                        UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF COLUMBIA
__________________________________________
                                           )
SPRINT NEXTEL CORP.                        )
                                           )
            Plaintiff,                     )
                                           )
            v.                             ) Civil Action No. 11-1600 (ESH)
                                           )
AT&T INC., et al.,                         )
                                           )
           Defendants.                     )
__________________________________________)
                                           )
CELLULAR SOUTH, INC., et al.,              )
                                           )
            Plaintiffs,                    )
                                           )
            v.                             ) Civil Action No. 11-1690 (ESH)
                                           )
AT&T INC., et al.,                         )
                                           )
           Defendants.                     )
__________________________________________)


                                 MEMORANDUM OPINION


                                       INTRODUCTION

       These are antitrust cases between competing mobile wireless carriers. Before the Court

are motions to dismiss lawsuits which Sprint and Cellular South brought to enjoin AT&T’s

proposed acquisition of T-Mobile. AT&T and T-Mobile move for dismissal pursuant to Federal

Rule of Civil Procedure 12(b)(6), arguing that Sprint’s and Cellular South’s complaints fail to

adequately allege that the merger would cause them “antitrust injury,” and therefore that they




                                                1
lack the “antitrust standing” required to seek injunctive relief under § 16 of the Clayton Act, 15

U.S.C. § 26.1

       Plaintiff Sprint Nextel Corporation (“Sprint”) is the third largest national provider of

mobile wireless services, with 50 million wireless customers. (Sprint Compl. ¶ 96.) In 2010,

Sprint “accounted for 15 percent of all mobile wireless services revenues.” (Id.) Plaintiffs

Cellular South, Inc., and its wholly owned subsidiary Corr Wireless Communications, L.L.C.

(collectively, “Cellular South” unless otherwise stated), are regional carriers operating a wireless

network that “serves more than 887,000 customers located in Mississippi, Tennessee, Alabama

Florida, and other surrounding states.” (Cellular South Compl. ¶¶ 1, 21.)

       Defendant AT&T Mobility, L.L.C. (“AT&T”), the wholly owned subsidiary of defendant

AT&T, Inc., is the second largest national carrier,2 with 95 million customers. (Sprint Compl.

¶¶ 15, 94.) In 2010, AT&T “accounted for 32 percent of all mobile wireless services revenues.”

(Id. ¶ 94.) Defendant T-Mobile USA, Inc. (“T-Mobile”), the wholly owned subsidiary of

defendant Deutsche Telekom AG, is the fourth largest national carrier, with 34 million

customers. (Sprint Compl. ¶¶ 16, 97.) In 2010, T-Mobile “accounted for 12 percent of all

mobile wireless services revenues.” (Id. ¶ 97.)




1
  Although properly treated as a threshold matter, antitrust standing is nonetheless an affirmative
element of any antitrust suit brought by a private plaintiff and is assessed on a motion to dismiss
according to the Rule 12(b)(6) standard, not that of Rule 12(b)(1) applicable to challenges to
constitutional standing. See Palmyra Park Hosp. v. Phoebe Putney Mem’l Hosp., 604 F.3d 1291,
1298 (11th Cir. 2010) (applying Rule 12(b)(6)); NicSand, Inc. v. 3M Co., 507 F.3d 442, 447 (6th
Cir. 2007) (en banc) (same); see also Hairston v. Pacific 10 Conference, 101 F.3d 1315, 1321
(9th Cir. 1996) (Trott, J., concurring) (“The plaintiff’s ability to fulfill the requirements of
antitrust standing is an essential threshold element of an antitrust case whereas constitutional
standing is essential to the jurisdiction of the court.”).
2
 Verizon “is the largest wireless carrier in the United States,” with 104 million customers and 35
percent of mobile wireless services revenues. (Sprint Compl. ¶ 95.)
                                                  2
         On March 20, 2011, AT&T entered into a stock purchase agreement to acquire T-Mobile

and to merge the two companies’ mobile wireless services businesses. Five months later, the

United States brought suit to enjoin the acquisition, alleging that its effect would “be

substantially to lessen competition, or to tend to create a monopoly” in violation of § 7 of the

Clayton Act. 15 U.S.C. § 18.3 Sprint and Cellular South filed the present suits in the subsequent

weeks,4 and defendants moved to dismiss both.5

         The Court heard argument on defendants’ motions on October 24, 2011. Having

considered the parties’ positions and the relevant legal principles, the Court will grant the

motions except as to plaintiffs’ claims regarding mobile wireless devices, and Cellular South’s

roaming claim insofar as it relates to Corr Wireless.

