REBUTTAL TESTIMONY OF MARK A. ISRAEL - April 9, 2021
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
___________________________________________
│
In the Matter of the Joint Application │
of TracFone Wireless, Inc. (U4321C), │
América Móvil, S.A.B. de C.V. and │
Verizon Communications, Inc. for │ Application 20-11-001
Approval of Transfer of Control over │
Tracfone Wireless, Inc. │
___________________________________________|
REBUTTAL TESTIMONY OF MARK A. ISRAEL
April 9, 2021CONTENTS
I. INTRODUCTION..............................................................................................................1
A. ASSIGNMENT ............................................................................................................1
B. SUMMARY OF CONCLUSIONS .....................................................................................1
II. THE TRANSACTION WILL NOT MATERIALLY REDUCE
COMPETITION. ...............................................................................................................4
A. DR. SELWYN HAS PREVIOUSLY RECOGNIZED THE COMPETITIVE
DISADVANTAGES THAT MVNOS FACE, WHICH LIMIT THEIR ABILITY TO
COMPETE WITH MNOS..............................................................................................5
B. HHIS CANNOT PROVE HARM FROM THE TRANSACTION.............................................6
C. DR. SELWYN’S TREATMENT OF MVNOS IN HIS HHI CALCULATIONS IS
FLAWED AND CONTRADICTS HIS PRIOR TESTIMONY...................................................8
D. THE MERGER WILL NOT HARM WHOLESALE COMPETITION. ....................................11
III. THE TRANSACTION WILL RESULT IN SUBSTANTIAL
EFFICIENCIES THAT WILL BENEFIT CONSUMERS..........................................13
A. QUANTIFICATION OF EFFICIENCIES .........................................................................15
B. EFFICIENCIES FROM THE TRANSACTION WILL BE PASSED THROUGH TO THE
BENEFIT OF CONSUMERS..........................................................................................18
1. Pass-through of efficiencies and upward pricing pressure are
symmetrical. ...............................................................................................18
2. Dr. Selwyn’s claims about elasticity and pass-through are
incorrect as a matter of economics and marketplace realities. .................19
3. Empirical economic evidence demonstrates substantial pass-
through as the expected outcome...............................................................22
4. Verizon’s documents support pass-through to the benefit of
consumers. .................................................................................................24
5. The fact that TracFone has a high share among MVNOs and
flanker brands does not mean that Verizon would have no incentive
to pass through merger cost savings..........................................................35
IV. DR. SELWYN’S PROPOSED REGULATORY REMEDY WOULD NOT
REPLICATE MERGER EFFICIENCIES....................................................................36
iV. APPENDIX: ESTIMATING VERIZON’S MARGINAL NETWORK
COSTS ..............................................................................................................................37
iiI. INTRODUCTION
A. ASSIGNMENT
1. On November 5, 2020, TracFone Wireless, Inc. (TracFone), América Móvil, S.A.B. de
C.V. (América Móvil), and Verizon Communications, Inc. (Verizon), filed a joint application
seeking approval to transfer control of TracFone from América Móvil to Verizon (Transaction).
On March 12, 2021, I submitted Opening Testimony explaining the basis for my conclusions
that: (a) the Transaction will result in substantial efficiencies that will benefit consumers in the
United States overall and in California specifically; (b) the Transaction will not materially reduce
retail wireless competition in the United States or in California; and (c) the Transaction will not
materially reduce wholesale wireless competition in the United States or in California. 1 On
April 2, 2021, Dr. Lee L. Selwyn submitted testimony on behalf of the Public Advocates Office
of the California Public Utilities Commission addressing certain points in my testimony and
advancing other analysis related to the Transaction. 2
2. I have been asked by counsel for TracFone to assess and respond to certain arguments
that Dr. Selwyn makes and to determine whether the conclusions from my Opening Testimony
still stand.
B. SUMMARY OF CONCLUSIONS
3. Based on my review of materials, and my training and experience as an economist, my
main conclusion remains that there is significant wireless competition today, and the Transaction
1
Opening Testimony of Mark A. Israel, March 12, 2021 (hereinafter Israel Testimony).
2
Direct Testimony of Lee L. Selwyn, April 2, 2021 (hereinafter Selwyn Testimony).
1will make the market even more competitive and increase consumer welfare. 3 This main
conclusion is supported by the following specific conclusions:
• The Transaction will not materially reduce competition. Dr. Selwyn has previously
recognized the competitive disadvantages that MVNOs face, which limit their ability
to compete with MNOs. Dr. Selwyn’s treatment of MVNOs in his HHI calculations
is flawed and contradicts his prior testimony. In fact, the substantial differentiation
between Verizon and TracFone—distant competitors in the wireless space, each of
which competes more closely with multiple brands at other wireless carriers than with
each other—together with the weak competitive position of MVNOs means that HHIs
(particularly those that treat MVNOs as fully independent) cannot be used to predict
harm to competition in this case.
• The Transaction will result in substantial efficiencies that will benefit consumers.
TracFone currently purchases wholesale network access and the Transaction
would allow it to instead realize costs associated with “owner’s economics.” That
is, while today the incremental costs to TracFone from adding a customer with
associated usage reflect the marked-up charges from an MNO, post-merger
TracFone will internalize Verizon’s lower actual incremental cost of serving that
additional load. Because the costs associated with the latter are substantially
3
Although I do not respond to every argument that Dr. Selwyn raises, nothing in his testimony
causes me to change the conclusions that I described in my Opening Testimony.
2lower than those associated with the former, the Transaction will substantially
reduce TracFone’s marginal costs.
And as a matter of fundamental economics, this reduction in marginal costs
means that every TracFone customer that Verizon can add is cheaper to serve—
and every upgraded service offering Verizon can sell is cheaper to provide—and
thus more profitable for Verizon at any price point compared to TracFone as an
MVNO. This gives Verizon a strong incentive to compete more vigorously to
attract more customers (and to sell those customers improved products) via lower
prices and/or improved quality—and thus lower quality-adjusted prices—for the
TracFone offering. By sharing the benefits of lower costs with customers in this
way, Verizon will be able to compete more effectively for those customers—who
become more attractive to serve due to the cost savings from the Transaction—
thus simultaneously benefiting consumers and Verizon’s bottom line. This is the
power of variable cost efficiencies: By making TracFone more efficient, they
permit simultaneous improvement in profitability and consumer welfare. And
economics shows that to do anything other than share the benefits in this way—
that is to do anything but pass the benefits through to consumers, at least in part—
would be irrational, because it would not be profit-maximizing for Verizon.
