\\10.0.10.115\Eti\States\CA\2018-ORA\LLS Testimony\LLS Testimony Sprint T-Mo 01-05-19 NO FOOTER .Wpd

\\10.0.10.115\Eti\States\CA\2018-ORA\LLS Testimony\LLS Testimony Sprint T-Mo 01-05-19 NO FOOTER .Wpd

Before the CALIFORNIA PUBLIC UTILITIES COMMISSION In the Matter of the Joint Application of Sprint Communications Company L.P. (U-5112) and T-Mobile USA, Inc., a Delaware Corporation, For Approval of Transfer of Application 18-07-011 Control of Sprint Communications Company L.P. Pursuant to California Public Utilities Code Section 854(a). And Related Matter. Application 18-07-012 Direct Testimony of LEE L. SELWYN on behalf of the Public Advocates Office at the California Public Utilities Commission January 7, 2019 REDACTED FOR PUBLIC INSPECTION DIRECT TESTIMONY OF LEE L. SELWYN TABLE OF CONTENTS EXECUTIVE SUMMARY viii INTRODUCTION AND SUMMARY 1 Qualifications, background and experience 1 Assignment 6 The public interest and other issues identified in the Scoping Memo 7 ISSUE 1. How would the merger impact competition for services currently provided by Sprint or T-Mobile in any metropolitan area or other geographically distinct market? 8 The mobile wireless telecommunications market in California and throughout the US is already highly concentrated, and further market consolidation is neither warranted nor in the public interest. 8 An analytical framework for assessing the level of market concentration 15 As a general matter, wireless service price levels in the US are decidedly higher than in other western countries where multiple facilities-based carriers are present and where competition appears more intense. 22 ISSUE 3. What are the relevant markets to consider? 27 To properly utilize the Herfindahl-Hirschman Index (HHI) to assess the level of market concentration, one must firmly establish a proper definition for the relevant product and geographic market. 27 The relevant geographic market for mobile wireless services is fundamentally local in nature. 29 The merger-driven increase in market concentration far exceeds the industry-wide HHI change when the geographic scope is properly limited to relevant local markets. 33 Prepaid and Postpaid wireless services constitute separate and distinct relevant product markets. 59 ii ECONOMICS AND REDACTED FOR PUBLIC INSPECTION TECHNOLOGY, INC. TABLE OF CONTENTS (continued) If the merger goes forward, New T-Mobile will control roughly 59% of the prepaid services market, and the prepaid market HHI will jump by 1468 points – more than seven times the HMG's 200-point threshold. 64 The CPUC has previously adopted a series of tests for the presence of effective competition in the mobile wireless telecommunications market. 66 ISSUE 9. Would the merger increase the market power of the incumbent local exchange carriers and their wireless affiliates? 72 The merger of Sprint and T-Mobile will enhance the market power of New T-Mobile as well as that of all of the large national CMRS providers. 72 The Joint Applicants' already engage in some parallel conduct vis-à-vis their larger rivals, and the merger will create additional incentives and opportunities for the post-merger New T-Mobile to expand into new areas of parallel conduct going forward. 74 A post-merger New T-Mobile will have overwhelming dominance of the prepaid services market, which may diminish its interest in supporting MVNOs and enable it to raise prices for prepaid services that, for many low-income consumers, are the only type of wireless service for which they are qualified. 85 A facilities-based carrier’s incentives to allow and to affirmatively support resale of their services diminishes as its market power increases. 85 Resellers such as MVNOs offer nondominant service providers the ability to expand their retail distribution channels and, in particular, to address customers that might otherwise fall outside of their own marketing efforts. 89 The presence of mandatory arbitration/class action waiver provisions in the Joint Applicants’ existing consumer contracts is yet another indication of parallel conducts in the market for mobile wireless services. 96 The Joint Applicants’ econometric models purporting to empirically assess the likely competitive effects of the proposed merger are driven by numerous unsupported and patently incorrect assumptions, and if anything confirm that the merger’s effect upon competition will be negative. 99 Claims that New T-Mobile and the other two mobile wireless service providers confront competition from cable MSOs is highly speculative, certainly premature, and cannot provide a basis for viewing the mobile wireless service market as contestable. 125 ISSUE 5. What merger-specific and verifiable efficiencies would be realized by the merger? 132 iii ECONOMICS AND REDACTED FOR PUBLIC INSPECTION TECHNOLOGY, INC. TABLE OF CONTENTS (continued) The Joint Applicants’ “economic benefits” theory 132 The efficiency benefits being claimed by the Joint Applicants are largely speculative and, in any event, they have failed to demonstrate that, in the context of a three-firm oligopoly, any significant portion of such efficiencies that do arise will be flowed through to consumers. 133 The Joint Applicants’ claims that the merger will dramatically increase the efficiency of their (joint) operation over that which exists under the two separate firms, even if true, is not a sufficient basis to overcome the potential anticompetitive effects that the merger will foster. 