                                                 ANALYSIS

I.       GOVERNING LEGAL PRINCIPLES

         Section 16 of the Clayton Act authorizes private parties to seek injunctive relief to protect

“against threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. While

the statute’s text is broad, providing for suits by “[a]ny person, firm, corporation, or association,”




3
    See Complaint, United States v. AT&T, No. 11-cv-1560 (D.D.C. Aug. 31, 2011) [Dkt. No. 1].
4
 See Complaint, Sprint v. AT&T, No. 11-cv-1600 (D.D.C. Sept. 6, 2011) [Dkt. No. 1] (“Sprint
Compl.”); Complaint, Cellular South v. AT&T, No. 11-cv-1690 (D.D.C. Sept. 19, 2011) [Dkt.
No. 1] (“Cellular South Compl.”).
5
  See Motion to Dismiss, Sprint v. AT&T, No. 11-cv-1600 (D.D.C. Sept. 30, 2011) [Dkt. No. 16]
(“Motion to Dismiss Sprint”); Motion to Dismiss, Cellular South v. AT&T, No. 11-cv-1690
(D.D.C. Sept. 30, 2011) [Dkt. No. 17] (“Motion to Dismiss Cellular South”). Sprint and Cellular
South filed a joint opposition to AT&T’s motions. See Joint Opposition, Sprint v. AT&T &
Cellular South v. AT&T, No. 11-cv-1600 & No. 11-cv-1690 (D.D.C. Oct. 7, 2011) [Dkt. No. 26
& Dkt. No. 26] (“Joint Opp’n”). Defendants filed a combined reply brief. See Reply
Memorandum, Sprint v. AT&T & Cellular South v. AT&T, No. 11-cv-1600 & No. 11-cv-1690
(D.D.C. Oct. 13, 2011) [Dkt. No. 27 & Dkt. No. 30] (“Reply”).
                                                   3
id., courts have limited its reach to those plaintiffs that allege a threat of “antitrust injury.”

Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 113 (1986).

        Antitrust injury is injury “of the type the antitrust laws were designed to prevent and that

flows from that which makes the defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-

O-Mat, Inc., 429 U.S. 477, 489 (1977). Accordingly, a private antitrust plaintiff must allege

more than threatened loss or damage that is merely “causally linked” to the defendant’s

anticompetitive behavior. Id. The plaintiff must additionally allege that its threatened injury

“reflect[s] the anticompetitive effect either of the [antitrust] violation or of anticompetitive acts

made possible by the violation.” Id. Thus, even if a threatened injury is “causally related to an

antitrust violation,” it “will not qualify as ‘antitrust injury’ unless it is attributable to an anti-

competitive aspect of the practice under scrutiny.” Atl. Richfield Co. v. USA Petroleum Co., 495

U.S. 328, 334 (1990).

        The antitrust injury requirement aligns antitrust suits brought by private parties “‘with the

purposes of the antitrust laws, and prevents abuses of those laws’ by claimants seeking to halt the

strategic behavior of rivals that increases, rather than reduces competition.” NicSand, 507 F.3d

at 449–50 (quoting HyPoint Tech., Inc. v. Hewlett-Packard Co., 949 F.2d 847, 877 (6th Cir.

1991)). “It ensures that the harm claimed by the plaintiff corresponds to the rationale for finding

a violation of the antitrust laws in the first place, and it prevents losses that stem from

competition from supporting suits by private plaintiffs . . . .” Atl. Richfield Co., 495 U.S. at 342.

        When the Supreme Court first articulated the requirement in Brunswick, for example, it

held that plaintiffs seeking treble damages for alleged antitrust violations under § 4 of the

Clayton Act, 15 U.S.C. § 15, had not established antitrust injury where they sought to recover for

“profits they would have realized had competition been reduced” but for the defendant’s pro-



                                                     4
competitive activities. 429 U.S. at 488. The Court did not dispute that plaintiffs had suffered

injury-in-fact. Emphasizing that the antitrust laws “were enacted for ‘the protection of

competition not competitors,’” however, the Court held that it would be “inimical to the purposes

of [those] laws to award damages” for injuries a competitor suffered from increased competition.

Id. (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)).

       In Cargill, the Court applied the same principle in extending the antitrust injury

requirement to suits for injunctive relief under § 16. See 479 U.S. at 109–13. Monfort of

Colorado, then the country’s fifth-largest beef packer, sued to enjoin the acquisition of Spencer

Beef, the number three beef packer, by Excel Corporation, the number two beef packer. Id. at

106. In its complaint, Monfort “alleged that the acquisition would ‘violat[e] [§] 7 of the Clayton

Act because the effect of the proposed acquisition may be substantially to lessen competition or

tend to create a monopoly.’” Id. at 107 (first alteration in the original). Monfort further alleged

that the acquisition would “result in a concentration of economic power in the relevant markets”

that would allow the merged entity to bid up the cost of inputs and cause a drop in market prices,

such that Monfort was threatened with a profit loss. Id. at 107 (internal quotation marks

omitted).