Moreover, contrary to Dr. Selwyn’s assertions and consistent with the economic
incentive to pass through variable cost savings, the Verizon documents to which
he cites show that prices will be lower and customer growth will be higher with
the Transaction than without.
3• Dr. Selwyn’s proposed regulatory remedy would not achieve the same efficiencies as
the merger. Although DISH obtained favorable wholesale rates for a limited period
of time as part of the remedy in Sprint/T-Mobile, even on its own terms, this
approach would not replicate the large efficiencies that would be achieved in this
Transaction as it would not give TracFone owner’s economics or eliminate double
marginalization. Moreover, this approach does not solve the coordination problems
that arise in an arm’s-length MVNO relationship.
4. The remainder of this Testimony explains these conclusions in greater depth and provides
details of the facts and analyses that led me to reach them.
II. THE TRANSACTION WILL NOT MATERIALLY REDUCE COMPETITION.
5. In my Opening Testimony, I concluded that the Transaction would not materially reduce
retail competition 4 or wholesale competition. 5 In contrast, Dr. Selwyn argues that (a) the
Transaction will “diminish competition for prepaid wireless services;” 6 and (b) the Transaction
would affect the wholesale market. 7 I address his claims below and show that they are not
grounded in sound economics, do not reflect the realities of the wireless marketplace, do not
properly capture the benefits and lack of competitive harm from the Transaction, and thus do not
survive scrutiny. Dr. Selwyn’s flawed analyses cause him to miss that the Transaction is one that
4
Israel Testimony, § III.
5
Israel Testimony, § IV.
6
Selwyn Testimony, § VI.
7
Selwyn Testimony, § V.
4unlocks substantial efficiencies with very little scope for any competitive issues and thus is
clearly procompetitive on balance.
A. DR. SELWYN HAS PREVIOUSLY RECOGNIZED THE COMPETITIVE DISADVANTAGES
THAT MVNOS FACE, WHICH LIMIT THEIR ABILITY TO COMPETE WITH MNOS.
6. In his Opening Testimony, Dr. Selwyn dismisses the competitive limitations that result
from TracFone’s status as an MVNO and thus reliance on MNOs, asserting that: 8
If TracFone is to be believed, one is compelled to conclude that competition from
MVNOs not affiliated with a facilities-based MNO is simply not viable, that such
MVNOs cannot be relied upon to competitively constrain pricing and other
actions of the three remaining facilities-based wireless carriers.
He treats this statement as incorrect and suggests that MVNOs can be a powerful
competitive constraint, as would be required to find material harm to competition from
the Transaction.
7. Dr. Selwyn’s views in this case thus stand in sharp contrast to those he has testified to
very recently. In testimony before the CPUC in the Sprint/T-Mobile transaction, Dr. Selwyn
recognized the very same limitations that TracFone has described in this proceeding and noted
that these limitations can make MVNOs non-viable competitors. In that proceeding, Dr. Selwyn
explained that “[a]n MVNO exists as a successful business venture at the sufferance of the host
facilities-based carrier” 9 and noted that this dependence on MNOs leaves MVNOs vulnerable to
8
Selwyn Testimony, ¶ 53.
9
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 Control of Sprint
Communications Company L.P. Pursuant to California Public Utilities Code Section 854(a),
Application 18-07-011, On Behalf of the Public Advocates Office, Direct Testimony of Lee L.
Selwyn, January 7, 2019 (hereinafter Selwyn T-Mobile/Sprint Testimony), ¶ 88.
5margin squeezes by MNOs. He quoted a McKinsey report in which “[t]he authors warn MVNOs
about the potential for the host carrier to engage in price squeeze tactics by collapsing – or even
eliminating – the spread between its own retail prices and the wholesale prices it offers to
MVNOs.” 10 And Dr. Selwyn quoted comments from cable MVNO Charter that: 11
Charter faces certain limitations in its ability to compete in the mobile market on
the same terms as Verizon or other facilities-based carriers. There are significant
limitations to its MVNO agreement, which are confidential but limit Charter’s
ability to fully manage the mobile network and sell the product, thereby hindering
the competitiveness of Charter’s mobile service.
Providing mobile service through Charter's MVNO resale arrangement is
materially different than providing mobile service as a facilities-based nationwide
or even regional mobile carrier . . . Charter believes that under the existing
MVNO agreement, Spectrum Mobile is not and cannot reasonably be viewed as
having the ability to counteract price increases or other anticompetitive effects, if
any, arising from a merged T-Mobile/Sprint.
8. Notably, these previous statements from Dr. Selwyn not only recognize the
marketplace reality that MVNOs are of limited competitive significance—meaning the
Transaction has little scope for competitive harm—but also recognize that integration
with an MNO, thus making TracFone into a facilities-based carrier, greatly increases its
ability to compete.
B. HHIS CANNOT PROVE HARM FROM THE TRANSACTION.
9. Despite acknowledging that “[s]everal recent telecommunications mergers have been
approved despite HHI increases that were significantly greater than” those that he calculates
here, Dr. Selwyn nevertheless asserts that “the potential diminution of competition should be
10
Selwyn T-Mobile/Sprint Testimony, ¶ 88.
11
Selwyn T-Mobile/Sprint Testimony, ¶ 112.
6more than sufficient to warrant rejection.” 12 In fact, HHIs are, at best, a starting point for the
analysis of a merger. 13 Most fundamentally, HHIs do not account for efficiencies arising from a
merger, as Dr. Selwyn acknowledges. 14 They also do not account for product differentiation. 15
For this reason, when evaluating the competitive effects of mergers, antitrust agencies typically
use HHIs merely as a screening mechanism to determine whether further analysis is required. 16
10. As I demonstrated in my Opening Testimony and further demonstrate below, the
Transaction will result in substantial efficiencies that will benefit consumers. And as I have
demonstrated, the substantial differentiation between Verizon and TracFone—distant
competitors in the wireless space, each of which competes more closely with multiple brands at
other wireless carriers than with each other—together with the weak competitive position of
MVNOs means that HHIs (particularly those that treat MVNOs as fully independent) cannot be
used to predict harm to competition in this case.
12
Selwyn Testimony, ¶ 76.
