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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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____________________________________ | |
| | ) | | UNITED
STATES OF AMERICA, | ) | |
| | ) | | |
Plaintiff, | ) | CIVIL ACTION NO. 1:98CV02751
| | | ) | |
| v. | ) | | |
| ) | | | MERCURY PCS II,
L.L.C., | ) | | | | ) | | | Defendant. |
) | |
| ____________________________________ | ) | |
COMPETITIVE IMPACT STATEMENT
The United States of America, pursuant to Section 2(b) of
the Antitrust Procedures and
Penalties Act ("APPA"), 15 U.S.C. §
16(b)-(h), files this Competitive Impact Statement relating
to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I.
NATURE AND PURPOSE OF THIS PROCEEDING
On November 10, 1998, the United States filed a civil
antitrust complaint alleging that the
defendant, Mercury PCS II, L.L.C.
("Mercury"), had violated Section 1 of the Sherman Act, 15
U.S.C. § 1. Mercury participated in
an auction (the "DEF auction") of broadband radio
spectrum licenses for personal
communication services ("PCS") that was conducted by the
Federal Communications Commission
("FCC") between August 1996 and January 1997. The
Complaint alleges that during the DEF
auction Mercury submitted bids that ended with three-
digit numerical codes to communicate
with rival bidders and that, through the use of these coded
bids, Mercury and one of its rivals
reached an agreement to refrain from bidding against one
Page 2
another. As a consequence of this
agreement, the complaint alleges Mercury and its competitor
paid less for certain PCS licenses,
resulting in a loss of revenue to the Treasury of the United
States.
On November 10, 1998, the United States and Mercury
filed a Stipulation and Order in
which they consented to the entry of a
proposed Final Judgment that provides the relief that the
United States seeks in the Complaint.
Under the proposed Final Judgment, Mercury would be
enjoined from submitting coded bids in
future FCC auctions and entering into any agreement
related to bidding for FCC licenses that
violates Section 1 of the Sherman Act, 15 U.S.C. § 1.
The United States and Mercury have stipulated that the
proposed Final Judgment may be
entered after compliance with the APPA.
Entry of the Final Judgment would terminate the
action, except that the Court would retain
jurisdiction to construe, modify, or enforce its
provisions and to punish violations
thereof.
II.
THE
ALLEGED VIOLATION
A. Background of the PCS Auctions
In 1993, Congress enacted legislation enabling the FCC to
auction licenses for radio
spectrum that could be used to provide
PCS. Based on a wireless, digital technology, PCS offers
an alternative to current traditional
telephone services.
The FCC designated six bands of broadband radio
spectrum for PCS: A, B, C, D, E and F.
The A, B and C bands occupy
30 MHZ each, while the D, E and F licenses are 10 MHZ each. The FCC divided the country into 51 geographic areas called Market
Trading Areas ("MTAs"),
which were each allotted A and B
licenses. The FCC subdivided the MTAs into 493 smaller
Page 3
geographic units called Basic Trading
Areas ("BTAs"), which were each allotted C, D, E, and F
licenses. Each BTA was assigned a
number from 1 to 493.
The authorizing legislation required the FCC to adopt rules
ensuring competitive auctions,
and the FCC considered numerous
auction formats for PCS, ultimately adopting a simultaneous,
multiple-round, open format. Under this
format, numerous licenses were offered in a single
auction, staged over several rounds, with
all licenses remaining open for bidding until the
auction closed. Auction participants
could observe all of the bidding activity in each round. The
auction ended only when a round passed
in which no bidder submitted a bid on any license.
To keep the auction moving forward, the FCC imposed
eligibility limits and activity rules.
The FCC gave each license a population
value called "MHZ-pops." Each bidder made down
payments to the FCC, with the size of the
payment entitling it to bid for a certain amount of
MHZ-pops. A participant could bid on
any combination of licenses as long as the combined
MHZ-pops of those licenses did not
exceed the MHZ-pops to which the bidder's down payment
entitled it (eligibility). Bidders also had to
be "active" in each round (bid or have the high bid
from the prior round) on licenses
representing a set percentage of their MHZ- pops; otherwise,
the FCC reduced their eligibility for the
next round. As the auction proceeded, the bidders had
to bid an increasing percentage of their
MHZ-pops until in the final stages they had to bid nearly
all of their eligibility.