       Finding Monfort’s complaint “of little assistance” in “determining what Monfort alleged

the source of its injury to be,” id. at 113, the Court nonetheless was able to discern two distinct

theories of injury that Monfort alleged: first, conventional price competition, and second,

predatory pricing.6 The Court concluded that neither theory supported Monfort’s claim to

antitrust injury. Id. at 114–19.



6
 “Predatory pricing may be defined as pricing below an appropriate measure of cost for the
purpose of eliminating competitors in the short run and reducing competition in the long run.”
Cargill, 479 U.S. at 117; see id. at 117–19 nn.12,13,15.
                                                  5
       As to the first theory, the Court reasoned:

       Brunswick holds that the antitrust laws do not require the courts to protect small
       businesses from the loss of profits due to continued competition, but only against the loss
       of profits from practices forbidden by the antitrust laws. The kind of competition that
       Monfort alleges here, competition for increased market share, is not activity forbidden by
       the antitrust laws. It is simply, as petitioners claim, vigorous competition. To hold that
       the antitrust laws protect competitors from the loss of profits due to such price
       competition would, in effect, render illegal any decision by a firm to cut prices in order to
       increase market share. The antitrust laws require no such perverse result, for “[i]t is in
       the interest of competition to permit dominant firms to engage in vigorous competition,
       including price competition.”

Id. at 116 (alteration in the original) (quoting Arthur S. Langerderfer, Inc. v. S.E. Johnson Co.,

729 F.2d 1050, 1057 (6th Cir. 1984)). As in Brunswick, where the Court did not question that

plaintiff suffered lost profits, the Cargill Court accepted plaintiff’s allegations of threatened

injury-in-fact as sufficient. Nonetheless, the Court concluded that “the threat of loss of profits

due to possible price competition following a merger does not constitute a threat of antitrust

injury.” Id. at 116–17.

       The Court then turned to Monfort’s second claim of antitrust injury: the threat that Excel

would engage in predatory pricing. Id. at 117. The Court stated that predatory pricing “is a

practice that harms both competitors and competition” and recognized that, in theory at least,

losses threatened by predatory pricing constitute an injury of the type the antitrust laws were

designed to prevent. Id. at 117–18 (“Predatory pricing is thus a practice ‘inimical to the purposes

of [the antitrust] laws,’ Brunswick, [429 U.S. at 488], and one capable of inflicting antitrust

injury.”) (first alteration in the original). However, the Court concluded that Monfort had failed

to properly press this claim before the district court, and that even if it had, it likely would not

have succeeded given characteristics specific to the market it faced. Id. at 118–19 & n.15.

       The Supreme Court’s analysis in Cargill is instructive as to both the principles

underlying the concept of antitrust injury and the method of inquiry it demands. Determining

                                                   6
whether a private party has standing to sue under § 16 of the Clayton Act requires a careful

assessment of the connection between the threatened loss or damage, on the one hand, and the

reason defendants’ proposed conduct is allegedly illegal on the other. As the Court clarified in

Atlantic Richfield:

       Conduct in violation of the antitrust laws may have three effects, often interwoven: In
       some respects the conduct may reduce competition, in other respects it may increase
       competition, and in still other respects effects may be neutral as to competition. The
       antitrust injury requirement ensures that a plaintiff can [succeed] only if the loss stems
       from a competition-reducing aspect or effect of the defendant’s behavior.

495 U.S. at 343–44.

       Methodologically, then, assessing antitrust injury at the pleadings stage of a § 16 suit

requires two distinct inquiries. First, does plaintiff’s complaint allege a threatened injury-in-

fact? Second, does the threatened injury result from an anticompetitive aspect of defendant’s

proposed conduct, i.e., that which would make the transaction illegal under the antitrust laws? A

plaintiff has sufficiently pleaded a claim to antitrust injury only if its complaint satisfies both

inquiries7 under the conventional Federal Rule of Civil Procedure 8(a) pleading standards that

govern “‘in all civil actions.’” Ashcroft v. Iqbal, 556 U.S. 662, ---, 129 S.Ct. 1937, 1953 (2009)

(quoting Fed. R. Civ. P. 1); see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554–58, 570 (2007).8




7
 Cf. Andrx Pharm., Inc. v. Biovail Corp. Int’l, 256 F.3d 799, 806 (D.C. Cir. 2001) (“An antitrust
plaintiff must establish . . . a threatened injury-in-fact caused by the defendant’s alleged
wrongdoing” and the injury “must be the kind of injury the antitrust laws were intended to
prevent; it must ‘flow[] from that which makes defendants’ acts unlawful.’” (quoting Brunswick,
429 U.S. at 489)).
8
  See, e.g., W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir. 2010), cert.
denied, No. 10-1341, --- U.S. ---, ---, 2011 WL 4530161 (Oct. 3, 2011) (applying the Rule 8(a)
standard, as articulated in Twombly and Iqbal, to plaintiff’s antitrust injury claims); NicSand, 507
F.3d at 451 (same); Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir.
2007) (same).
                                                   7
         The Court’s analysis, however, is not confined to the discrete question of whether Sprint

and Cellular South have sufficiently alleged antitrust injuries. Antitrust injury is but one factor

to be considered in assessing whether private plaintiffs have standing to sue under the antitrust

laws. In Associated General Contractors of California, Inc. v. California State Council of