13
U.S. Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines,
August 19, 2010 (hereinafter Horizontal Merger Guidelines), § 5.3 (“Market shares may not fully
reflect the competitive significance of firms in the market or the impact of a merger. They are
used in conjunction with other evidence of competitive effects.”).
14
Selwyn Testimony, ¶ 76.
For a discussion of efficiencies, see Israel Testimony, § II and Section III below.
15
For a discussion of how TracFone’s products are substantially differentiated from those of
Verizon, see Israel Testimony, § III.C.
16
Horizontal Merger Guidelines, § 5.3 (“The purpose of these thresholds is not to provide a rigid
screen to separate competitively benign mergers from anticompetitive ones, although high levels
of concentration do raise concerns. Rather, they provide one way to identify some mergers
unlikely to raise competitive concerns and some others for which it is particularly important to
examine whether other competitive factors confirm, reinforce, or counteract the potentially
harmful effects of increased concentration.”).
7C. DR. SELWYN’S TREATMENT OF MVNOS IN HIS HHI CALCULATIONS IS FLAWED
AND CONTRADICTS HIS PRIOR TESTIMONY.
11. In calculating HHIs among prepaid providers, Dr. Selwyn treats TracFone and Boost
Mobile, both of which provide service as MVNOs, as independent competitors and assigns them
independent market shares. 17 As explained in my Opening Testimony, this treatment fails to
reflect the complex competitive dynamics between MNOs and MVNOs. 18 MNOs control the
price at which they provide wholesale network access to MVNOs and can accordingly influence
MVNOs’ ability to compete. Because MVNOs depend on wholesale access to MNOs, they are
not fully independent competitors. As noted above, Dr. Selwyn has previously testified to the
competitive limitations that MVNOs face because they are not independent competitors.
12. Dr. Selwyn’s treatment of MVNOs as independent competitors in calculating market
shares and HHIs contradicts his approach in the Sprint/T-Mobile transaction. In Sprint/T-
Mobile, Dr. Selwyn presented market shares and HHIs among prepaid providers in which he
only included “Branded Prepaid Subs” of MNOs Verizon, AT&T, T-Mobile, and Sprint. 19 By
not including MVNOs in his HHI calculations, Dr. Selwyn treated MVNOs as if they were not
competitors at all and exerted no competitive impact—that is, he treated them as irrelevant to his
assessment of competition among MNOs. Yet, he now claims that an MVNO is so
competitively relevant that the acquisition of one by Verizon will substantially harm
competition. Figure 1 below shows that the prepaid market shares and HHIs that Dr. Selwyn
17
Selwyn Testimony, Tables 10-11.
18
Israel Testimony, ¶¶ 39-40, 44.
19
Selwyn T-Mobile/Sprint Testimony, Table 9.
8presented in Table 9 of his direct testimony in Sprint/T-Mobile omit TracFone and other
MVNOs.
Figure 1: Dr. Selwyn’s Treatment of MVNOs in Sprint/T-Mobile
13. In calculating the prepaid HHIs shown above in Sprint/T-Mobile, Dr. Selwyn cited and
relied on carrier subscription data compiled by California Public Advocates Office witness
Eileen Odell. Like Dr. Selwyn, Ms. Odell excluded MVNO subscribers in her calculations of
market shares among prepaid providers and only provided “Branded Prepaid Subscribers” of
Verizon, AT&T, T-Mobile and Sprint. 20 Ms. Odell explained that “[t]he FCC generally excludes
non facilities-based providers from its analysis of market concentration.” 21 My view has been
20
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 Control of Sprint
Communications Company L.P. Pursuant to California Public Utilities Code Section 854(a),
Application 18-07-011, Direct Testimony of Eileen Odell, January 7, 2019 (hereinafter Odell T-
Mobile/Sprint Testimony), p. 14.
21
Odell T-Mobile/Sprint Testimony, p. 15.
9and remains that MVNOs should not be ignored, but rather that any analysis of them should
incorporate the limitations and higher cost of the MVNO structure, which is precisely the reason
I conclude that the Transaction—by making TracFone a lower-cost, stronger competitor—is
procompetitive.
14. In Sprint/T-Mobile, Dr. Selwyn also presented additional HHIs using an alternative
methodology that similarly excluded MVNOs. Dr. Selwyn presented county-level HHIs of
MNOs in California using spectrum bandwidth allocation shares. 22 Because TracFone and other
MVNOs generally lack spectrum, they were excluded from Dr. Selwyn’s spectrum-based HHI
calculations. Following the announcement of the divestiture of Boost Mobile to DISH in the
Sprint/T-Mobile transaction, Dr. Selwyn presented additional spectrum-based HHI calculations
that accounted for DISH’s entry into the mobile wireless services market as a facilities-based
competitor. 23 Once again, Dr. Selwyn presented HHIs that excluded non-facilities-based
MVNOs, including TracFone. If the MNOs and MVNOs are competitors in the manner he
suggests in this proceeding, all of those prior calculations were incorrect.
22
Selwyn T-Mobile/Sprint Testimony, ¶¶ 42-43 (describing the methodology for calculating county-
level HHIs and explaining that “[p]re-merger HHIs were calculated using the spectrum bandwidth
allocation shares of each of the four largest carriers in each census block” and “[p]ost-merger
HHIs were calculated by combining the Sprint and T-Mobile availability-adjusted bandwidth
shares. . . .”); see also 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
Control of Sprint Communications Company L.P. Pursuant to California Public Utilities Code
Section 854(a), Application 18-07-011, On Behalf of the Public Advocates Office, Reply
Testimony of Lee L. Selwyn, November 22, 2019 (hereinafter Selwyn T-Mobile/Sprint Reply
Testimony), ¶ 10 (“The county level HHIs that I presented in my January 7 testimony were based
upon spectrum shares. . . .”).
23
Selwyn T-Mobile/Sprint Reply Testimony, ¶ 51 (describing the methodology for calculating
spectrum-based HHIs that include DISH).