Each round in the auction began with a bid submission
period during which participants
submitted bids electronically or by
telephone for any of the licenses in which they were
interested. After each bid submission
period, the FCC published electronically to all bidders the
results for each license, including the
name of each company bidding, the amount of each bid,
Page 4
and the time each bid was submitted.
The high bidder for a license in a round became the
"standing high" bidder for that license
with a tie going to the earliest bidder.
A bid withdrawal period then followed. During this period,
bidders were permitted to
withdraw their standing high bids from
any market, subject to a withdrawal penalty specified by
the FCC. The FCC then published the
results. The bid submission and withdrawal periods
comprised an auction round.
At the beginning of an auction, the FCC generally held one
round per day. As the auction
progressed, the FCC increased the
number of rounds held in a single day, providing a period of
time between rounds for auction
participants to analyze the bidding from the prior round and to
plan for the next round.
One goal of the FCC was to ensure the efficient allocation
of licenses, that is, that the
licenses would go to the bidders who
valued them most highly. The simultaneous, multiple-
round format of the PCS auctions helped
achieve this goal in several ways. It allowed bidders to
pursue different license aggregation
strategies and change their strategies as the auction
proceeded. In addition, it allowed auction
participants to observe the value that other bidders
placed on the licenses and use that
information to refine their own assessment of license values.
This was particularly useful given that the
technology used for PCS was new and bidders were
uncertain about both the costs of
providing the services and the prospective revenues.
Ultimately, because the licenses were
awarded to the highest bidders, the PCS auction format
allowed the marketplace to determine the
most efficient allocation of licenses.
Notwithstanding these benefits of the auction format, the
FCC recognized the risk that
"collusive conduct by bidders prior to or
during the auction process could undermine the
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competitiveness of the bidding process."
Second Report and Order, FCC 94- 61,
¶ 223 (Rel. April 20, 1994). The
FCC sought to mitigate the risk of collusion by adopting rules
restricting the disclosure of bidding
strategies during the auction. The FCC noted, however, that
Federal antitrust laws applied to the
auctions and it would rely primarily on those laws to deter
and punish collusion in the auctions.
Second Report and Order, supra at ¶ 225; Second
Memorandum Opinion and Order, FCC
94-215, ¶ 50 (Rel. August 15, 1994).
B. Illegal Agreement to Allocate
Licenses in the DEF Auction
The auction of the D, E and F licenses for all 493 BTAs
began in August 1996. Because
there were three bands being auctioned,
the DEF auction involved a total of 1479 licenses.
Lasting 276 rounds, the auction ended in
January 1997.
Prior to the DEF auction, bidders analyzed which licenses
(or groups of licenses) would
best enable them to provide effective and
competitive service, assessed the value they placed on
those licenses, and developed strategies
to obtain the desired licenses for the lowest possible
prices. The bidders also speculated
about their rivals' business strategies and attempted to
identify the key licenses for those
strategies, relying on an array of information, including
knowledge of the licenses bidders had
acquired in prior auctions.
As the auction proceeded, bidders carefully observed their
rivals' actions and often
adjusted their own market valuations and
business strategies, sometimes based on their
assessment of their rivals' objectives.
Their rivals' bids, however, did not necessarily reveal
their true objectives. An auction
participant might bid for a particular license during a particular
round for a number of reasons: it may
have always wanted the license, but for strategic reasons
refrained from bidding until then; it may
have changed its business strategy and decided that it
Page 6
now wanted the license; it may have
seen an opportunity to acquire an undervalued license; it
may have bid simply to preserve its
eligibility to bid on other licenses later in the auction; it may
have bid to raise a rival's cost to obtain
the license; or it may have bid to send a message to the
standing high bidder to refrain from
bidding against it for a different license. Thus, the purpose
of a particular bid might be
procompetitive or anticompetitive.
A bidder's purpose in making a bid might, depending on
the circumstances, be ambiguous
to its rivals. Where ambiguity remains, it
can be difficult to use a bid or bidding pattern alone to
send clear messages or invitations to
collude. To eliminate or reduce any ambiguity, Mercury
sometimes placed bids during the DEF
auction in which the final three digits intentionally
corresponded to the number for a BTA (a
"BTA end code"). Knowing that other bidders could
see the bids and hence the BTA end
codes, Mercury used the codes to better explain the real
purpose of certain bids it made -- to
reach an agreement with a rival. In particular, Mercury
used the BTA end codes to link the
bidding of licenses in two (or more) specific BTA markets,
highlight the licenses Mercury wanted,
and convey to the competing bidders offers to agree with
Mercury not to bid against each other for
the linked licenses.
