New York rages against T-Mobile/Sprint merger

Things are already looking dicey for the proposed merger between T-Mobile US and Sprint, and then New York’s Attorney General wades into the saga with scathing opinions.

“This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent,” said Attorney General Letitia James.

Support for the merger is pretty rare nowadays, though James and California Attorney General Xavier Becerra have filed a multi-State lawsuit to add more fuel to the flames. In total, ten States have been included in the lawsuit, compounding the headaches induced by an already prolonged approval process.

The omens are not looking particularly positive for T-Mobile US and Sprint.

“When it comes to corporate power, bigger isn’t always better,” said James. “The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country.

“That’s why we are going to court to stop this merger and protect our consumers, because this is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.”

T-Mobile US and Sprint are promising a cheaper and faster service, as well as a challenge to the dominance of AT&T and Verizon, but this isn’t enough to convince the legal heavyweights. It’s the same argument which is evident throughout the world of mergers and acquisitions; four to three does not encourage optimism.

Perhaps the most damning argument against the merger is market trends over the last decade. According to the US Labor Department, the average cost of mobile service has fallen by roughly 28% over the last decade, while mobile data consumption has grown rapidly. T-Mobile US and Sprint might argue a merger is better in the long-run for competition, but there is an old saying; if it isn’t broken, don’t fix it.

With four telcos competing for valuable post-paid subscriptions, the consumer does appear to be winning. Tariffs are expensive in the US, though they are becoming cheaper. Another interesting aspect to the lawsuit points to some skulduggery from the duo.

The Attorneys General’s investigation into the merger found that many of the claimed benefits were unverifiable and could only be delivered years into the future, if ever. Specifically, the AG’s are referring to the lightening speeds promised and the ease at which the duo believes a 5G network can be rolled out nationwide. This isn’t necessarily stating it is not possible, just that the claim is not supported by evidence.

For a decision which is likely going to be based on evidence provided, this is a very simple, but powerful argument for blocking the merger.

DoJ antitrust chief readies for battle against big tech

There have been plenty of whispers in the back alleys of Silicon Valley of the antitrust boogeyman and now the nightmares are turning into reality.

Speaking at an industry conference in Israel, Assistant Attorney General Makan Delrahim outlined his views on competitiveness in the technology industry. Those who were anticipating an antitrust battle in the US can feel suitably vindicated, as Delrahim effectively confirms he has Google and Apple firmly in the crosshairs.

“The digital economy is a fact of life, but it is not all things to all people,” said Delrahim. “There has been robust public discussion about whether the broader economy, undoubtedly transformed by digital technologies, is working well for everyone.”

Although this is not necessarily shocking news, it is a nuanced confirmation of the up-coming assault against big tech.

Last week, the US took the first tentative steps towards addressing the influence of technology on today’s society. The House Antitrust Subcommittee announced the launch of a bipartisan investigation into competition in digital markets, potentially offering a threat to solid foundation of the technology giants. Diluting the dominance of big tech is going to be a very difficult task, but it does appear the groundwork is being laid.

In this speech, Delrahim is effectively outlining the Department of Justice’s plan, as well as the justification for tackling big tech.

“Where there are credible concerns that a transaction or business practice is anticompetitive, timely and effective antitrust enforcement is imperative,” said Delrahim.

“…After all, the government’s successful antitrust case against Microsoft arguably paved the way for companies like Google, Yahoo, and Apple to enter the market with their own desktop and mobile products.”

Microsoft’s dominance of the technology world in the 90s should not be underplayed and perhaps can be very accurately likened to Google’s influence today. Although the US Government was not successful in breaking-up Microsoft as an organization, it did manage to dilute its power and broaden the spread of wealth. When a company starts to dictate play in the way Microsoft did, the US Government starts to get a bit twitchy.

This is the issue which the likes of Google, Amazon and Apple are facing today. Such is the success of the business, through the creation of best-in-class products and strategic acquisitions to stutter the progress of competitors, the fortunes of the technology industry are incredibly concentrated. This is what Delrahim and his colleagues want to address.

Specifics are often lost in such conference speeches, but an interesting point raised by Delrahim focused on “network effects”. In short, an organization has such control over the supporting ecosystem competition is suffocated before it has any genuine chance to be competitive. Perhaps this is done through acquiring nascent competitors or manipulating the ecosystem.