1015. Dr. Selwyn’s treatment of MVNOs as full-fledged, independent competitors in this
proceeding also runs counter to the District Court’s conclusion in Sprint/T-Mobile. In that case,
the District Court concluded that “MVNOs should not be considered independent competitors in
the [retail mobile wireless telecommunications services market],” and it adopted the State of
California and other Plaintiff States’ position in holding that “MVNO shares should thus be
attributed to the MNOs from which the MVNOs lease network access.” 24
16. As noted in my Opening Testimony, if one follows the District Court’s approach and
attributes their share to the corresponding MNOs, the Transaction would actually reduce
concentration among prepaid plans and MVNOs. 25 And among postpaid, prepaid, and MVNO
providers, the HHI would increase by just 20 to 27 points, far below the “safe harbor” levels in
the Horizontal Merger Guidelines. 26
D. THE MERGER WILL NOT HARM WHOLESALE COMPETITION.
17. Dr. Selwyn asserts that MVNOs would exit the marketplace or at least “become
substantially diminished” as a result of this Transaction. 27
18. As an initial matter, I stress again that the effect on MVNOs per se is not the relevant
question. Instead, the relevant question is whether the Transaction is procompetitive, meaning
whether it benefits wireless consumers. As I explained in my Opening Testimony: 28
24
New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179, 200 (S.D.N.Y. 2020).
25
Israel Testimony, ¶ 42.
26
Israel Testimony, ¶ 43.
27
Selwyn Testimony, ¶¶ 54, 74, 76.
28
Israel Testimony, ¶ 51.
11From an economic perspective, the correct standard for assessing the effects of
the transaction is the effect on consumers, not the effect on, for example, a
specific competitor or set of competitors. This standard focuses on consumers and
naturally incorporates the effects of efficiencies, including the reduction in
marginal costs from the elimination of double marginalization, as well as all other
competitive effects to reach a bottom-line conclusion about the transaction’s
competitive effects. Conversely, a focus on harm to MVNOs in the wholesale
market, for example, distinct from the effects on consumers in the downstream
market, would not constitute an appropriate standard for evaluating the effects of
the merger because any such “harm” to MVNOs can reflect stronger competition
from the merged firm. In particular, a TracFone that realizes substantially lower
marginal costs would be a much more formidable competitor to other MVNOs,
which would benefit consumers even if it reduces the margins of rival MVNOs,
meaning the effects on MVNOs of the transaction is the wrong standard, as
procompetitive, pro-consumer changes can harm rival MVNOs by increasing the
competition they face.
19. In any event, Verizon will continue to have an incentive to sell wholesale network access
to competitively relevant MVNOs—which are the only MVNOs that can matter for an
assessment of the Transaction’s effect on competition and consumers—including cable
companies and other MVNOs with distinct business cases to serve particular sets of consumers
(such as those who want to buy wireless services as part of a bundle from their cable provider). 29
Verizon will continue to have this incentive because those MVNOs offer unique value
propositions (e.g., cable companies can bundle mobile service with wireline services) and selling
wholesale network access to them allows Verizon to share in the value that those MVNOs create.
Those MVNOs will also retain the ability to purchase wholesale network access from AT&T and
T-Mobile (and, potentially, DISH), which continue to sell such access despite also owning
flanker brands. Indeed, to the extent that AT&T and T-Mobile find it beneficial to replace
29
Israel Testimony, § IV.B.
12TracFone subscribers that shift to the Verizon network, that would give them an additional
incentive to serve other MVNOs.
III. THE TRANSACTION WILL RESULT IN SUBSTANTIAL EFFICIENCIES
THAT WILL BENEFIT CONSUMERS.
20. In my Opening Testimony, I explained that the Transaction would lower costs and benefit
consumers through several mechanisms. Principal among these was a reduction in TracFone’s
network costs, from the wholesale prices that it currently pays, down to just the much lower
incremental network costs that Verizon incurs to serve TracFone subscribers. 30 I also explained
that the Transaction would solve a coordination problem and lead to faster product roll-outs, 31
and that it would result in economies of scale and scope. 32 Finally, I explained that Verizon
would have an economic incentive to pass through cost savings to consumers. 33
21. Dr. Selwyn advances two main arguments against efficiencies: (a) they have not been
quantified; 34 and (b) they would not be passed through to consumers. 35 I address each of these
criticisms below. In summary:
• As I described in my Opening Testimony, TracFone currently purchases wholesale
network access and the Transaction would allow it to instead realize costs associated
30
Israel Testimony, § II.A.
31
Israel Testimony, § II.B.
32
Israel Testimony, § II.C.
33
Israel Testimony, § II.D.
34
Selwyn Testimony, ¶ 15.
35
Selwyn Testimony, § III.
13with “owner’s economics.” 36 That is, while today the incremental costs to TracFone
from adding a customer with associated usage reflect the marked-up charges from an
MNO, post-merger TracFone will internalize Verizon’s lower actual incremental cost
of serving that additional load. Because the costs associated with the latter are
substantially lower than those associated with the former, the Transaction will
substantially reduce TracFone’s marginal costs. Below, in response to Dr. Selwyn’s
criticism, I provide a quantification of the size of these cost savings.
• And as a matter of fundamental economics, this reduction in marginal costs means
that every TracFone customer that Verizon can add is cheaper to serve—and every
upgraded service offering Verizon can sell is cheaper to provide—and thus more
profitable for Verizon at any price point compared to TracFone as an MVNO. This
gives Verizon a strong incentive to compete more vigorously to attract more
customers and sell them higher quality products, via lower quality-adjusted prices.
By sharing the benefits of lower costs with customers in this way, Verizon will be
able to compete more effectively for those customers—who become more attractive
to serve due to the cost savings from the Transaction—thus simultaneously benefiting
consumers and Verizon’s bottom line. This is the power of variable cost efficiencies:
By making TracFone more efficient they permit simultaneous improvement in
profitability and consumer welfare. And economics shows that to do anything other
than share the benefits in this way—that is to do anything but pass the benefits
36
Israel Testimony, ¶ 15.
14through to consumers, at least in part—would be irrational, because it would not be
profit-maximizing for Verizon. Moreover, contrary to Dr. Selwyn’s assertions and
consistent with the economic incentive to pass through variable cost savings, the
Verizon documents to which he cites show that prices will be lower and customer
growth will be higher with the Transaction relative to the Standalone case.
A. QUANTIFICATION OF EFFICIENCIES
22. To quantify the marginal cost efficiencies, described above, I calculate the marginal
network cost savings as the difference between the wholesale costs that TracFone would pay on
a standalone basis and the on-network costs that Verizon incurs on the same traffic. As I
described in my Opening Testimony, these savings accrue on both TracFone subscribers
currently on the Verizon network (due to the elimination of double marginalization) and
TracFone subscribers currently on non-Verizon networks (due to the reduction in wholesale costs
paid to those MNOs). 37
23. As I describe in more detail in the Appendix (Section V below), I use information
provided by Verizon to calculate the incremental network costs associated with accommodating
incremental network traffic. These costs range from [BEGIN VERIZON CONFIDENTIAL
LAWYERS ONLY] [END VERIZON CONFIDENTIAL LAWYERS
ONLY]. 38
37
Israel Testimony, §§ II.A-B.
