» Archive for the 'Regulatory Authorities' Category

Winners and Losers in the T-Mobile-AT&T Deal

Thursday, March 24th, 2011 by Jonathan Spira

History tells us that mergers take years to plan, years to execute, and years to resolve post-merger problems.

Who's next?

As a result, the big winner in AT&T’s merger with T-Mobile USA is likely to be AT&T’s largest competitor, Verizon Wireless.  Indeed, Verizon is starting to sound like a cheerleader for it to take place.  “We’ve been through a series of great acquisitions and great integration into our company,” said Dan Mead, the company’s CEO.  He added that he does not concur with those who say that the deal is bad for consumers.

Although AT&T is projecting that the deal will close within 12 months, given the likelihood of resistance from competitors, government regulators, and consumer groups, it could take far longer.  Once the deal closes, AT&T will have to integrate T-Mobile’s customers into the fold, which includes replacing incompatible 3G devices with ones that will work on the AT&T network.  Integration can take years.  Just ask Alcatel and Lucent, which lost billions in the years following their merger, or US Airways, whose integration took three years.

Verizon Wireless, however, will be content to sit on the sidelines.  Indeed, the longer it takes the better for Verizon.

Opposition didn’t take long to appear: competitor Sprint, which will be a distant third in the post-merger marketplace, was leading the charge against the deal within a day of the announcement.  Speaking at an industry event this past Tuesday, Dan Hesse, the company’s CEO, said to great applause that he has “concerns that it would stifle innovation and put too much power in the hands of two.”

Groups such as Consumers Union, Free Press, the Media Access Project, and Public Knowledge have come out against the deal on the grounds that it is anti-competitive and will most likely hurt consumers.  These groups wield some influence with Democratic members of the FCC and as well as on Capitol Hill.

The list of opponents seems to go on forever.  The Computer and Communications Industry Association (CCIA), an industry group that counts Google, Microsoft, and Yahoo as members, has already stated its opposition.  “A deal like this, if not blocked on antitrust grounds, is of deep concern to all the innovative businesses that build everything from apps to handsets.  It would be hypocritical for our nation to talk about unleashing innovation on one hand and then stand by as threats to innovation like this are proposed,” said Ed Black, the group’s president.

T-Mobile customers are also unlikely to be looking forward to the merger.  Basex has been a corporate customer of T-Mobile for 13 years, in part due to the excellent customer service that the company has always provided.  From personal experience, I can attest to the fact that every call I have ever had to make for technical support was handled as if I were the only customer the company had to deal with.  Service was personalized, the reps have always been friendly and knowledgeable, and they seemed genuinely concerned about whatever problem I was reporting.  They also had an excellent track record of resolving these problems.

The future of this deal is far from certain.  AT&T, by virtue of a $3 billion breakup fee due to T-Mobile USA parent Deutsche Telekom if the deal doesn’t close, is betting it can win approval.  This is one bet I wouldn’t necessarily make.

This Analyst Opinion is also available online at

Jonathan B. Spira is CEO and Chief Analyst at Basex.  H

U.S. v. IBM Round 3: DOJ Starts Antitrust Inquiry

Wednesday, October 7th, 2009 by Jonathan Spira
The Department of Justice is looking into potential antitrust violations by IBM

The Department of Justice is looking into potential antitrust violations by IBM

For the third time in 60 years, the United States government has started an inquiry into possible monopolistic practices by IBM in the mainframe computer market.   Antitrust regulators from the Department of Justice have been contacting companies (including members of the Computer and Communications Industry Association, which filed a complaint about IBM with the Department) about IBM’s business practices in the space.  The association, which is supported by IBM competitors including Google Microsoft, and Oracle, claims that IBM has stymied competition in the mainframe market and blocked attempts by others to license IBM’s software.

The mainframe business comprises a significant part of IBM’s revenue; including storage systems and professional services, it adds up to at least 25%.  IBM has seen its rivals withdraw from the market as the company continued to innovate with more advanced systems.  Last week, a civil suit by IBM competitor T3, which resold computers that behaved like mainframes, was dismissed.  The court’s ruling stated that the fact that IBM had invested heavily in advancing mainframe technology without licensing it to others “does not constitute anticompetitive behavior.”

In 1952, the U.S. Government alleged that IBM had violated Sections 1 and 2 of the Sherman Antitrust Act in part because IBM only leased, and would not sell, tabulating machines.  By 1955, IBM had adopted similar practices for mainframe computers.  The matter was settled in 1956; the Final Judgment required IBM to sell as well as lease computers.  In 1969, the DOJ filed a complaint that IBM was in violation of the Sherman Act by attempting to monopolize the business computer market.  The trial lasted over six years but the complaint was withdrawn in 1982 by the DOJ, stating that the charges were “without merit.”

Jonathan B. Spira is the CEO and Chief Analyst at Basex.

FTC to Bloggers: Disclose Payments for Reviews

Monday, October 5th, 2009 by Jonathan Spira

The FTC issued rules for bloggers and celebrity endorsers.