Although there have been some hints of strategy from Delrahim, the specifics are still evading the industry. That said, it is becoming increasingly clear that the US Government wants to dilute the power and influence of big tech.

Huawei claims its US ban is unconstitutional

Huawei has continued its counter-assault against the US, suggesting the 2019 National Defense Authorization Act (NDAA) contradicted the country’s constitution.

Signed into law in August 2018, the NDAA effectively banned Huawei and ZTE from any meaningful work in the US. The language was suitably nuanced to ensure this wasn’t a total ban, but the conditions made it difficult for Huawei to contribute any components, products or services to government or state-funded projects. Due to the intricacies of network investments, almost all major projects could be deemed state-funded by one means or another.

While Huawei has not taken this action from the US Government sitting quietly, this latest move challenges the legal foundations of the legislation, suggesting such actions from the White House and Congress are unconstitutional.

“As explained in the motion, the Constitution generally limits Congress to enacting laws and requires that application of those laws be left to the Executive and the courts,” said Glen Nager, the lead external counsel for Huawei and Partner at Jones Day.

“Congress may not selectively punish specific persons; Congress may not selectively deprive specific persons of property or liberty; and Congress may not itself exercise executive or judicial powers. But section 889 violates all of these constitutional rules.”

According to the filing, section 889 of the NDAA violates the Bill of Attainder, Due Process, and Vesting Clauses of the US Constitution. Huawei and its lawyers will argue the law should not be allowed to target specific companies and/or persons, while US politicians specifically targeted the firm during the legislative debate process, blatantly proclaiming an objective was to ‘banish’ Huawei from the country.

The Bill of Attainer clause suggests no bill can be passed into law which singles out an individual or group for punishment without a trial. As the US has passed this law without any formal legal proceedings against Huawei, it would appear there is a good case here.

Huawei’s lawyers also claim section 889 violates due process and the separation of powers, in that it is selective legislation targeting Huawei specifically. The filing also argues deprives Huawei of protected property and liberty interests without affording it constitutionally necessary due process. And finally, Congress has assumed the fact-finding and law application functions of the executive and the courts, ignoring the separation of power clause.

Should the courts be in agreement with Huawei’s position, it would appear politicians were in too much of a rush to make a move against China and its telco flagbearer. Another interesting consequence might be the burden of proof.

To date, little, if any, evidence has been offered to back up US propaganda against Huawei, though if the filing proves the NDAA is unconstitutional, the US Government might be forced to table any evidence it has. If the choice is between this law dwindling into non-existence or tabling evidence of collusion, the nuanced conflict between the US and China might be about to become much more substantiated.

UK MNOs set to claw back £200+ million in licence fees

A UK court has ruled in favour of the telcos in an on-going battle with regulator Ofcom over licence fees paid on spectrum assets between 2015 and 2017.

The legal battle concerns the process which was undertaken by Ofcom prior to increasing licence fees paid by each of the telcos for access to the airwaves. The decision to increase the licence fees was met by much criticism during the initial announcement, and you can see why.

The licence fees concern 900 MHz and 1800 MHz spectrum assets awarded to each of the telcos during a 2013 auction.

Telco Fee paid (post-2015) Fee paid (pre-2015) Difference
Vodafone £76,245,025.10 £21,865,536 £54,379,489.10
O2 £76,245,025.10 £21,865,536 £54,379,489.10
Three £44,390,398.53 £17,463,600 £26,926,798.53
EE/BT £139,823,997 £57,380,400 £82,443,597

While telcos are constantly complaining about regulation, as well as the amount paid to regulators around the world, the drastic difference in licence fees was too much to stomach here.

Following the decision to increase licence fees, EE was first to act, challenging the ruling in the courts in 2017. The other UK MNOs were quick to follow, with Ofcom being named as a defendant in the lawsuit.

“We welcome the court’s decision that finds in favour of the mobile operators,” said an O2 spokesperson. “We are however disappointed that Ofcom has been granted leave for appeal and we will strongly defend any future appeal brought by Ofcom.”

Ofcom will most likely appeal the decision.

The argument from the telcos is one which we have heard before. The more money which is demanded from Ofcom, the less which is available to invest in networks to ready the UK for the digital economy.