38
See Table 4 below.
1524. Table 1 summarizes the marginal network cost savings separately for TracFone
subscribers on the AT&T, T-Mobile, and Verizon networks. Because the amount of usage and
the wholesale prices vary for each group, the resulting marginal cost savings also vary.
• For AT&T TracFone subscribers, marginal costs savings expressed on a per-GB basis
vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY] and expressed on a per-
subscriber/month basis vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY]
• For T-Mobile TracFone subscribers, marginal costs savings expressed on a per-GB
basis vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY] and expressed on a per-
subscriber/month basis vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY]
• For Verizon TracFone subscribers, marginal costs savings expressed on a per-GB
basis vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY] and expressed on a per-
subscriber/month basis vary from [BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY]
16[BEGIN CONFIDENTIAL LAWYERS ONLY]
[END CONFIDENTIAL LAWYERS ONLY]
25. Expressed as a percentage of TracFone’s ARPU, which is approximately $28, these
marginal cost efficiencies are approximately [BEGIN TRACFONE CONFIDENTIAL
LAWYERS ONLY] [END TRACFONE CONFIDENTIAL LAWYERS ONLY]
percent of revenues. Marginal cost efficiencies of this magnitude, even before accounting for the
other benefits of the Transaction that I described in my Opening Testimony, would make post-
merger TracFone a much more potent competitor, and they are clearly the dominant effect of the
Transaction. In particular, given the extremely limited scope for any harms to competition—
because of TracFone’s status as an MVNO and its differentiation from Verizon—marginal cost
17savings of this size surely swamp any possible harms to competition, which implies that the
Transaction is procompetitive and consumer-welfare enhancing.
B. EFFICIENCIES FROM THE TRANSACTION WILL BE PASSED THROUGH TO THE
BENEFIT OF CONSUMERS.
26. As I explained in my Opening Testimony, “[p]rofit-maximizing firms have an incentive
to pass through marginal cost savings because doing so is profitable.” 39 In an argument that runs
counter to the most fundamental teachings of microeconomics, Dr. Selwyn argues that “Verizon
will have no incentive to flow any cost savings resulting from its acquisition of TracFone
through to TracFone customers.” 40 He also argues that Verizon’s documents demonstrate that it
would not pass cost savings on to consumers. 41 Both arguments are simply incorrect as a matter
of economics and of facts. I address each of these arguments below and explain why, in fact,
fundamental economics shows that Verizon will pass through cost savings (in lower prices
and/or higher quality than absent the Transaction), and Verizon’s documents are consistent with
this conclusion.
1. Pass-through of efficiencies and upward pricing pressure are
symmetrical.
27. The economic literature has demonstrated that upward pricing pressure arising from a
merger of horizontal competitors is economically equivalent to a marginal cost increase. 42 This
39
Israel Testimony, ¶ 37.
40
Selwyn Testimony, ¶¶ 15-20.
41
Selwyn Testimony, ¶¶ 21-32.
42
Robert Willig (2011), “Unilateral Competitive Effects of Mergers: Upward Pricing Pressure,
Product Quality, and Other Extensions,” Review of Industrial Organization, 39(1-2): 19-38
(hereinafter Willig (2011)). See also Luke Froeb, Steven Tschantz, and Gregory Werden (2005),
18equivalence means that the same pass-through rate that applies to merger efficiencies also
applies to upward pricing pressure. For this reason, mergers are often evaluated by considering
the “first-order effects”—i.e., by balancing upward pricing pressure against marginal cost
efficiencies without considering pass-through. 43 Indeed, if Dr. Selwyn were correct that the
pass-through rate is zero, then his testimony would also imply that the merger will result in no
harm to consumers. So, while I correct Dr. Selwyn’s errors with regard to pass-through below,
in an important sense, the question is irrelevant: If the marginal cost savings from the
Transaction outweigh the scope for competitive harm—as they clearly do—the Transaction is
procompetitive and thus consumer-welfare enhancing.
2. Dr. Selwyn’s claims about elasticity and pass-through are incorrect as
a matter of economics and marketplace realities.
28. Dr. Selwyn asserts that pass-through of marginal cost savings would be profitable to
Verizon “only if the demand for the TracFone service is sufficiently price-elastic,” 44 and he
claims that the demand that post-acquisition TracFone will face will be “highly price-inelastic,”
such that there will be no pass-through. 45 That is, he claims that pass-through only occurs in
situations where consumers are price-sensitive, and he argues that TracFone subscribers are not
price-sensitive, and thus he claims there will not be significant pass-through in this case.
“Pass-Through Rates and the Price Effects of Mergers,” International Journal of Industrial
Organization, 23: 703-715.
43
Horizontal Merger Guidelines, § 6.1; Willig (2011); Joseph Farrell and Carl Shapiro (2010),
“Upward Pricing Pressure in Horizontal Merger Analysis: Reply to Epstein and Rubinfeld,” The
B.E. Journal of Theoretical Economics, 10(1), Article 41.
44
Selwyn Testimony, ¶ 16.
45
Selwyn Testimony, ¶ 17.
1929. Dr. Selwyn is incorrect on both counts: The claim that there will only be pass-through
when consumers are price-sensitive is wrong as a matter of economics, and the claim that
TracFone subscribers are price-inelastic is wrong both as a matter of economics and marketplace
realities. While lower price elasticity leads to higher optimal price levels for any given costs, as
long as consumers react at all to prices (meaning demand is not perfectly inelastic), economic
theory and data show that there will be pass-through, and it is generally substantial. And
TracFone subscribers are certainly price-sensitive, given both TracFone’s position in the
marketplace and what economics tells us about what price elasticities must be.
30. With regard to elasticities, there would be no pass-through incentive only if demand were
perfectly inelastic, meaning that consumers would not react at all to a change in price, such that
a change in price would result in no change in quantity whatsoever. 46 However, if this were the
case, TracFone would have an incentive to price much higher today (effectively, to set an infinite
price) than it does because raising prices would cause it to lose no volume. Assuming TracFone
is seeking to maximize profits, demand cannot be inelastic (that is, the demand elasticity faced
by Tracfone cannot be less than one in absolute value) in a well-defined economic equilibrium. 47
Moreover, as an empirical matter, demand is likely to be quite elastic, especially for the price-
conscious prepaid and MVNO customers who are the focus of Dr. Selwyn’s analysis. 48
46
In this case, there would also be no merger harm.