Carpenters, 459 U.S. 519 (1983), the Supreme Court described other factors relevant to

determining whether a plaintiff seeking treble damages pursuant to § 4 of the Clayton Act has

antitrust standing: “the directness of the injury, whether the claim for damages is ‘speculative,’

the existence of more direct victims, the potential for duplicative recovery and the complexity of

apportioning damages.” Andrx Pharm., 256 F.3d at 806 (citing Associated Gen. Contractors,

459 U.S. at 542–45); accord Daniel v. Am. Bd. of Emergency Med., 428 F.3d 408, 443 (2d Cir.

2005).

         To be sure, “many of these other factors are not relevant to the standing inquiry under §

16,” Cargill, 479 U.S. at 110 n.5, and therefore have no application here. The antitrust standing

inquiry under § 16 is “less demanding” than that under § 4 because § 16 “provides for injunctive

relief, not treble damages,” and therefore “the risk of duplicative recovery or the danger of

complex apportionment that pervades the analysis of standing under [§] 4 is not relevant to the

issue of standing under [§] 16.” Palmyra Park Hosp., 604 F.3d at 1299–1300 (internal quotation

marks omitted); accord Adams v. Pan Am. World Airways, Inc., 828 F.2d 24, 26 (D.C. Cir.

1987).

         Ultimately, “[t]he extent to which [factors other than antitrust injury] apply when

plaintiffs sue for injunctive relief depends on the circumstances of the case,” and “the weight to

be given the various factors will [also] necessarily vary” depending on the context. Daniel, 428

F.3d at 443. Of particular relevance here is the fact that courts assessing the viability of a § 16



                                                  8
plaintiff’s claim to antitrust injury on the pleadings have considered whether the plaintiff’s

allegations are too speculative to be allowed to proceed.9 Indeed, “Section 16’s requirement of

‘threatened injury,’ 15 U.S.C. § 26, dovetails with Article III’s requirement that in order to

obtain forward-looking relief, a plaintiff must face a threat of injury that is both ‘real and

immediate, not conjectural or hypothetical.’” In re New Motor Vehicles Canadian Exp. Antitrust

Litig., 522 F.3d 6, 14 (1st Cir. 2008) (some internal quotation marks omitted) (quoting O’Shea v.

Littleton, 414 U.S. 488, 494 (1974)).10 Thus, although § 16 of the Clayton Act protects “against

threatened loss or damage by a violation of the antitrust laws,” 15 U.S.C. § 26 (emphasis added),

and although § 7 “was intended to arrest the anticompetitive effects of market power in their

incipiency,” FTC v. Procter & Gamble Co., 386 U.S. 568, 577 (1967), the Act does not authorize

suits by those whose allegations of threatened injury amount to little more than conjecture.

       With these principles in mind, the Court turns to Sprint’s and Cellular South’s claims to

antitrust standing and, in particular, antitrust injury. For purposes of this inquiry only, the Court

assumes that AT&T’s proposed acquisition of T-Mobile would violate § 7 of the Clayton Act,



9
 See, e.g., Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 321–22 (3d Cir. 2007) (claims to
antitrust injury that are “too speculative” because they allege only “secondary injury” from the
proposed transaction are properly dismissed); City of Pittsburgh v. W. Penn Power Co., 147 F.3d
256, 267–68 (3d Cir. 1998) (plaintiff’s allegations of an antitrust injury amounted only to a
“speculative exercise,” and plaintiff “cannot foist [its] version of what might have been on the
court under the rubric of antitrust injury”); cf. Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209, 230–31 (1993) (judgment as a matter of law is attained where
plaintiff’s “theory of competitive injury through oligopolistic price coordination depend[ed]
upon a complex chain of cause and effect”).
10
   Cf. Associated Gen. Contractors, 459 U.S. at 535 n.31 (In § 4 suits, “the focus of the doctrine
of ‘antitrust standing’ is somewhat different from that of standing as a constitutional doctrine.
Harm to the antitrust plaintiff is sufficient to satisfy the constitutional standing requirement of
injury in fact, but the court must make a further determination whether the plaintiff is a proper
party to bring a private antitrust action.”); Ross v. Bank of Am., 524 F.3d 217, 224–25 (2d Cir.
2008) (“Antitrust standing demands a much more detailed and focused inquiry into a plaintiff’s
antitrust claims than constitutional standing.”).
                                                  9
and focuses instead on whether plaintiffs have sufficiently alleged a threatened loss or damage

stemming from an aspect or effect of the proposed acquisition that would make it illegal.11