Following EE’s decision to challenge the changes to licence fees in 2015, a move which was supported by the other MNOs, Ofcom decided to revert back to the licence fees which were paid in the previous regime. There has been another consultation since, resulting in an increase to licence fees paid moving forward, though this case is focused on the period between 2015 and November 2017.

Aside from clawing back the payments made during this period, the parties have agreed simple interest be applied on whatever sum is due, calculated at 2% above the Bank of England base rate during the period.

For the MNOs, this news will be very much welcomed considering the financial burden they face ahead of the 5G era. With billions set to be spent rolling out the networks, a bit of financial relief will go a long way.

Supreme Court opens the legal floodgates on Apple

Apple is potentially on the verge of facing a tidal wave of lawsuits as the Supreme Court agrees the iLeader is allowed to be challenged on a potential abuse of power in the app economy.

The pivotal case the Supreme Court has been ruling on is Apple vs. Pepper. Robert Pepper and other plaintiffs, various iPhone owners, filed an antitrust lawsuit against Apple claiming the firm monopolised the app market through the App Store, with developer licence fees and the 30% commission ultimately driving the price up for consumers.

One the other side of the argument, Apple suggested iPhone owners were actually customers of the developers, while the developers were customers of Apple. This nuanced argument leans on legal precedent set in doctrine known as Illinois Brick where ‘indirect purchasers’ of a product don’t have the power to file antitrust cases. In distancing itself from the end-user in the app economy, Apple was hoping to protect itself.

In the first instance, the district court ruled in favour of Apple, dismissing the case, while the Ninth Circuit Court reversed the decision, ruling that consumers are purchasing from Apple not the developers. The fight was then escalated up to the Supreme Court, with the highest legal battleground in the US ruling 5-4 in favour of the iPhone owners.

What is worth noting is this is not a ruling which states Apple’s App Store is a monopoly, but a decision which allows users to file antitrust lawsuits against the iLeader. It’s a step towards another legal headache but is by no means a sign of guilt.

For Apple, this will come as an unwanted distraction as it attempts to scale it software and services business, in which the App Store is a key cog. The last few years have seen the Apple team attempt to create a more balanced business, with less of a reliance on the staggering hardware segment and reaping the rewards of the blossoming software world.

This decision from the Supreme Court might not assign guilt to Apple, but it certainly creates a monumental migraine. Such is the lawsuit culture in the US it won’t be long before miffed customers just on the bandwagon in pursuit of compensation.

Could Orange’s CEO end up in prison?

Orange CEO Stephane Richard is widely respected throughout the telco industry, but he is also currently embroiled in a legal battle which could land him behind bars.

For his alleged role in the misuse of public funds while he was working for the Finance Ministry, French prosecutors have called for Richard to be sentenced to three years in jail. He would only spend half this time in prison, but this would be 18 months too long for almost everyone you ask.

The trial itself is drawing to a close, but this is hardly news, dating back to the 90s and the financial affairs of businessman Bernard Tapie. After making millions and eventually an 80% stake in German sports brand Adidas, Tapie faced debts and instructed state-owned Crédit Lyonnais to sell his stake. After the sale, Tapie was unable to settle said debts and challenged Crédit Lyonnais, suggesting the bank sold shares at a depressed rate.

This is where Richard steps into the fray. Tapie backed Nicolas Sarkozy in the presidential election, which he went onto win. After this victory, the Sarkozy Government set up an independent arbitration panel to settle the case between Tapie and Crédit Lyonnais, instead of challenging the legal case brought against the bank which was the previous rhetoric.

After Tapie was awarded €403 million by the panel, the French Finance Ministry came under extreme criticism. At this point, Richard was serving as Chief of Staff for Christine Lagarde, Finance Minister at the time and now the head of the International Monetary Fund.

The players in this game are accused of creating this panel, and the subsequent settlement, as a convert reward for the support Tapie gave Sarkozy during the election campaign. This is the gloomy side of politics which causes so many to groan at the moral fibre of today’s politicians; there is always someone to thank one way or another. Since this point, a Paris court annulled the panel’s decision and ordered Tapie to repay the funds.

It’s all very nefarious, grimy and complicated, however Richard is tied up due to his position and alleged action during the latter stages of the affair.

What is clear, however, is that Richard is potentially facing prison time for his role.