47
Dennis W. Carlton and Jeffrey M. Perloff (2005), Modern Industrial Organization, 4th Edition,
Pearson, p. 94.
48
Selwyn Testimony, ¶ 39 (“In a competitive market, customers – and particularly prepaid
customers who do not have a fixed term contract – are free to move to a different provider if they
are dissatisfied with their current service. In fact, the high churn rates – the frequency with which
2031. As long as demand is not perfectly inelastic, which it cannot be as a matter of logic and
sound economics, pass-through rates are determined not by the level of the elasticity at a
particular point on the demand curve, but by the relative change in elasticity as quality-adjusted
prices change (i.e., the extent to which consumers become less sensitive to quality-adjusted
prices as they decline). 49 In the present case, the price sensitivity faced by TracFone may not fall
much as prices fall: If by cutting prices or increasing quality, TracFone is able to capture even
more value-conscious customers—as is consistent with Verizon’s plans post-merger—then the
price elasticity it faces would not be expected to fall rapidly as its quality-adjusted prices fall,
meaning pass-through would be substantial. In simpler terms, in some situations (unlike this
one), the incentive to pass through cost reductions gets “choked off” because, as a firm cuts
quality-adjusted prices, consumers react less and less to those price cuts, so they become a
customers switch services – associated with prepaid services confirms that this is already
happening on a regular basis.”).
49
This result—that pass-through depends on the curvature of the demand curve, not just the level of
elasticity—holds quite generally in models other than perfect competition. For example, Weyl
and Fabinger (2013) show the pass-through rate under monopoly is a function of not only the
elasticities of demand and supply, but the curvature of the logarithm of demand as well. This
same result—that pass-through depends on the curvature of the demand curve, not just the level
of elasticity—holds for Bertrand competition among firms selling differentiated products (the
standard economic model applies to the wireless industry), using the residual demand curve faced
by each firm holding all other firms’ qualities and prices fixed. Verboven and van Dijk (2009)
derive the industry-level pass-through rate under Cournot competition and show that it is a
function of the number of firms in the industry and the curvature of the inverse demand function.
A convex inverse demand function exhibits declining price sensitivity of demand as price rises
and corresponds to ρ > 0, thus shrinking the denominator and in turn increasing the pass-through
rate. On the other hand, a concave inverse demand function exhibits an increasing price
sensitivity of demand as price rises and corresponds to ρ < 0, which increases the denominator
and thereby decreases the pass-through rate. (E. Glen Weyl and Michal Fabinger (2013), “Pass-
Through as an Economic Tool: Principles of Incidence under Imperfect Competition,” Journal of
Political Economy, 121(3): 528-583, pp. 534 and 539; Frank Verboven and Theon van Dijk
(2009), “Cartel Damages Claims and the Passing-On Defense,” Journal of Industrial Economics,
57(3): 457-91, pp. 475-76.)
21weaker tool to attract customers. Here, if cutting quality-adjusted prices brings in more value-
conscious subscribers, the tool will not weaken as quality-adjusted prices fall, so pass-through
would be expected to be substantial.
3. Empirical economic evidence demonstrates substantial pass-through
as the expected outcome.
32. There is substantial empirical evidence that firms pass through cost savings both in
general and in the wireless industry. Below, I briefly review the economic literature on pass-
through.
(a) Empirical literature on pass-through.
33. The economic literature finds empirical evidence of substantial pass-through in a broad
variety of industries. Pass-through rates of approximately 100 percent or more have been
estimated from energy cost changes to cement prices 50 as well as the prices of boxes and
plywood, 51 from wholesale to retail coffee prices, 52 from price changes of sugar to the price of
French soft drinks, 53 from imposition of an air ticket levy to European airline fares, 54 and from
50
Nathan H. Miller, Matthew Osborne, and Gloria Sheu (2017), “Pass-Through in a Concentrated
Industry: Empirical Evidence and Regulatory Implications,” RAND Journal of Economics, 48(1):
69-93, pp. 84-86; Sharat Ganapati, Joseph S. Shapiro, and Reed Walker (2020), “Energy Cost
Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes,” American
Economic Journal: Applied Economics, 12(2): 303-42, p. 333.
51
Ganapati, id.
52
Emi Nakamura and Dawit Zerom (2010), “Accounting for Incomplete Pass-Through,” Review of
Economic Studies, 77(3): 1192-1230, p. 1201.
53
Céline Bonnet and Vincent Réquillart (2013), “Impact of Cost Shocks on Consumer Prices in
Vertically-Related Markets: The Case of the French Soft Drink Market,” American Journal of
Agricultural Economics, 95(5): 1088-1108, p. 1102.
54
Marc Ivaldi and Tuba Toru-Delibaşi (2018), “Competitive Impact of the Air Ticket Levy on the
European Airline Market,” Transport Policy, 70: 46-52, p. 49.
22changes in excise taxes on the prices of alcohol, 55 cigarettes, 56 e-cigarettes, 57 and motor fuel 58 (at
least in some states). The cost of the tobacco industry’s Master Settlement Agreement was
passed through to cigarette prices at roughly 100 percent. 59 Emission costs are passed through to
Spanish electricity prices at more than 80 percent. 60 A study of retail pass-through at
Dominick’s Finer Foods, a supermarket chain in Chicago, found pass-through rates of 60 percent
or more in 9 of 11 product categories. 61 A study of automobile promotions found that 70-90
percent of “customer cash” promotions were passed on to buyers, as were 30-40 percent of
55
Vinish Shrestha and Sara Markowitz (2016), “The Pass-Through of Beer Taxes to Prices:
Evidence from State and Federal Tax Changes,” Economic Inquiry, 54(4): 1946-62, pp. 1955-59;
Mark Stehr (2007), “The Effect of Sunday Sales Bans and Excise Taxes on Drinking and Cross-
Border Shopping for Alcoholic Beverages,” National Tax Journal, 60(1): 85-105, p. 90.
56
Andrew Hanson and Ryan Sullivan (2009), “The Incidence of Tobacco Taxation: Evidence from
Geographic Micro-Level Data,” National Tax Journal, 62(4): 677-98, p. 686.