Sometimes Mercury placed bids in one market with the
BTA end code of another market
to send the message: "I'm bidding for this
license because you bid for the one I want (indicated
by the BTA code) and I'll stop bidding in
your market if you stop bidding in mine." Other
times, Mercury used the BTA end codes
to tell its rival: "If you don't stop bidding for this
license, I will bid for the one you want
(indicated by the BTA code)."
Mercury's use of the BTA end codes did not serve any
legitimate purpose of the auction.
Mercury's purpose for using BTA end
codes was to send clear and unmistakable invitations to
Page 7
collude to rival bidders and to reach
agreements with those rivals to refrain from bidding against
each other. Such conduct was not
authorized by the applicable FCC rules and was inconsistent
with the FCC's goal to encourage
competitive bidding.
Over the course of rounds 117 to 127, Mercury reached
an agreement with High Plains
Wireless, L.P. ("High Plains") to allocate
between them the F-band licenses for Amarillo (BTA
#013) and Lubbock (BTA #264). Mercury
agreed to stop bidding for the Amarillo-F license in
exchange for High Plains' agreement not
to bid for the Lubbock-F license. (The bidding for the
Lubbock-F and Amarillo-F licenses
between rounds 114 and 127 is depicted in the table attached
as Appendix A to this Competitive Impact
Statement.)
Prior to round 114, High Plains, Mercury and a third
bidder were bidding for the Lubbock-
F license. After the third bidder failed to
bid for Lubbock-F in rounds 114 through 116,
Mercury sought to strike an agreement
with the only remaining active bidder on the license --
High Plains. In round 117, Mercury
attached the Amarillo BTA end code ("013") to its bid for
the Lubbock-F license. By using the BTA
end code in round 117, Mercury intended to
communicate to High Plains that the
bidding for these two licenses was linked and that Mercury
would begin bidding for Amarillo-F if High
Plains did not stop bidding for Lubbock-F.
Mercury believed that Amarillo was an important license
for High Plains. High Plains had
placed bids for the Amarillo license in the
C auction and had been the standing high bidder for
the Amarillo-F license since round
68.
After High Plains continued to bid for Lubbock-F, Mercury
placed a bid in round 121 for
the Amarillo-F license that ended with the
Lubbock BTA end-code ("264"). Mercury's purpose
for using the BTA end code was to link
the two licenses, highlight the bid as retaliatory, and
Page 8
communicate an offer to stop bidding for
Amarillo-F if High Plains stopped bidding for
Lubbock-F. Mercury repeated its offer in
subsequent rounds by ending its bids in Lubbock-F
and Amarillo-F with BTA end codes. In
round 128, High Plains accepted Mercury's offer and
stopped bidding for Lubbock-F, even
though High Plains had been willing to pay more for the
Lubbock-F license. (Lying on the
southern border of the Amarillo BTA, the Lubbock BTA
presented a natural expansion territory
for High Plains.) Observing that High Plains had stopped
bidding for Lubbock-F, Mercury stopped
bidding for Amarillo-F.
As a consequence of Mercury's agreement with High
Plains, competition for the Lubbock-
F license was suppressed and the
Treasury received less revenue for the Lubbock-F license. It
was in High Plains' economic self-interest
to bid more for the Lubbock-F license than Mercury's
winning bid and, but for the illegal
agreement, it would have done so.
III. EXPLANATION OF THE
PROPOSED FINAL JUDGMENT
The provisions of the proposed Final Judgment are
designed to ensure that Mercury does
not enter into anticompetitive agreements
when participating in future FCC auctions. The decree
supplements any prohibitions on bidding
conduct set forth in the FCC's auction rules, and the
defendant may violate the decree even if
its conduct does not violate an agency statute or rule.
The proposed Final Judgment would enjoin Mercury from
entering into an agreement with
another license applicant to fix, establish,
suppress or maintain the price of a license to be
awarded by the FCC or to allocate any
such licenses among competitors (Section IV(A)). The
proposed Final Judgment would not
prevent Mercury from entering into any joint-venture or
similar agreements regarding licenses to
be awarded by the FCC that are both disclosed to the
FCC and authorized under the FCC's
rules and regulations. (Section IV(A)). However, such
Page 9
bidding arrangements would still be
subject to scrutiny under the antitrust laws.