The Federal Trade Commission announced plans to require bloggers and celebrity endorsers, an interesting mix if there ever was one, to disclose what the FTC refers to as “material connections” (which could be direct payments or some free products).  The revised FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising specifically state that “the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement” therefore covered by this rule.  (Another revision requires companies to disclose whether the findings of a research organization that conducted sponsored research are mentioned in an advertisement, the advertisement must disclose the connection between the two entities but this is fodder for another day and another column.)

If bloggers want to be taken seriously, they can’t cross certain lines.  These lines include accepting fees or gifts in exchange for positive “ink.”  Part of my job as an industry analyst involves authoring reviews of various technologies and I also write product reviews from time to time for several print publications.  Most of the products I test come “on memo,” which means they go back after they are reviewed.  Occasionally, the manufacturer will offer the opportunity to purchase the item at a price that could best be described as low retail (no hidden discounts here).  And for very inexpensive items, some manufacturers don’t want to even pay the cost of shipping the item back so I get to keep a few things now and then.

On the other hand, I sometimes review items that I am paying full price for (Verizon FiOS is a recent example).

Regardless of the situation, behind-the-scenes financial arrangements are simply not acceptable if the writer (blogger) is representing himself to be unbiased.  A Wall Street Journal article from April of this year references “Blogger Jessica Gottlieb of Los Angeles” who writes that she “would only write about their products in return for cash” (as the article put it).  Gottlieb (quite inexplicably and implausibly) believes that her opinions are “unbiased” despite the crystal clear failure of the wall between editorial independence and advertising dollars (sometimes referred to as “church and state”).  Ironically, Gottlieb does get one thing right in her site’s disclaimer: “This blog… should not be considered factual.”

Blogger Colleen Padilla, covered in a July 2009 New York Times article, is doing her readers a disservice if she does not run “bad” reviews, as she told the reporter.  If she tests as many products as the article indicates, she would be in an excellent position to provide authoritative feedback on what doesn’t work and what does in fact need improvement.  Apparently, she does neither.  And that’s a real shame.

On the other hand, Melanie Notkin (mentioned in the same New York Times article), is deceiving herself and her readers.  “[Cable network] TNT never told me and will never tell me what to say,” Ms. Notkin stressed.  The fact is, however, that TNT is telling her to say “something” and that is significant enough in my view to create a clear conflict of interest.  While labeling her posts with “[sp]” may, in her mind, absolve her of this, I would wager that few people reading her posts equate “sp” with a sponsored message.

I do think that Katja Presnal, quoted in the same New York Times piece is on the right track, providing candid reviews and opinions to her readers.  Those who follow this path will be the ones whom readers can trust and seek out for more than just a puff piece.

Finally, keep this in mind: bloggers aren’t in this by themselves.  Companies are (apparently) paying them for reviews.  As far as I am concerned, companies that do this should rethink why they believe they need to pay cash for good reviews in the first place and perhaps use that money to improve their products.

For further details, consult the FTC News Release.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Breaking Up Is Hard to Do (So Let’s Rebuild Humpty Dumpty)

Sunday, March 5th, 2006 by Jonathan Spira

It was only a little more than a year ago that AT&T was swallowed up by its progeny, SBC, for $15 billion.  At the time, Verizon realized it had to take immediate action and took control of MCI.  Today (yes, I’m writing this on a Sunday), AT&T (the “new” AT&T) announced it would acquire BellSouth for $67 billion.  This move created a telecommunications giant that will serve ca. 70 million local phone customers.  It also gives AT&T complete control of Cingular Wireless, which has been a partnership of BellSouth and SBC.

Of course, upon hearing the news someone immediately called me commenting on how AT&T had gone full circle.  But, as I explained to the caller, it had not.

AT&T was the parent corporation when it was divested of the seven so-called Baby Bells (or Regional Bell Operating Companies) on 1 January 1984.  Now what was left after several divestitures (Lucent among others) was acquired by a former Baby Bell, which took on the name of the acquired entity (AT&T).  The current acquisition really should be looked at as the “former” SBC (now called AT&T) buying Bell South (i.e. RBOC buys RBOC).  Just so happens that the former owns a portion of its former parent (the portion that operated Long Lines).

I knew right away that I’d have to write several columns on this and it was something I was well prepared for.  I wrote my first column on the subject in 1983, entitled “Breaking Up is Hard to Do.”  I also wrote a column at that time describing the Humpty Dumpty effect that might occur if the companies were to be somehow rejoined.

And let’s look at exactly that, starting in the late 1990s.

* Nynex was purchased by Bell Atlantic in 1997
* Pacific Bell was purchased by SBC (née Southwestern Bell) in 1998
* Ameritech was purchased by SBC in 1999
* US West merged with Qwest, a long distance and fiber optics company, in 2000
* Bell Atlantic purchased GTE, which was a non-AT&T regional operating company, in 2000, and changed its name to Verizon

One thing I try to emphasize to clients is that, no matter what course of action is taken, things have a tendency to return to their natural form.  It should be noted that the break-up of AT&T in the early 1980s was a catalyst in creating an almost worldwide deregulated telecoms environment.  How many countries followed the United States’ lead?  Germany, the United Kingdom, Austria, the list goes on and on.  State sanctioned monopolies are rare today.