57
Henry Saffer, Daniel Dench, Michael Grossman, and Dhaval Dave (2020), “E-Cigarettes and
Adult Smoking: Evidence from Minnesota,” Journal of Risk and Uncertainty, 60(3): 207-28, p.
213.
58
Robert K. Kaufmann (2019), “Pass-Through of Motor Gasoline Taxes: Efficiency and Efficacy of
Environmental Taxes,” Energy Policy, 125: 207-15, p. 212.
59
Dean R. Lillard and Andrew Sfekas (2013), “Just Passing Through: The Effect of the Master
Settlement Agreement on Estimated Cigarette Tax Price Pass-Through,” Applied Economics
Letters, 20(4): 353-57, p. 355.
60
Natalia Fabra and Mar Reguant (2014), “Pass-Through of Emissions Costs in Electricity
Markets,” American Economic Review, 104(9): 2872-99, p. 2882.
61
David Besanko, Jean-Pierre Dubé, and Sachin Gupta (2005), “Own-Brand and Cross-Brand
Retail Pass-Through,” Marketing Science, 24(1): 123-37, p. 131.
23“dealer cash” promotions. 62 Pass-through rates of roughly 50 percent have been estimated from
changes in Medicare Advantage benchmarks to plan bids. 63
(b) Evidence from TracFone indicates that pass-through is likely to be
substantial.
34. There is also evidence of pass-through in the wireless industry and, in particular, that
given the competitive situation it faces, which is the one Verizon will inherit from the
Transaction, TracFone itself finds it optimal to pass through cost savings. For example, Eduardo
Diaz Corona, Chief Executive Officer at TracFone Wireless, Inc., testifies that “TracFone always
uses cost savings and improved offerings negotiated with MNOs to provide better offers to
consumers and to better compete with vertically-integrated prepaid brands.” 64 Mr. Diaz Corona
presents several examples in which TracFone lowered its price or offered improved quality in
response to negotiating more favorable wholesale network access terms. 65
4. Verizon’s documents support pass-through to the benefit of
consumers.
35. Dr. Selwyn argues that Verizon’s documents indicate that:
62
Meghan Busse, Jorge Silva-Risso, and Florian Zettelmeyer (2006), “$1,000 Cash Back: The Pass-
Through of Auto Manufacturer Promotions,” American Economic Review, 96(4): 1253-70, p.
1253.
63
Marika Cabral, Michael Geruso, and Neale Mahoney (2018), “Do Larger Health Insurance
Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage,” American
Economic Review, 108(8): 2048-87, pp. 2063-64; Zirui Song, Mary Beth Landrum, and Michael
E. Chernew (2013), “Competitive Bidding in Medicare Advantage: Effect of Benchmark Changes
on Plan Bids,” Journal of Health Economics, 32(6): 1301-12, p. 1308.
64
Rebuttal Testimony of Eduardo Diaz Corona, Chief Executive Officer at TracFone Wireless, Inc.,
April 9, 2021 (hereinafter Diaz Corona Rebuttal Testimony), p. 2.
65
Diaz Corona Rebuttal Testimony, pp. 3-5.
24• Average revenue per user (ARPU) would be higher with the Transaction than without; 66
• TracFone would have [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-LAWYERS ONLY] customers with the
Transaction than without; 67
• TracFone’s total revenue would be [BEGIN VERIZON CONFIDENTIAL-
LAWYERS ONLY] [END VERIZON CONFIDENTIAL-LAWYERS ONLY]
with the Transaction than without; 68
• Non-network costs are projected to be [BEGIN VERIZON CONFIDENTIAL-
LAWYERS ONLY] [END VERIZON CONFIDENTIAL-LAWYERS ONLY]
with the Transaction than without; 69 and
• Verizon’s EBITDA gains are greater than the projected cost savings. 70
I address each of these points below. I show that none supports a conclusion that the merger is
anticompetitive or that Verizon would not pass through merger cost savings to consumers. In
fact, they support the opposite view—that TracFone customers will get better options making
TracFone a stronger competitor, which benefits both Verizon and customers, and that TracFone
prices will fall more over time with the Transaction than without.
66
Selwyn Testimony, ¶ 22.
67
Selwyn Testimony, ¶ 23.
68
Selwyn Testimony, ¶ 25.
69
Selwyn Testimony, ¶ 26.
70
Selwyn Testimony, ¶¶ 27-31.
2536. ARPU: ARPU, as the name indicates, is not a price. Instead, it reflects average revenue
per user across multiple users purchasing multiple products at differing price points. ARPU can
increase even if the underlying product prices do not change at all or even if prices decrease if
customers migrate to higher-quality, higher-price plans over time, or otherwise change their
product choices.
37. In the present case, any projected increases in ARPU arise from the fact that Verizon
anticipates that consumers will choose to switch to higher-quality products that become available
as a result of the merger, meaning they are consumer-welfare enhancing. Dr. Selwyn himself
cites a Verizon data response stating that Verizon: 71
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON
CONFIDENTIAL-LAWYERS ONLY]
That same response indicates that [BEGIN VERIZON CONFIDENTIAL-LAWYERS
ONLY]
72
[END VERIZON CONFIDENTIAL-LAWYERS
ONLY] If the merger makes alternative products more attractive such that TracFone customers
71
Selwyn Testimony, ¶ 22 (citing Attachment A-12: Verizon Response to Cal Advocates DR V-7-
10).
72
Selwyn Testimony, ¶ 22 (citing Attachment A-12: Verizon Response to Cal Advocates DR V-7-
10).
26would choose to migrate to higher-quality products, that reflects a benefit of the merger, not a
harm.
38. In fact, Dr. Selwyn’s claim that prices will be higher in the Acquisition case is
incorrect. 73 To use ARPU to compare prices between cases (Standalone and Acquisition) and to
look at trends in prices—while taking out the effect of changes in the mix of plans chosen by
customers between cases (Standalone and Acquisition) and over time—one should use a
weighted-average ARPU, applying weights to each brand that do not change between the two
cases (Standalone and Acquisition) or over time. That is, in order to use ARPU to compare
prices—taking out the effect of different product choices made by consumers over time—one
must look at a fixed basket of products, similar to how measures like the consumer price index
(CPI) are computed. 74 I have done so—weighting each brand in each year by the average of its
projected number of subscribers in 2020 and 2025 in the Standalone and Acquisition cases,
according to the Verizon documents cited by Dr. Selwyn, thus weighting each brand by its
average popularity over the relevant time period. The results are presented in Table 2, below. As
seen there, [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON
73
Verizon’s documents use the term “Acquisition case” to refer to the scenario with the Transaction
and the term “Standalone case” to refer to the scenario without the Transaction.