The proposed Final Judgment would also prevent Mercury
from using BTA end codes or
any similar signaling mechanism to solicit
anticompetitive agreements in future FCC auctions.
The proposed Final Judgment would
enjoin Mercury from submitting bids that contain "license-
identifying information" in future FCC
auctions, unless the inclusion of such information is
required by the FCC (Section IV(B)).
License-identifying information is defined as "any
number, letter, code or description that
designates or identifies a license or that links licenses."
(Section II (D)).
The proposed Final Judgment would further require
Mercury to establish and maintain an
antitrust compliance program (Section V).
It would also provide that the United States may
obtain information from Mercury
concerning possible violations of the Final Judgment (Section
VII).
IV. REMEDIES AVAILABLE TO
POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. § 15,
provides that any person who has been
injured as a result of conduct prohibited
by the antitrust laws may bring suit in federal court to
recover three times the damages the
person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed
Final Judgment will neither impair nor assist the bringing
of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act,
15 U.S.C. § 16(a), the proposed
Final Judgment has no prima facie effect in any subsequent
private lawsuit that may be brought
against Mercury. In this case, the injured person is the
United States.
.
Page 10
V. PROCEDURES AVAILABLE FOR MODIFICATION
OF
THE PROPOSED FINAL JUDGMENT
The United States and Mercury have stipulated that the
proposed Final Judgment may be
entered by the Court after compliance
with the provisions of the APPA, provided that the United
States has not withdrawn its consent.
The APPA conditions entry upon the Court's
determination that the proposed Final
Judgment is in the public interest.
The APPA provides a period of at least sixty days
preceding the effective date of the
proposed Final Judgment within which
any person may submit to the United States written
comments regarding the proposed Final
Judgment. Any person who wishes to comment should
do so within sixty days of the date of
publication of this Competitive Impact Statement in the
Federal Register. The United States will
evaluate and respond to the comments. All comments
will be given due consideration by the
Department of Justice, which remains free to withdraw its
consent to the proposed Final Judgment
at any time prior to entry. The comments and the
responses of the United States will be
filed with the Court and published in the Federal Register.
Written comments should be submitted
to:
Roger W. Fones, Chief
Transportation, Energy & Agriculture
Section
Antitrust Division
United States Department of Justice
325 Seventh Street, N.W., Suite 500
Washington, D.C. 20530
The proposed Final Judgment provides that the Court
retains jurisdiction over this action,
and the parties may apply to the Court for
any order necessary or appropriate for the
modification, interpretation, or
enforcement of the Final Judgment. The proposed Final
Judgment would expire ten (10) years
from the date of its entry.
Page 11
VI. ALTERNATIVES TO THE PROPOSED FINAL
JUDGMENT
The United States considered, as an alternative to the
proposed Final Judgment, seeking
damages in this case pursuant to Section
4A of the Clayton Act, 15 U.S.C. § 15a. Doing so
would likely have required a full trial on
the merits against Mercury. In the view of the
Department of Justice, such a trial would
involve substantial cost and the risk associated with
such a trial is not warranted, considering
that the proposed Final Judgment provides full
injunctive relief for the violations of the
Sherman Act set forth in the Complaint.
VII. PROPOSED FINAL JUDGMENT
The APPA requires that proposed consent judgments in
antitrust cases brought by the
United States be subject to a sixty-day
comment period, after which the court shall determine
whether entry of the proposed Final
Judgment "is in the public interest." In making that
determination, the court may
consider:
(1) the
competitive impact of such judgment, including termination of alleged
violations, provisions for enforcement and modification,
duration or relief sought,
anticipated effects of alternative remedies actually
considered, and any other
considerations bearing upon the adequacy of such
judgment;
(2) the impact
of entry of such judgment upon the public generally and
individuals alleging specific injury from the violations set
forth in the complaint
including consideration of the public benefit, if any, to be
derived from a
determination of the issues at trial.
15 U.S.C. § 16(e). As the Court of
Appeals for the District of Columbia Circuit recently held,
the APPA permits a court to consider,
among other things, the relationship between the remedy
secured and the specific allegations set
forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement
mechanisms are sufficient, and whether the decree
Page 12
may positively harm third parties.
SeeUnited States v. Microsoft, 56 F.3d 1448 (D.C. Cir.
1995).