II.    PLAINTIFFS’ CLAIMS

       Sprint and Cellular South allege threatened injuries that stem from both horizontal and

vertical aspects of AT&T’s proposed acquisition of T-Mobile. That is to say: as participants in a

number of different markets, wireless carriers are related both horizontally and vertically. In

certain markets, the carriers compete with each other to sell outputs, and in other markets, they

compete to purchase inputs. Such relationships are deemed horizontal in that they pit carriers

against carriers, acting in parallel as either sellers or buyers.12 (Where the carriers compete as

sellers, the proposed acquisition raises monopoly concerns. Where they compete as buyers of

inputs, the anticompetitive form is monopsony.13) In yet other markets, the wireless carriers buy



11
  Because the antitrust injury inquiry is concerned not with whether the defendant’s conduct
constitutes an antitrust violation, but rather questions why it would, courts assume a violation
arguendo. See Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d
912, 925 n.7 (3d Cir. 1999); Mr. Furniture Warehouse, Inc. v. Barclays American/Commercial
Inc., 919 F.2d 1517, 1520 n.2 (11th Cir. 1990); Alberta Gas Chems. Ltd. v. E.I. du Pont de
Nemours & Co., 826 F.2d 1235, 1239 (3d Cir. 1987); see also IIA Phillip E. Areeda et al.,
Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 335f , at 75 (3d ed.
2007) (“To test standing in a private suit, . . . assume the existence of a violation and then ask
whether the [antitrust standing] elements are shown.”).
12
  See Brown Shoe, 370 U.S. at 334 (“An economic arrangement between companies performing
similar functions in the production or sale of comparable goods or services is characterized as
‘horizontal.’”).
13
   “Monopsony power is market power on the buy side of the market. . . . As such, a monopsony
is to the buy side of the market what a monopoly is to the sell side and is sometimes colloquially
called a ‘buyer’s monopoly.’” Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.,
549 U.S. 312, 320 (2007) (citation omitted) (citing Roger D. Blair & Jeffrey L. Harrison,
Antitrust Policy and Monopsony, 76 Cornell L. Rev. 297 (1991)). See generally Roger D. Blair
& Jeffrey L. Harrison, Monopsony in Law and Economics (2010). In their pure form, monopoly
and monopsony refer to markets where there is but one seller or one buyer, respectively. Unless
otherwise noted, the terms are used here to encompass markets where one firm, although
competing with others, possesses market power.
                                                 10
and sell services to and from each other, and are therefore vertically related.14 In this complex

and constantly evolving industry, markets are interconnected and the carriers play multiple roles

simultaneously. The Court will address plaintiffs’ claims regarding the horizontal effects of the

proposed acquisition before turning to their vertical claims, although it recognizes that this

distinction is not always clear-cut.

        Assuming the truth of the facts that the plaintiffs allege, the Court describes each relevant

market and assesses the plaintiffs’ claims of antitrust injury in it. “To survive a motion to

dismiss, the pleadings must suggest a plausible scenario that shows that the pleader is entitled to

relief.” Jones v. Horne, 634 F.3d 588, 595 (D.C. Cir. 2011) (alterations and internal quotation

marks omitted). Plaintiffs’ complaints must therefore “contain sufficient factual matter, accepted

as true, to state a claim” to antitrust standing “that is plausible on its face.” Iqbal, 129 S.Ct. at

1949 (internal quotation marks omitted). In particular, “[a] ‘naked assertion’ of antitrust injury,

the Supreme Court has made clear, is not enough; an antitrust claimant must put forth factual

‘allegations plausibly suggesting (not merely consistent with)’ antitrust injury.” NicSand, 507

F.3d at 451 (quoting Twombly, 550 U.S. at 557).

        A. Horizontal Effects

        AT&T, T-Mobile, Sprint, and Cellular South are primarily competing wireless carriers:

they compete horizontally to sell wireless services and a broad array of wireless devices,

including basic mobile phones, smartphones (e.g., Android phones, BlackBerry phones, the

Apple iPhone), tablets (e.g., the Samsung Galaxy Tab, the BlackBerry PlayBook, the Apple




14
  See Brown Shoe, 370 U.S. at 323 (“Economic arrangements between companies standing in a
supplier-customer relationship are characterized as ‘vertical.’”).
                                                  11
iPad), and other products that access their voice and data networks.15 In addition to competing

horizontally in the output market, the carriers compete horizontally in the input market, as

purchasers of wireless devices: they attempt to secure the most desirable devices for their

respective networks so they can sell them to customers. The carriers also compete horizontally

as purchasers in the market for wireless spectrum, as they acquire new frequency bands and as

they work to develop and buy network equipment, chipsets, and device antennae that operate on

them.

