Econ_May_05

60 Business

The Economist

May 5th 2018

Mobile and Sprint of sharply higher profit

margins for themerged firmsuggest anoth-

er priority.

In 2011 regulators blocked an acquisi-

tion of

-Mobile by

, and in 2014 they

indicated to

-Mobile and Sprint that they

believed the market still needed four carri-

ers. Customers have benefited: monthly

wireless bills for urban consumers have

fallen by 20% since 2011 (see chart on previ-

ous page). Mr Legere’s success at

-Mobile,

in fact, could be the merger’s undoing.

Mobile appeared on the verge of collapse

in late 2011 when regulators blocked the

acquisition. Since 2013 it has thrived,

adding 40m customers by getting rid of

long-termcontracts,reducingpricesandof-

fering unlimited data usage. Craig Moffett

of MoffettNathanson writes that the jus-

tice department “undoubtedly feels vindi-

cated by its 2011 decision”. He gives the

merger a 50-50 chance of approval.

N THE mining world the bout has the

drama ofa heavyweight title fight. In one

corner is Ivan Glasenberg, billionaire boss

of Glencore, the world’s biggest commod-

ities-trading firm. In the other is Dan Ger-

tler, an Israeli billionaire accused by Amer-

ica of corruption related to his dealings

with Joseph Kabila’s government in the

Democratic Republic ofCongo (

DRC

The prize is a battery mineral, cobalt,

which Glencore produces in the

DRC

and

whose value has almost tripled since the

electric-vehicle revolution accelerated at

the start of 2017. It will be a tough fight. In

the

DRC

Glencore is currently facing the

potential loss of one of its biggest mines

and sharply higher mining levies, as well

as a costly lawsuit. “It’s a shakedown of

Glencore,” says an analyst in London.

The clash between Messrs Glasenberg

and Gertler, two former business partners,

dates back to December, when the Ameri-

can government slapped sanctions on Mr

Gertler, accusing him of amassing hun-

dreds of millions of dollars through

“opaque and corrupt” mining deals in the

DRC,

which he denies. Glencore’s two

mining companies in the country

Kamoto

Copper Company (

KCC

) and Mutanda

Mining, had been paying royalties to firms

owned byMr Gertler in recent years, as re-

quired by Gécamines, the country’s state

mining company. In order to avoid violat-

ing the sanctions, Glencore says it has

stopped those payments.

On April 27th a company affiliated to

Mr Gertler filed a suit in the

DRC

to freeze

some assets of

KCC

and Mutanda, and to

seekdamages of almost $3bn for future un-

paid royalties. The sum is staggering. Glen-

Glencore in the DRC

Rumble in the

jungle

Ahard-sluggingmining giantmeets its

match inCongo

EAR the end of the antitrust trial over

’s $109bn acquisition of Time

Warner, Richard Leon, the presiding judge,

asked Randall Stephenson, chief executive

, what the pay-television market

would look like in seven years’ time. Mr

Stephenson mused in his folksy Oklaho-

ma drawl that seven years ago his predic-

tions for today would have missed “so

hard” when it came to the decline of

pay-

and the rise of competition from

Silicon Valley.

The exchange sounds self-deprecating

but it highlightedwhat

arguedwas a

crucial weakness in the government’s

case. The Department of Justice, which is

seeking to block the deal, has chiefly

looked back to the past, not forward to a

video and advertising market increasingly

shaped by Netflix, Google and Facebook.

Many analysts agree, and are cautiously

optimistic about

’s chances of a fa-

vourable settlement or ruling in time for

the deal’s closing deadline of June 21st.

Further media consolidation would

then unfold as big competitors pursue sim-

ilar vertical mergers of content and distri-

bution businesses. Comcast might imme-

diately launch a hostile bid formuch of21st

Century Fox, for example, potentially up-

ending Disney’s planned acquisition of

much of Rupert Murdoch’s entertainment

business. Itwould take onlymonths for the

marketplace to transformagain.

The central question of the trial, which

adjourned onApril 30thwith closing argu-

ments, is whether

, which owns Di-

rec

, a satellite provider, would extract

higher prices from other pay-

distribu-

tors and thus from their customers, by

threatening to withhold TimeWarner’s

networks from them. The government ar-

gued that

coulddo so, at a cost to con-

sumers of more than $400m a year, be-

cause networks such as

TNT

and

CNN

represent “must-have” content.

Daniel Petrocelli,

’s lead lawyer,

and defence witnesses, punched several

holes in this argument. They argued it

would be “absurd” for

to withhold

content from anybody because it would

cost them dearly to do so. They said the

government’s expert witness, Carl Sha-

piro, had used an economic model based

on unreasonable assumptions, overesti-

mating how many consumers would

switch pay-

providers if Turner net-

works were temporarily blacked out. And

they said that Mr Shapiro and the govern-

ment had not sufficiently reckoned with

the pay-

industry’s rapidly declining

hold over customers. Several million cus-

tomers each year are dropping expensive

pay-

packages, including fromDirect

as consumers flee for cheaper options like

Netflix. In other words, ever-fewer people

must have Time Warner’s so-called “must-

have”

networks.

In his testimonyMr Stephenson played

up such struggles. He said he wants to use

the billions

is still earning from the

declining satellite business to invest in

cheaper video options for mobile-phone

customers, something he is already doing

without Time Warner. He argues that the

battleground has moved to mobile in the

fightwithNetflix, Google andFacebook for

subscriptions and advertising.

That reasoning suggests what may be

the real long-term goal for

, which is

touse entertainment content to improve its

position (it is currently in second place) in

wireless, and to take away broadband cus-

tomers as wireless data speeds become

more competitive with fixed-line broad-

band. If the Time Warner merger goes

through, Verizon, the largest wireless pro-

vider, may likewise feel compelled to ac-

quire an entertainment firm (concentra-

tion in thewireless sector ispartlywhat led

this newspaper to recommend blocking

the deal when it was announced, in 2016).

It is hard to predict how the market will

look in seven years. But this is unlikely to

be the last time that antitrust regulators

and industry lawyers clash in court.

Media consolidation

Vintage legal

drama

NEW YORK

The government’s case against AT&T

and TimeWarnerhas gone badly

So last season

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