In conducting this inquiry, "the Court is nowhere compelled
to go to trial or to engage in
extended proceedings which might have
the effect of vitiating the benefits of prompt and less
costly settlement through the consent
decree process."1 Rather, absent a showing of corrupt
failure of the government to discharge its
duty, the Court, in making its public interest finding,
should . . . carefully consider the
explanations of the government in the competitive impact
statement and its responses to
comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1
Trade Case. ¶ 61,508, at 71,980
(W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief
secured by the decree, a court may
not "engage in an unrestricted evaluation
of what relief would best serve the public." States v. BNS, Inc., 858 F.2d 456,
462 (9th Cir. 1988), quotingUnited States v. Bechtel Corp.,
648 F.2d 660, 666 (9th Cir. 1981);
see also, Microsoft, 56 F.3d 1448 (D.C. Cir. 1995).
Precedent requires that
[t]he balancing of competing social and political interests
affected by a proposed
antitrust consent decree must be left, in the first instance,
to the discretion of the
Attorney General. The court's role in protecting the public
interest is one of insuring
Page 13
that the government has not breached its duty to the
public in consenting to the
decree. The court is required to determine not whether a
particular decree is the one
that will best serve society, but whether the settlement is
‘ public interest.' More elaborate requirements might
undermine the effectiveness of
antitrust enforcement by consent decree.2
The proposed Final Judgment, therefore, should not be
reviewed under a standard of
whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether
it mandates certainty of free competition
in the future. Court approval of a final judgment
requires a standard more flexible and
less strict than the standard required for a finding of
liability. "[A] proposed decree must be
approved even if it falls short of the remedy the court
would impose on its own, as long as it
falls within the range of acceptability or is 'within the
reaches of public interest.' (citations
omitted)."3
.
Page 14
VIII. DETERMINATIVE MATERIALS AND DOCUMENTS
There are no determinative materials or documents within
the meaning of the APPA that
were considered by the United States in
formulating the proposed Final Judgment.
Dated: November 10, 1998
Respectfully submitted,
__________/s/_______________
Jill A. Ptacek
J. Richard Doidge
Attorneys
U.S. Department of Justice
Antitrust Division
Transportation, Energy, and
Agriculture Section
325 7th Street N.W., Suite
500
Washington, D.C. 20530
(202) 307-6351
.
Page 15
APPENDIX A
Bids for Lubbock-F And Amarillo-F In
Rounds 114 Through 127
|
|
| Round | Lubbock-F (BTA
#264) | Amarillo-F (BTA #013) | 114 | High Plains 1,033,105
Mercury 1,032,003 | [Standing high bidder as of
round 68 -- High Plains] | 115 | Mercury 1,136,000 | | 116 | High Plains 1,250,100 |
|
117 | Mercury
1,375,013 | |
118 | High Plains 1,513,100 | |
119 | Mercury
1,664,000 | |
120 | High Plains 1,830,101 | |
121 | | Mercury
1,615,264 |
122 | | High Plains 1,777,101 |
123 | Mercury
1,922,013 | |
124 | High Plains 2,114,100 | |
125 | | Mercury
1,866,264 |
126 | | High Plains 2,053,100 |
127 | Mercury 2,326,013 | |
Round 128
(and thereafter) | High Plains Never Bids Again | Mercury Never Bids Again |
|
.
FOOTNOTES
1 119
Cong. Rec. 24598 (1973); see also United States v. Gillette Co., 406 F.
Supp. 713, 715 (D. Mass. 1975). A "public interest" determination can be made
properly on the basis of the Competitive Impact Statement and Response to Comments
filed pursuant to the APPA. Although the APPA authorizes the use of additional
procedures, 15 U.S.C. § 16(f), those procedures are discretionary. A court need
not invoke any of them unless it believes that the comments have raised significant
issues and that further proceedings would aid the court in resolving those issues.
See H.R. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in 1974
U.S.C.C.A.N. 6535, 6538.
2
United States v. Bechtel, 648 F.2d at 666 (internal citations omitted)
(emphasis added); see United States v. BNS, Inc., 858 F.2d at 463; United
States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978);
Gillette, 406 F. Supp. at 716; see also United States v. American Cyanamid
Co., 719 F.2d 558, 565 (2d Cir. 1983).
3 United
States v. American Tel. & Tel. Co., 552 F. Supp. 131, 150 (D.D.C. 1982), aff'd sub
nom. Maryland v. United States, 460 U.S. 1001 (1983), quoting
Gillette, 406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F.
Supp. 619, 622 (W.D. Ky. 1985). |