                  1. The Market for Wireless Services

          Sprint and Cellular South compete with AT&T, T-Mobile, and other wireless carriers—

most prominently, Verizon—to sell wireless services. In the market that is of primary concern

here, that for postpaid wireless services,16 the “goods” in question consist of retail consumer

plans and corporate and government plans that customers purchase so that they can use their

wireless devices for voice calls, text messaging, and data delivery (e.g., email and the internet).

The relevant market prices are the monthly fees that consumers pay for postpaid wireless

services and the bulk fee corporate and government entities negotiate for the same. (See Sprint

Compl. ¶¶ 64–66, 72–74.)

          Sprint and Cellular South allege that AT&T’s acquisition of T-Mobile would affect an

illegal concentration of market power and lead to higher retail wireless rates. Sprint opens its

complaint by declaring that, “[i]n one fell swoop,” the proposed transaction “would eliminate

one of four national competitors” in the mobile wireless market “and marginalize a second

15
     The parties refer to these devices collectively as “handsets.”
16
  “Typically, postpaid services require two-year contracts and are available only to customers
who satisfy a credit check. Prepaid services, on the other hand, do not include two-year
contracts” and instead “allow the subscriber to pay up front for a month of service, or are pay-as-
you-go plans where a subscriber purchases . . . minutes in advance.” (Sprint Compl. ¶ 65.)
                                                   12
(Sprint), pushing the market back toward a 1980s-style cell phone duopoly that would force

consumers to endure higher prices and be denied the fruits of vigorous innovation.” (Id. ¶ 1; see

also id. ¶ 2 (“On its face, the horizontal combination of AT&T and T-Mobile is a classic

violation of antitrust merger law, resulting in market concentration far in excess of the thresholds

established by” law.); Cellular South Compl. ¶¶ 10–14.)

       Standing alone, however, such allegations do not help to resolve the question of whether

these competitor plaintiffs have pleaded antitrust injury. At issue here are Sprint’s and Cellular

South’s allegations regarding the injuries that they will suffer if the merger is consummated.

Alleging harm to consumers, while relevant to showing an antitrust violation, is not sufficient to

demonstrate antitrust injury; harm to consumers by way of increased prices is the type of injury

the antitrust laws were designed to prevent, but it is not an injury-in-fact that competitors

suffer.17 When allegedly anticompetitive behavior “[has] the effect of either raising market price

or limiting output” and is therefore “harmful to competition,” it “actually benefit[s] competitors

by making supracompetitive pricing more attractive.” Matsushita Elec. Indus. Co., Ltd. v. Zenith

Radio Corp., 475 U.S. 574, 583 (1986). Put plainly, “injury-in-fact . . . is absent when a plaintiff

complains [only] that its competitors’ merger [would be] illegal because it [would] increase[]

market concentration unduly.” IIA Areeda et al., supra, ¶ 335f, at 73; see id. ¶ 348b.



17
   That the Clayton Act enlists the assistance of competitors as “private attorney generals” to
“‘serve . . . the high purpose of enforcing the antitrust laws,’” Cargill, 479 U.S. at 129 & n.6
(Stevens, J., dissenting) (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,
130–31 (1969)), does not obviate the requirement that competitors allege injury-in-fact, id. at
113 (citing Brunswick, 429 U.S. at 489). The conclusion that the Eleventh Circuit reached in a
different context applies here with equal force: “[A private] plaintiff must do more than to bring
a carefully timed lawsuit as a potential back-up to government action.” Royal Crown Cola Co. v.
Coca-Cola Co., 887 F.2d 1480, 1493 (11th Cir. 1989) (denying attorney’s fees to a competitor
plaintiff where the plaintiff, because its § 16 suit stalled while the FTC pursued similar
objections in a parallel court proceeding, had not demonstrated its own role in provoking the
defendant to pro-competitive behavior).
                                                 13
       That remains the case even if, as Sprint and Cellular South allege, the proposed

acquisition will incentivize Verizon, “AT&T’s most significant competitor post-merger, . . . to

coordinate with AT&T rather than compete.” (Sprint Compl. ¶ 3; see id. ¶¶ 195–98; Cellular

South Compl. ¶¶ 73–76.) In Matsushita Electrical Industrial Co., the Supreme Court addressed

allegations by American television manufacturers that their Japanese rivals “had illegally

conspired to drive American firms from the . . . market.” 475 U.S. at 577–78. The Court began

its analysis “by emphasizing what [plaintiffs’] claim is not:”

       Nor can [plaintiffs] recover damages for any conspiracy by [defendants] to charge higher
       than competitive prices in the American market. Such conduct would indeed violate the
       [antitrust laws], but it could not injure [plaintiffs]: as [defendants’] competitors,
       [plaintiffs] stand to gain from any conspiracy to raise the market price in [televisions].

