 15th Mobile Wireless Competition Report yesterday (available here), and for the second straight year, the FCC ignored its congressional mandate and refused to make a finding regarding competition in the wireless market. (See my CNET op-ed here discussing last year’s report.) This isn’t a surprise, but that makes it no less disconcerting. Politico’s Morning Tech report noted Representative Blackburn’s concerns with the FCC’s failure to find, well, anything at all. In a statement (not yet on her website), Representative Blackburn said that, with the FCC’s 15th Report, “bureaucrats are pouring the foundation to cement more big government plans and more Washington control over one of the few sectors of our economy that is actually creating jobs.”
Unfortunately, Representative Blackburn is right. As I’ve noted before, the only sensible explanation for the FCC’s failure to fulfill its congressional responsibility is the FCC’s “desire to increase its regulation of the mobile wireless industry.” There is no other sensible explanation for an expert agency’s declaration that, in an area of its core expertise, “the complexity of the various inter-related segments and services within the mobile wireless ecosystem” (15th Report at paragraph 2) are too great for the FCC to make a finding.
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FCC wireless competition
The Agenda behind the FCC’s Mobile Wireless Competition Report
I’ve previously written about the FCC’s intent to use (or misuse) its mobile wireless competition report to impose additional regulation on the mobile wireless industry. I’ve noted that the FCC’s 14th mobile wireless competition report lacked the necessary technical data to support its hypothesis that access to low frequency spectrum provides a competitive advantage. And I’ve written about the FCC’s refusal to define “effective competition” in accordance with the guidance Congress has already provided in the cable television context. I haven’t addressed in detail the deficiencies in the FCC’s economic analysis in the 14th report. But, in a blog post published by the Harvard Business Review, professors Gerald R. Faulhaber and Hal J. Singer have.
They note that the FCC’s analysis eschews direct evidence of the state of competition based on consumer behavior in favor of reliance on indirect evidence. The FCC ignored the direct evidence it collected in favor of market share measures, even though the FCC itself admitted that measures of market share are not synonymous with market power. Messrs. Faulhaber and Singer generally reached the same conclusion I did in my previous posts: the FCC intends to rely its mobile wireless competition reports to further regulate the wireless industry.
They take particular issue with the FCC’s implied intent to limit the ability of larger mobile wireless service providers to acquire spectrum via auction. They then note that, in this circumstance, the only viable solution for larger service providers is to acquire additional spectrum in the secondary markets. If the FCC wants to have a competitive mobile wireless industry, it can’t have its cake and eat it too. The FCC needs to release more spectrum immediately and allow larger mobile service providers to access it, or the FCC needs to speed its review of secondary markets transactions. If the FCC instead does neither, the mobile wireless industry and consumers both will suffer.
Hal Singer’s Blog Post on T-Mobile’s Ability to Discipline Prices
One of the most thoughtful pieces I’ve seen about the AT&T/T-Mobile deal is this post by Hal Singer posted in the Harvard Business Review. He lays out some good reasons why the merger would not result in higher prices for wireless consumers. I won’t try to lay them out here, but I will add one. Assuming T-Mobile disciplines prices now, it ability to discipline prices in the mobile market is likely to decline if regulators don’t grant the transaction. The reason: Verizon Wireless, Sprint and AT&T are all converting their networks to LTE, the mobile broadband technology that is poised to become the world standard, and T-Mobile isn’t. T-Mobile doesn’t appear to have any plans to move to LTE any time soon, and there is no evidence that Deutsche Telekom has any interest in investing the substantial capital necessary to upgrade T-Mobile’s network to LTE.
Without LTE, T-Mobile’s ability to compete would slowly diminish. Its customers would have an incentive to move to other providers who offer LTE, and T-Mobile’s costs would likely increase based on its use of an obsolete or nonstandard technology. (Obsolete if T-Mobile sticks with HSPA+ or nonstandard if T-Mobile were able to persuade vendors to support a more advanced version of HSPA+). With higher costs and technologically inferior service, it’s hard to see how T-Mobile would be able to discipline prices if the deal isn’t approved.
AT&T/T-Mobile Transaction Best for Mobile Wireless Broadband
AT&T and Deutsche Telekom announced today that AT&T will acquire T-Mobile from Deutsche Telekom. Rumors have been floated for some time that Deutsche Telekom was looking to sell T-Mobile. AT&T is the most logical choice.
T-Mobile’s biggest challenge has been the deployment of a 4G LTE network. AT&T’s biggest challenge has been meeting the growing demand for data. The two companies together solve both challenges. AT&T will deploy 4G LTE to 95% of Americans and improve the performance of its data network. This will improve the customer experience and go a long way toward meeting the Broadband Plan’s goal of “lead[ing] the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.” Faster wireless broadband speeds and better coverage are exactly what the President and the FCC have been trying to achieve, and this transaction promises to provide both.
Compared to past mergers, this one should be relatively seamless. AT&T and T-Mobile both use the same network technology, which should ease the transition. Their spectrum holdings are complimentary, and the companies and employees are both behind the deal. The Communications Workers of American have already expressed their support. AT&T is union company and will invest another $8 billion in its U.S. infrastructure due to the transaction.
The deal is has already been opposed as well. Public Knowledge says this is why we need strong net neutrality rules and wholesale requirements. But the FCC has already done net neutrality and has circulated an item proposing mandatory data wholesaling requirements for mobile wireless providers. From a competition standpoint, there will still be four or more mobile wireless providers post-merger in major markets, with Light Reading promising to add yet another player.
On balance, I think the FCC approves the deal. I think it will be hard for the FCC to turn down faster mobile broadband and 95% LTE coverage. At the end of the day, the benefits outweigh the potential harms.
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AT&T LTE merger Public Knowledge T-Mobile wireless competition