As we understand it, Richard’s team is confident he will not end up on the losing side, though there is always a chance one of Europe’s leading telcos could be thrown into disaster as its CEO is locked up. Aside from a prison sentence, prosecutors are also pursuing a €100,000 fine and a ban from working for any organization where the French Government has a stake for five years. Currently, the Government owns around 13% of Orange.

Orange has no comment on the saga at this point, as this is a personal issue for Richard not the telco’s business. However, we suspect there must have been some whispered conversations behind closed doors discussing contingency plans; it would be irresponsible of the Orange management team if they were not.

The trial will likely conclude this week, though this does not mean we will be any closer to a decision. Richard will be left on the edge of his seat for the next couple of months, with a decision expected after the summer.

Facebook faces hyper-targeted advertising lawsuit

The US Department of Housing and Urban Development (HUD) has lodged a lawsuit against Facebook, challenging the hyper-targeted big data model which has made OTTs billions over the years.

Quoting the Fair Housing Act, the HUD has claimed Facebook is breaking the law by encouraging, enabling, and causing housing discrimination. The Fair Housing Act prohibits discrimination in housing and housing-related services, including online advertisements. Facebook’s advertising platform is said to discriminate individuals based on race, colour, national origin, religion, sex, disability and familial status, violating the Act.

“Even as we confront new technologies, the fair housing laws enacted over half a century ago remain clear – discrimination in housing-related advertising is against the law,” said General Counsel Paul Compton.

“Just because a process to deliver advertising is opaque and complex doesn’t mean that it’s exempts Facebook and others from our scrutiny and the law of the land. Fashioning appropriate remedies and the rules of the road for today’s technology as it impacts housing are a priority for HUD.”

Complaints were originally raised by the HUD last summer, though the two parties have been in discussions to come to some sort of settlement to avoid legal action. Reading between the lines, talks have broken down or the HUD leadership team wants to give the impression it is taking a more hardened stance against the social media segment.

Although it should come as little surprise Facebook is facing a lawsuit considering the ability for Mark Zuckerberg to stumble from one blunder to the next, this one effectively challenges the foundations of the business model. Hyper-targeted advertising is the core not only of Facebook’s business, but numerous other companies which have emerged as the dawn breaks on the blossoming data-sharing economy.

What is worth noting is this is not the first time Facebook has faced such criticisms. The American Civil Liberties Union (ACLU) has also challenged the social media giant, and earlier this month Facebook stating it was changing the way its advertising platform was set up to prevent abuses with the targeting features.

“One of our top priorities is protecting people from discrimination on Facebook,” said Facebook COO Sheryl Sandberg. “Today, we’re announcing changes in how we manage housing, employment and credit ads on our platform. These changes are the result of historic settlement agreements with leading civil rights organizations and ongoing input from civil rights experts.”

As a result of the clash with the ACLU and other parties, Facebook agreed to remove any gender, age and race-based targeting from housing and employment adverts, creating a one-stop portal instead.

According to the HUD, Facebook allows advertisers to exclude individuals from messaging based on where they live and their societal status. For example, whether someone is a parent or non-American, these categories have been deemed discriminatory. Facebook also allows advertisers to effectively zone off neighbourhoods for campaigns, which is also deemed a violation of the Act. By bringing together data from the digital platform and other insight from non-digital means, HUD is effectively challenging the legitimacy of digital and targeted advertising.

As with other similar cases, the HUD is bringing attention to the light-touch regulatory landscape for the internet economy. While traditional advertising is held accountable by strict rules, the internet operates with relative freedom. This is partly down to the age of mass market media online, it is still comparatively new, and the fact few bureaucrats understand how the data machines work.

What is worth noting is that this is an incredibly narrow focus for the HUD, though should it be successful the same concepts could be applied, and other elements of the Facebook hyper-targeted advertising model could be challenged.

Facebook might be the target here, though many companies will be watching this case with intrigue. Precedent is a powerful tool in the legal and regulatory world, and should the HUD win, the same business model which is being applied elsewhere would be compromised also.

Qualcomm lands roundhouse in Apple legal battle

The on-going legal battle between Qualcomm and Apple has taken a twist as the US District Court for the Southern District of California has ruled in favour of Qualcomm.

The court has decided Apple’s iPhone 7, 7 Plus, 8, 8 Plus and X infringe two Qualcomm patents, while the iPhone 8, 8 Plus and X devices infringe on a third. As a result, the jury has awarded Qualcomm $31 million in damages.

