Chapter II. Mergers

• Pages: 63-173

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CHAPTER II

MERGERS

A. Introduction

As discussed throughout this chapter, mergers and acquisitions are

frequent occurrences in the communications sector, including in the

period following the passage of the Telecommunications Act of 1996.1

The “vast majority of mergers pose no harm to consumers, and many

produce efficiencies that benefit consumers in the form of lower prices,

higher quality goods or services, or investments in innovation.”2 On the

other hand, mergers can have the potential to produce anticompetitive

effects, for example by eliminating competition between actual or

potential competitors3 (“horizontal mergers”) or by raising substantially

rivals’ costs (a theory closely related to substantial anticompetitive

foreclosure concerns) when one of the merging companies’ products may

be a necessary component or complement of the other company’s

products (“vertical mergers”).4 In these cases, the issue is whether the

1. See Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56

(1996) [hereinafter 1996 Act].

2. See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, COMMENTARY ON

THE HORIZONTAL MERGER GUIDELINES (2006), available at

http://www.justice.gov/atr/public/guidelines/215247.htm [hereinafter

2006 MERGER GUIDELINES COMMENTARY].

3. Antitrust review of the effect of mergers was originally limited to

mergers between current competitors, but has come to encompass

mergers between entities who are only potential competitors. See United

States v. Falstaff Brewing Corp., 410 U.S. 526 (1973); FTC v. Procter &

Gamble Co., 386 U.S. 568 (1967). As discussed in Part C.5, infra, this

analysis takes two very different forms: “perceived potential

competition,” and “actual potential competition.” See, e.g., United States

v. Marine Bancorporation, Inc., 418 U.S. 602 (1974) (explaining that the

potential competition doctrine applies only to concentrated markets).

4. See, e.g., Willard K. Tom, Anticompetitive Aspects of Market-Share

Discounts and Other Incentives to Exclusive Deals, 67 ANTITRUST L.J.

615 (2000); Sheila F. Anthony, Vertical Issues in Federal Antitrust Law,

Remarks before the 13th Annual Advanced ALI-ABA Course of Study

64 Telecom Antitrust Handbook

merged firm may be able to raise prices unilaterally or otherwise exercise

market power, or whether the increased market concentration could

facilitate coordinated interaction among rival firms.5

This chapter provides an overview of the legal standards that govern

the examination of proposed mergers for potential anticompetitive issues,

describes how these standards are applied to mergers in the

communications sector in terms of both substance and process, and

discusses remedies that may be employed if potential harms are found.

Examples drawn from actual mergers in the communications sector are

included throughout.

B. Overview of Legal Standards

1. Federal Antitrust Laws

Generally, the bulk of merger review—and merger litigation—in the

United States is conducted by either the Antitrust Division of the U.S.

Department of Justice (DOJ) or the Federal Trade Commission (FTC),

which share jurisdiction over federal antitrust enforcement.6 Insofar as

mergers involve entities in the communications sector that hold Federal

Communications Commission (FCC) licenses and authorizations, the

FCC also plays an important role.7

(Mar. 19, 1998); Memorandum Opinion and Order, Merger of MCI

Commc’ns Corp. and British Telecomms. PLC, 12 F.C.C.R. 15351,

15410 ¶ 155 (1997). See also Chapter 1, Part E.

5. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (2010) available at www.justice.gov/atr/public/guidelines/

hmg-2010.html [hereinafter 2010 MERGER GUIDELINES]. The 2010

MERGER GUIDELINES followed and supplanted the 1992 MERGER

GUIDELINES, as amended in 1997, DEP’T OF JUSTICE & FED. TRADE

COMM’N, HORIZONTAL MERGER GUIDEL INES (1992, revised 1997)

available at http://www.justice.gov/atr/public/guidelines/horiz-

book/hmgl.html [hereinafter 1992 MERGER GUIDELINES]. The 1992

MERGER GUIDELINES, in turn, had followed and supplanted the 1984

MERGER GUIDELINES promulgated by the DOJ. U.S. DEP’T OF JUSTICE,

MERGER GUIDELINES, 49 Fed. Reg. 26,823 (June 29, 1984), reprinted in

Trade Reg. Rep. (CCH) ¶ 13,103 (1984) [hereinafter 1984 MERGER

GUIDELINES].

6. The agencies “clear” mergers to each other to avoid duplicative review;

most telecommunications mergers are cleared to the DOJ.

7. See Part B.2, infra.

Mergers 65

In 2010, the DOJ and the FTC adopted guidelines, referred to herein

as the 2010 Merger Guidelines, which adopt a more flexible approach to

evaluating horizontal mergers than had historically been the case.8

Generally, the analytical framework developed and applied by the federal

antitrust agencies through these guidelines has become the primary

framework for merger review, whether conducted by one of the antitrust

agencies, by a state attorney general, or by a court.9 However, an

understanding of merger analysis begins with the relevant statutory

schemes.

a. The Clayton Act

The antitrust review of mergers and acquisitions is primarily

governed by Section 7 of the Clayton Act.10 As a general proposition,

Section 7 prohibits any merger, stock acquisition or asset acquisition in

which the effect of the transaction may be to “substantially lessen

competition” or “tend to create a monopoly” “in any line of commerce or

8. 2010 MERGER GUIDELINES, supra, note 5.

9. While the FCC has not formally adopted these 2010 Merger Guidelines

(and did not do so as to their predecessor), it has relied on them in recent

decisions. See Memorandum Opinion & Order & Declaratory Ruling,

Applications of Cellco Partnership d/b/a Verizon Wireless and

SpectrumCo LLC and Cox TMI, LLC For Consent to Assign AWS-1

Licenses, 27 F.C.C.R. 10,698, 10,717 ¶ 52 n.118 (2012) [hereinafter

Verizon Wireless-SpectrumCo Order] (citing the 2010 Merger Guidelines

for market definition); see also Memorandum Opinion & Order &

Declaratory Ruling, Applications of Deutsche Telekom AG, T-Mobile

USA, Inc., and MetroPCS Communications, Inc., 28 F.C.C.R. 2,322, ¶ 42

n.101 (2013) (citing the 2010 Merger Guidelines in relation to unilateral

effects from a horizontal merger) [hereinafter T-Mobile/MetroPCS

Order].

10. 15 U.S.C. § 18. Both the FTC and the DOJ have direct authority to

enforce Section 7 of the Clayton Act, although the FTC currently lacks

jurisdiction over mergers of communications common carriers. See

Federal Trade Commission Act § 5a, 15 U.S.C. § 45(a)(2) [hereinafter

FTC Act]. The DOJ can also directly enforce Sections 1 and 2 of the

Sherman Act; the FTC possesses similar authority under Section 5 of the

FTC Act. See 15 U.S.C. § 45. The FCC has jurisdiction to analyze

mergers of communications common carriers under Sections 7 and 11 of

the Clayton Act, as well as jurisdiction under the Communications Act of

1934, as amended, 47 U.S.C. § 1, et seq. [hereinafter Communications

Act].