But the break-up of AT&T in the U.S. had a greater impact than that which took place in other markets, creating eight companies out of one and an environment where each of the companies had to deal with regulated and deregulated aspects of the business.  Each company had similar overhead, staffing, services, etc., and of course companies with multiple locations around the U.S. had to deal with multiple vendors.

Today’s transaction, as well as the SBC/AT&T acquisition and Verizon’s acquisition of MCI, reflects everyone’s interest in growing their businesses of selling voice and data services to enterprise and corporate customers, a $250 billion market.

But it also marks a return to a time when TPC (“the phone company”) meant just that, no matter where you were.

Jonathan B. Spira is CEO and Chief Analyst at Basex.

Humpty Dumpty Part II

Saturday, February 5th, 2005 by Jonathan Spira

All the king’s horses
And all the king’s men
Couldn’t put Humpty together again*

*But in the end, the telecommunications industry did one better

For decades, companies and households had but one supplier to turn to for all of their telephony needs: Ma Bell.  More formally known as AT&T and represented through local Bell Operating Companies such as New York Telephone and Pacific Bell, Ma Bell was reminiscent of a kind but stern parent, happy to provide a dial tone but not letting others compete for their children’s attention.

That situation began to change in 1963, when MCI (Microwave Communications, Inc.), the first non-Bell long distance company in the modern communications age authorized (after multiple court battles) to compete against AT&T by the FCC, was founded by Jack Goeken.
Eventually, AT&T agreed to divest itself of its Local Exchange Carriers (LECs), forming seven “Baby Bells”: Ameritech, Bell Atlantic, Bell South, Nynex, Pacific Bell, Southwestern Bell, US West, which focused on providing what was dial tones to local customers.  AT&T kept the long-distance and equipment businesses, which at the time were thought to be where the money was.  As of 1 January 1984, when divestiture, as it is formally known, took effect, AT&T controlled 90% of the U.S. long distance market.  Some pundits (myself included) wrote about a Humpty Dumpty-like scenario, whereby an investor or other third party would attempt to reconstruct the Bell System by taking over several Baby Bells.  (Several stock exchanges, including NYSE and CBE, announced plans around this timeframe to trade a “Humpty Dumpty” sub-index, which would consist of AT&T and the seven Baby Bells.)

The Telecommunications Act of 1996 relaxed the regulatory climate that had bound the telecomms industry, and industry observers and regulators hoped to see increased competition.  Instead, the local phone companies embarked upon a buy-out binge.  In a few short years, the original seven Baby Bells were four and consolidation, not competition, was the name of the game.  The landscape became increasingly confusing.

In case you missed it:
* Nynex was purchased by Bell Atlantic in 1997
* Pacific Bell was purchased by SBC (née Southwestern Bell) in 1998
* Ameritech was purchased by SBC in 1999
* US West merged with Qwest, a long distance and fiber optics company, in 2000
* Bell Atlantic purchased GTE, which was a non-AT&T regional operating company, in 2000, and changed its name to Verizon

In 2002, when the WorldCom bankruptcy filing eclipsed even that of Enron, Bellheads savored the fairly brief moment when it appeared that AT&T had outlasted MCI (then part of WorldCom).

Last year, WorldCom emerged from bankruptcy protection as MCI, after nearly collapsing from an $11 billion accounting fraud.  MCI was a shadow of its former self, but it did have a worldwide voice and data network that was highly desirable.  Although the company’s capacity is about half that of AT&T, only Sprint, a distant third, remains as an independent supplier of voice and data comm. services.

When AT&T was swallowed up by its former progeny, SBC, last week for $15 billion, Verizon realized it had to take immediate action.  By then, a full reversal of the court ordered breakup was in play and the competitive landscape was changing quickly and unpredictably.  In a last minute deal, Verizon bested its much smaller rival, Qwest, for control of MCI.  The deal brought the telecommunications industry full circle from the reverse Humpty Dumpty phenomenon that had started with the Regional Bell Operating Company (RBOC) consolidation of the 1990s.  The period of increased competition and deregulation, which had begun when Bill McGowan, the litigious MCI chief, first challenged AT&T’s monopoly after joining MCI in 1968, and which had continued at the Department of Justice into the 1970s was over.  Although neither deal has closed, for all intents and purposes, MCI outlived AT&T for but a few days.

These deals reflect Verizon’s and SBC’s interest in growing their businesses of selling voice and data services to enterprise and corporate customers, a $250 billion market.  Interestingly enough, Sprint, which in the early days of the deregulated telecomms industry was the number three player in long distance services, remains as an independent provider of voice and data services, and that company agreed in December 2004 to merge with Nextel, forming the U.S.’s third-largest wireless company.  (A month later, Alltel, a regional mobile operator, said it would buy Western Wireless.)  Sprint plans on spinning off its local telecommunications business to its shareholders following the merger.

Jonathan B. Spira is CEO and Chief Analyst at Basex.