74
For a description of the CPI, see U.S. Bureau of Labor Statistics, “Consumer Price Index
Frequently Asked Questions,” available at https://www.bls.gov/cpi/questions-and-answers.htm,
site accessed April 7, 2021.
27CONFIDENTIAL-LAWYERS ONLY]. 75 Thus, contrary to Dr. Selwyn’s claim, once one
uses fixed weights, in order to isolate price changes from the effects of plan choice made by
customers, Verizon’s documents [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON
CONFIDENTIAL-LAWYERS ONLY]
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-LAWYERS ONLY]
39. One may ask whether the discontinuation of certain brands represents an attempt to
“force” customers to more expensive brands, and thus invalidates the comparison in Table 2
above. First, this point does not change the fact that consumers choose between the remaining
brands, and thus any comparison of ARPUs that does not use a “fixed basket” of products across
cases and over time—such as the comparison Dr. Selwyn makes—is not a valid comparison of
75
I obtain similar results to those presented in Table 2 when I use 2020 Standalone subscribers as
weights.
28prices. And second, the fact that Verizon may [BEGIN VERIZON CONFIDENTIAL-
76
LAWYERS ONLY] [END VERIZON CONFIDENTIAL-
LAWYERS ONLY] does not invalidate the comparison or suggest that Verizon is attempting to
“force” consumers to higher-price plans. As Dr. Selwyn’s Table 3 reveals, [BEGIN VERIZON
CONFIDENTIAL-LAWYERS ONLY]
77
78
40.
76
Selwyn Testimony, ¶ 23.
77
Selwyn Testimony, Table 3 (citing Attachment A-11: Verizon Response to Cal Advocates DR V-
3-1, HSR Attachment 4(c)6, VZW_000877, VZW_000880).
78
TracFone will [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY] In addition, TracFone has
[BEGIN TRACFONE CONFIDENTIAL-LAWYERS ONLY]
[END TRACFONE
CONFIDENTIAL-LAWYERS ONLY] (Diaz Corona Rebuttal Testimony, § III.C.)
29[END VERIZON CONFIDENTIAL-
LAWYERS ONLY]
41. Moreover, ARPU reflects only the monthly recurring fees associated with subscribing to
a mobile wireless plan. It does not capture other elements of the price that consumers pay or the
changes to the all-in price as a result of the merger. Verizon documents indicate that [BEGIN
VERIZON CONFIDENTIAL-LAWYERS ONLY]
79
[END VERIZON
CONFIDENTIAL-LAWYERS ONLY]
42. In addition, prices cannot be compared without accounting for the amount of data that
customers are consuming; to do so would be akin to comparing the prices of two bags of M&Ms
without accounting for the fact that one bag has twice as many M&Ms. On this point, Verizon
documents also indicate [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
80
[END VERIZON CONFIDENTIAL-LAWYERS
ONLY]
79
HSR Attachment 4(c)5, pp. VZW_000861 (showing the Standalone case) and VZW_000864
(showing the Acquisition case).
80
Data provided by Verizon.
3043. Customer Counts: As Dr. Selwyn’s Table 2 demonstrates, Verizon projects that
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
81
82
[END VERIZON
CONFIDENTIAL-LAWYERS ONLY]
44. Notably, [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
83
84
[END VERIZON CONFIDENTIAL-LAWYERS
81
Selwyn Testimony, Table 2 (citing Attachment A-11: Verizon Response to Cal Advocates DR V-
3-1, HSR Attachment 4(c)6, VZW_000877, VZW_000880).
82
Selwyn Testimony, Table 2 (citing Attachment A-11: Verizon Response to Cal Advocates DR V-
3-1, HSR Attachment 4(c)6, VZW_000877, VZW_000880).
83
Selwyn Testimony, Table 1 (citing Attachment A-11: Verizon Response to Cal Advocates DR V-
3-1, HSR Attachment 4(c)6, VZW_000877, VZW_000880).
84
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-
LAWYERS ONLY]
31ONLY] In particular, some TracFone customers currently ride on non-Verizon networks—
effectively buying access to those networks via TracFone—and it is to be expected that some
number of them will choose to remain with those other networks post-Transaction. 85 Consistent
with this, Verizon’s modeling assumes that [BEGIN VERIZON CONFIDENTIAL-
LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-LAWYERS ONLY]. 86 But this
also means that Verizon’s projection that [BEGIN VERIZON CONFIDENTIAL-LAWYERS
ONLY]
[END
VERIZON CONFIDENTIAL-LAWYERS ONLY] Put simply, Verizon’s TracFone brand will
be a more powerful competitor for AT&T and T-Mobile, including their prepaid brands, than it
is today. Bottom line, [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON
CONFIDENTIAL-LAWYERS ONLY] reflects increased competitive strength as a result of
85
Indeed, this is consistent with the practice of attributing some or all of the MVNO share to the
MNO on which the traffic is carried.
86
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END
VERIZON CONFIDENTIAL-LAWYERS ONLY]
32the very large merger efficiencies, documented above, which gives Verizon strong incentive to
compete for subscribers.
45. Revenues: Revenues are the product of prices and quantity. Higher revenues, on their
own, do not indicate whether the merger is good or bad. Instead, one needs to look at, among
other factors, prices and subscriber counts, which I address above, showing that: [BEGIN
VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-LAWYERS ONLY]
46. Costs: Dr. Selwyn argues that [BEGIN VERIZON CONFIDENTIAL-LAWYERS
ONLY]
87
88
[END VERIZON CONFIDENTIAL-LAWYERS ONLY] These investments are
procompetitive and benefit consumers. In addition, starting in the second year after the
acquisition, [BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
87
Selwyn Testimony, ¶ 26 (“In other words, with the exception of the savings attributable to
“owner’s economics” and the elimination of double marginalization, the remainder of TracFone’s
operations will actually become less efficient following its acquisition by Verizon than if it were
to continue on a standalone basis.”).
88
[BEGIN VERIZON CONFIDENTIAL-LAWYERS ONLY]
[END VERIZON CONFIDENTIAL-LAWYERS
ONLY] VZW_000861 (showing financials for the Standalone case), and VZW_000864-65
(showing financials for the Acquisition case).
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