The S&P 500 closed up 0.49% after slipping briefly into the red during the last ninety minutes of trading. August 2011 is now on the books as the worst S&P 500 monthly performance since May 2010. The index is in the red year-to-date at -3.08%, which is 10.61% below the interim high set on April 29.
From an intermediate perspective, the index is 80.2% above the March 2009 closing low and 22.1% below the nominal all-time high of October 2007.
- 8:30 a.m. ET: We get weekly jobless claims. As they have for the past 374 weeks, economists expect claims to come in at 400,000, which is about where they were the week before.
- 10:00 a.m.: The ISM manufacturing index for August is due. Extraordinarily important number, even if it is only one of those namby-pamby sentiment readings. Economists are looking for a dip below 50, but only a tiny dip, after today’s Chicago PMI reading was better than expected.
- 10:00 a.m.: We also get construction spending for July, which I hesitate to even mention.
- All the live long day: We get US auto sales for August.
- H&R Block after the bell
- 12:00 p.m.: Fed Governor Elizabeth Duke speaks on housing.
The gist is that the merger would eliminate competition in a market where the big four providers already account for over 90 per cent of mobile wireless connections, and where AT&T and T-Mobile compete directly in all but three of the main 100 cellular marketing areas (CMAs). It would also have given the new firm pretty much a full monopoly on GSM cellphones, according to Felix Salmon.
If you’re into this sort of thing, the Herfindahl-Hirschman Index, a widely used gauge of market concentration, would have exceeded 2,500 in 96 of the 100 CMAs, which according to DoJ equates to a “highly concentrated” market.
Similar concerns were noted in the FCC’s national broadband plan. The FCC hasn’t formally given its ruling on the deal, but the chairman issued a statement that appears supportive of the DoJ’s decision:
Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition. Vibrant competition in wireless services is vital to innovation, investment, economic growth and job creation, and to drive our global leadership in mobile. Competition fosters consumer benefits, including more choices, better service and lower prices.
The complaint also stresses that T-mobile has proved to be an especially uppity upstart, challenging the incumbents on price and leading the adoption of certain handets and operating systems.
T-Mobile sees itself as “the No. 1 value challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market”; and
T-Mobile’s strategy is to “attack incumbents and find innovative ways to overcome scale disadvantages. [T-Mobile] will be faster, more agile, and scrappy, with diligence on decisions and costs both big and small. Our approach to market will not be conventional, and we will push to the boundaries where possible. . . . [T-Mobile] will champion the customer and break down industry barriers with innovations. . . .”
Using T-Mobile’s own success against it — the DoJ, it seems, came to play.
DoJ also scoffs at the efficiences claimed by AT&T and T-Mobile, arguing that they were insufficient to overcome the competition concerns. “The Defendants cannot demonstrate merger-specific, cognizable efficiencies sufficient to reverse the acquisition’s anticompetitive effects,” says the complaint.
So while this is a good day for the US consumer, it’s a bad one for AT&T. It’s made worse by the terms of the proposed deal: AT&T had pledged a $3bn reverse break fee to Deutsche Telekom should regulatory approval note be granted, as well as providing it with additional radio spectrum and 3G roaming arrangements, says the FT. This helps to explain why it looks like it’ll fight the deal.
But from the beginning, Justice Department officials expressed concern about the broader impact of removing the fourth-largest cellphone service provider from the national landscape — leaving only three big telecommunications providers. In meetings throughout the review process, antitrust lawyers signaled that they had serious issues about market concentration and taking out a significant competitor, according to another person briefed on the matter.
Another of the department’s concerns was that AT&T showed relatively little urgency in proposing satisfactory remedies, this person added. Justice officials were worried that, having outlined a timetable of 12 months to 18 months for regulatory review, AT&T would take its time and hobble a rival in the interim.
In short, AT&T didn’t appear to get the hint that the Justice Department wasn’t satisfied with either the speed or the scope of potential remedies, according to this person. And as the matter moved up the hierarchy of department officials, consensus was building that AT&T was increasingly hard pressed to come up with a satisfactory solution.
The Justice Department gave AT&T a head’s up on Wednesday morning, shortly before filing the lawsuit, these people said.
AT&T has said publicly that it will fight the Justice Department’s lawsuit, asking for an expedited hearing before Judge Ellen S. Huvelle of the United States District Court for the District of Columbia.
At the same time, the department’s acting antitrust chief, Sharis A. Pozen, signaled publicly that the Justice Department was open to a settlement. During a news conference on Wednesday, she said of AT&T: “We apprised them of our serious concerns. And as any party can do, our door is open. If they want to resolve those concerns, we can certainly do that.”
Privately, the department has also assured AT&T that Ms. Pozen’s comments were accurate and that the regulator would still entertain a potential solution, according to the people briefed on the matter.
But one of these people added that the company still had a tough hill to climb. AT&T’s issue is that it has to effectively replace a nationwide competitor, a problem that may not be solved by giving away spectrum and cell towers and adjusting prices on a temporary basis.