“Today’s unanimous jury verdict is the latest victory in our worldwide patent litigation directed at holding Apple accountable for using our valuable technologies without paying for them,” said Don Rosenberg, General Counsel for Qualcomm.

“The technologies invented by Qualcomm and others are what made it possible for Apple to enter the market and become so successful so quickly. The three patents found to be infringed in this case represent just a small fraction of Qualcomm’s valuable portfolio of tens of thousands of patents. We are gratified that courts all over the world are rejecting Apple’s strategy of refusing to pay for the use of our IP.”

The three patents support different functions on iPhones, all of which has become normalised features of the devices. Patent No. 8,838,949 enables ‘flashless booting’, removing the need for a separate flash memory and allowing smartphones to connect to the internet quicker after being turned on. Patent No. 9,535,490 speeds up internet connections. Finally, Patent No. 8,633,936 enables high performance and rich visual graphics for games, while also increasing battery efficiency.

The $31 million bill will actually mean very little to Apple. Looking at the iLeader’s 2018 full year results, it would take just under 62 minutes Apple to generate revenues to cover the $31 million, though it does set precedent around the world.

Alongside this ruling in San Diego, courts in China and Germany has also ruled Apple has infringed Qualcomm patents, questioning whether Apple is legally allowed to continue sales not only in these countries, but other territories around the world. In Germany, Apple has been barred from selling any iPhone 7 and 8 models, while in China all devices from the iPhone 6 to the iPhone X have also been banned from sale.

The legal battle between two of the digital economy’s heavyweights has been dragging on for some time now, but this round has been undeniably chalked up to Qualcomm.

Facebook reportedly facing criminal charges over data sharing

Facebook’s day started off with a major outage and, should reports turn out to be true, it is ending with the social media giant facing a criminal investigation from Federal prosecutors.

According to the New York Times, a grand jury in New York has obtained records from two smartphone manufacturers, via subpoena, which will detail the data sharing partnerships in or previously in place with Facebook. Sources has retained anonymity and it is not exactly clear who the subpoenaed parties were, though Facebook did have more than 150 such relationships in place before winding-down over the last couple of years.

Although the investigation has not been officially confirmed, it will come as a surprise to few considering the scrutiny those dominating the data-sharing economy are facing. Over the last few months, there have been numerous attempts to weaken the influence of the internet giants, with some even suggesting legal force to break-up the empires. The internet giants created a cosy position, but this is certainly under threat.

That said, while the scandals over the last 18 months might lead some to presume the practice of selling personal data would be scaled back, there seems to be little evidence of this. A recent Motherboard investigation suggests various US telcos are still reaping the benefits, and in some cases, scaling up the practice.

What is worth noting is the concept of selling personal information is not illegal, as long as the right consent has been obtained from the end user. This is what Facebook, and the third-parties who entered into such arrangements, are facing criticism for today. Accusers suggest proper content was not obtained or done so in such a complicated fashion it should not be considered valid.

The data-sharing economy is gaining validity across the world, but only when the practice is managed in a fair and responsible manner. This is what GDPR and other regulations intend to enforce. The idea is not to stop the practice, but to ensure the companies involved act in a responsible manner, with the user properly informed and in control of the situation. The data-sharing economy can work, and can benefit everyone involved, as long as no single party abuses their position.

The partnerships which are reportedly being investigated here, however, have come under criticism for some time. Privacy campaigners suggest the partnerships violate a 2011 consent agreement between Facebook and the FTC, after allegations the social media giant had shared personal information in a way that deceived users. At one point, there were more than 150 such partnerships in place, though Facebook has been phasing out most of the agreements over the last few years.

Although this is a retrospective investigation into the company, it could potentially contradict statements from CEO Mark Zuckerberg and other executives suggesting the business was being more transparent and managing user data responsibly. Facebook has been making this statement for several years. This case could prove Facebook mislead the world with these claims as well.

There is a general feeling of ‘if’ not ‘when’ here. Politicians, governments and regulators are seemingly scouring the Facebook business for any cracks, allowing them to slap a significant fine and parade the streets with a victory on behalf of consumer privacy. Facebook’s lawyers have done a pretty good job of wriggling so far, but there is a bit of a feeling the dam could burst at any point.