Id. at 582–83 (citations omitted). The Court’s logic is directly applicable here. Whether the

result of an increase in market concentration by itself, or “the oligopolistic price coordination”

that “excessive concentration . . . portends,” Brooke Group Ltd., 509 U.S. at 229–30, an increase

in market prices alone does not harm competitors. To the contrary, “You want your competitors

to charge high prices.” JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775, 778 (7th

Cir. 1999) (Posner, J.). The possibility that a post-merger AT&T could raise market prices does

not, without more, threaten injury-in-fact to Sprint and Cellular South. It therefore does not

confer antitrust standing on them.18




18
   Sprint and Cellular South correctly note that defendants have not contested whether their
complaints state a claim “that the acquisition violates [§] 7 by increasing AT&T’s market power
in the relevant wireless markets” and that it would “further enhance[] AT&T’s power to raise
prices post-merger.” (Joint Opp’n at 16.) But regardless of whether those “allegations state a
plausible prima facie [§] 7 claim for harm to competition” (id. at 16–17), they do not state a
plausible claim to antitrust injury because they do not allege that Sprint and Cellular South
would suffer injury-in-fact.
                                                 14
               2. The Market for Wireless Devices

       Plaintiffs claim that wireless devices “are becoming the primary driver in selection of

wireless service.” (Cellular South Compl. ¶ 54.) “Device preference increasingly drives

customer choice of wireless carriers.” (Id.; see Sprint Compl. ¶ 79.) As such, wireless carriers

compete with each other to secure the most desirable devices for their own networks, sometimes

leveraging exclusivity deals with device manufacturers to aid their efforts.19 Sprint and Cellular

South allege that, together with Verizon, a post-merger AT&T would “foreclose their . . . access

to the most innovative handsets and raise their costs,” such that their “offers to [their] customers

would be less attractive and [their] business would be injured.” 20 (Id. ¶ 159–60; see id. ¶¶ 4, 7,

79, 84–87, 157, 159–69, 208; Cellular South Compl. ¶¶ 12, 26, 50–63.) The increased market

concentration brought about by the proposed acquisition would, according to Sprint, “enable

both AT&T and Verizon to coerce exclusionary handset deals . . . without AT&T having gained

that advantage through competition on the merits.” (Sprint Compl. ¶ 160.)

       Where a defendant, by means of anticompetitive conduct, restricts or forecloses a

competitor plaintiff’s access to a necessary input, courts have found that the resulting loss is

injury of the type that the antitrust laws were designed to prevent. See Eastman Kodak Co. v.

Image Technical Servs., Inc., 504 U.S. 451, 478 (1992); Six West Retail Acquisition, Inc. v. Sony

Theatre Mgmt. Corp., No. 97 CIV. 5499, 2000 WL 264295, at *22 (S.D.N.Y. March 9, 2000);



19
  Because the complaints do not allege that wireless carriers ever buy devices from each other,
and instead describe the carriers as competing with each other to buy them from manufacturers,
the alleged effects of the acquisition on the market for devices are horizontal even though the
devices themselves are akin to inputs.
20
  The “most innovative handsets” are smartphones, “which integrate computer operating
systems with phone capabilities and high resolution cameras.” (Sprint Compl. ¶ 80; see Cellular
South Compl. ¶ 52.) In addition to being desirable to consumers, smartphones are attractive to
carriers because with their purchase, subscribers typically sign-up for expensive data plans.
                                                 15
Bon-Ton Stores, Inc. v. May Dep’t Stores Co., 881 F.Supp. 860, 878 (W.D.N.Y. 1994); Tasty

Baking Co. v. Ralston Purina, Inc., 653 F. Supp. 1250, 1276 (E.D.Pa. 1987).21 Indeed,

defendants concede that a plaintiff has stated a “theory of competitor harm” that is cognizable

under the antitrust laws” when it has alleged that its rival’s anticompetitive acts will result in its

paying more for necessary inputs. (Reply at 2.)22

       In Eastman Kodak, firms that serviced Kodak photocopiers (independent service

organizations or “ISOs”) alleged that Kodak acted anticompetitively when it “adopted policies to

limit the availability of parts to [those firms] and to make it more difficult for [them] to compete

with Kodak in servicing Kodak equipment.” 504 U.S. at 455. Kodak machines required Kodak

parts, and Kodak parts were only available from Kodak directly or by way of original-equipment

manufacturers (“OEMs”) that contracted with Kodak. Id. at 456–57. When Kodak limited direct

sales of parts to “buyers of Kodak equipment who use[d] Kodak service or [who] repair[ed] their

own machines,” and additionally struck agreements with the OEMs preventing them from selling

parts to anyone but Kodak, the ISOs “were unable to obtain parts from reliable sources . . . and

many were forced out of business, while others lost substantial revenue.” Id. at 458. The ISOs

sued, alleging “that Kodak had unlawfully tied the sale of service for Kodak machines to the sale

of parts, in violation of § 1 of the Sherman Act, and had unlawfully monopolized and attempted