135 ISSUE 2. What new services, if any, that are not currently provided by T-Mobile or Sprint, are contemplated to be provided by the merged entity? How would the merger impact competition for such services in any metropolitan area or other geographically distinct market? 142 Nationwide or even California statewide availability of 5G is in no sense dependent upon the merger of T-Mobile and Sprint and, since this merger is likely to diminish competition in the US mobile wireless market, it is more likely to retard, rather than facilitate, 5G deployment. 142 ISSUE 10. How would the merger impact the quality of, and access to, service to California consumers in metropolitan areas, rural areas, or other geographically distinct markets? What services would be affected? 156 Both Sprint and T-Mobile individually possess more than sufficient spectrum capacity to serve rural areas, and nothing in either the merger or in the characteristics of 5G technology can bring down the amount of capital investment required to provide service in rural areas. 156 Even if integrating the two companies’ networks would facilitate the transition to 5G, the incremental benefits of such integration are not sufficient to overcome the potential competitive harms that would result from the elimination of a competitor in this market. 161 ISSUE 13. Would the merger preserve the jurisdiction of the Commission to effectively regulate those utilities and their operations in California? 167 As a technical matter, the merger does not directly affect the jurisdiction that the Commission presently retains, but the increased concentration and diminution of competition that would result may warrant renewed examination of the Commission's regulatory role with respect to certain wireless carrier terms and conditions. 167 iv ECONOMICS AND REDACTED FOR PUBLIC INSPECTION TECHNOLOGY, INC. TABLE OF CONTENTS (continued) ISSUE 14. Would the benefits of the merger likely exceed any detrimental effects? 173 The potential impact of the merger on New T-Mobile’s ability to deploy massive 5G capacity relative to what the two companies could achieve on a stand-alone basis is overblown. 173 The potential anticompetitive impacts of the proposed merger of Sprint and T-Mobile far exceed any benefits than can realistically be expected to arise, and for that reason the merger should not be allowed to go forward. 177 ISSUE 15. Should the Commission impose conditions or mitigation measures to prevent significant adverse consequences and, if so, what should those conditions or measures be? 178 Any approval of the proposed merger should be expressly conditioned upon the Joint Applicants’ agreement to eliminate all mandatory arbitration and class action waiver provisions in their adhesion contracts with residential and small business customers. 179 Conclusion 186 DECLARATION 188 Tables and Figures Table 1: Wireless HHIs for California Economic Areas 2011-2015 19 Table 2: Illustrative Wireless Rates in Selected Countries with 3 to 5 MNOs 24 Table 3: Licensed Bandwidth by Spectrum Block 41 Table 4: California Wireless Carrier Spectrum Bandwidth Allocation Shares by County and Technology 45 Table 5: Changes in HHI That Would Result from Sprint/T-Mobile Merger Based upon FCC Wireless Carrier Deployment Data Weighted by Licensed Bandwidths 46 Table 6: Wireless HHIs for California Economic Areas and for Selected Counties Within Those EAs 48 Table 7: Changes in HHI That Would Result from Sprint/T-Mobile Merger Based upon FCC Wireless Carrier Availability Data for Areas of Different Densities Within Selected Counties 51 v ECONOMICS AND REDACTED FOR PUBLIC INSPECTION TECHNOLOGY, INC. TABLE OF CONTENTS (continued) Table 8: The number of census blocks in each California county where service is currently being provided by 0, 1, 2, 3, 4 or 5 carriers. 54 Table 9: Facilities-based Wireless Carrier Total and Prepaid Market Shares and HHIs as of December 31, 2017 65 Table 10: Wireless Carrier Revenues 2010-2016 77 Table 11: Wireless Carrier Revenue Market Shares 2010-2016 79 Table 12: Average Revenue per Unit 81 Table 13: Average EBITDA per Unit 83 Table 14: Retail and MVNO Subscribers Being Served by the Four Major Facilities-based Carriers – First Quarter 2018 90 Table 15: Cornerstone Estimates of Wireless Carrier Prices and Marginal Costs 120 Table 16: Carrier Spectrum Holdings in Selected California Counties 159 Table 17: Estimated Total Connections 2010-2016 175 Figure 1. FCC HHI estimates 2004-2015, from 19th Annual CMRS Report. 18 Figure 2. Prices for wireless voice and data services have been steadily decreasing, while Basic Cable prices have steadily risen. Index (2008=100) of Basic Cable average service price and Average Revenue per Mixed Unit for CMRS.. 21 Figure 3. FCC Economic Areas that include portions of California. 30 Figure 4. FCC “Basic Trading Areas” in California. 32 Figure 5.

View Full Text

Details

  • File Type
    pdf
  • Upload Time
    -
  • Content Languages
    English
  • Upload User
    Anonymous/Not logged-in
  • File Pages
    311 Page
  • File Size
    -

Download

Channel Download Status
Express Download Enable

Copyright

We respect the copyrights and intellectual property rights of all users. All uploaded documents are either original works of the uploader or authorized works of the rightful owners.

  • Not to be reproduced or distributed without explicit permission.
  • Not used for commercial purposes outside of approved use cases.
  • Not used to infringe on the rights of the original creators.
  • If you believe any content infringes your copyright, please contact us immediately.

Support

For help with questions, suggestions, or problems, please contact us