21
   See also Edward A. Snyder & Thomas E. Kauper, Misuses of the Antitrust Laws: The
Competitor Plaintiff, 90 Mich. L. Rev. 551, 561–63 (1991) (surveying literature exploring the
“raising rivals’ costs” theory of antitrust injury and describing why “the premise underlying” the
theory “is straightforward”); id. at 585 (“Allegations of anticompetitive exclusion, if properly
framed, will satisfy the antitrust injury requirement.”); Thomas G. Krattenmaker & Steven C.
Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price, 96 Yale
L.J. 209 (1986).
22
  (See also Motion to Dismiss Sprint at 6 (“competitors have established standing where they
have plausibly alleged that they would be excluded from a market or suffer harm as a result of
vertical effects of a merger—usually, foreclosure of supply of a needed input” (citing, inter alia,
Six West and Bon-Ton Stores)).)
                                                  16
to monopolize the sale of service for Kodak machines, in violation of § 2 of that Act.” Id. at 459

(citing 15 U.S.C. §§ 1, 2).23

       Neither the Supreme Court nor the lower courts questioned whether the ISOs had

established antitrust injury,24 notwithstanding that they were Kodak’s competitors in the market

for servicing Kodak photocopiers. Indeed, the Supreme Court was unequivocal in declaring that

Kodak’s “alleged conduct—higher service prices and market foreclosure—is facially

anticompetitive and exactly the harm that antitrust laws aim to prevent.” Id. at 478. This was so

even though there existed some alternative sources of Kodak parts, id. at 458 & n.2, and even

though Kodak did not have market power in the interbrand market for its equipment. Id. at 465.

       What distinguishes the present case from Eastman Kodak, however, is the alleged source

of the defendants’ power to impair plaintiffs’ ability to compete in the input market. In Eastman

Kodak, the defendant was both the plaintiffs’ competitor and their supplier. Here, the wireless

carriers—plaintiffs, defendants, Verizon, and all the rest, national and regional alike—compete

against each other as fellow purchasers of wireless devices, which they procure from

manufacturers in order to sell to consumers.25 It would not be the alleged antitrust violation—



23
  The ISOs sought both damages and injunctive relief. Image Technical Servs., Inc. v. Eastman
Kodak Co., 125 F.3d 1195, 1201 (9th Cir. 1997).
24
  See Image Technical Servs., Inc. v. Eastman Kodak Co., No. C-87-1686-WWS, 1988 WL
156332 (N.D. Cal. April 18, 1988), rev’d, 903 F.2d 612 (9th Cir. 1990). In fact, Kodak did “not
dispute [the ISOs’] standing to bring [their §] 2 claim.” Image Technical Servs., Inc., 903 F.2d at
619 n.6.
25
   The national carriers sometimes work directly with manufacturers to develop new devices for
their networks. (See Sprint Compl. ¶ 82.) Regional carriers such as Cellular South have had far
less success in this regard, allegedly because of their small subscriber base. (See Cellular South
Compl. ¶¶ 53, 58; see also Sprint Compl. ¶ 84 (“Because” device manufacturers “commonly
require volume commitments from carriers,” those “with small subscriber bases are at a
significant disadvantage in attracting OEMs to develop new devices or technology for their
networks.”).)
                                                17
AT&T’s acquisition of T-Mobile—but rather the “anticompetitive acts made possible by the

violation” that plaintiffs claim would injure them. Brunswick Corp., 429 U.S. at 489. Theirs is a

threatened “injury of the type the antitrust laws were intended to prevent,” id., but because their

theory depends on the merged entity’s monopsony power, and not its simple ability to refuse to

sell to them, alleging a plausible threat of loss or damage is a more complex task for Sprint and

Cellular South than it was for the Eastman Kodak plaintiffs.

        Yet, other plaintiffs have succeeded on similar theories in the past. In Six West, an

independent theater operator challenged the merger of its two major competitors, theater chains

that were owned by vertically integrated movie distributors. 2000 WL 264295, at *1–2, 21. The

plaintiff alleged that, because the transaction would “effectuate[] intimate affiliations between

exhibitors . . . and distributors,” it would “‘impede plaintiff’s ability to obtain quality motion

pictures.’” Id. at *21 (quoting plaintiff’s amended complaint). The Court concluded that

plaintiff had alleged an antitrust injury because the merger would “effectively[] depriv[e]

[p]laintiff of its ability to compete for first-run films.” Id. at *22.

        In Bon-Ton Stores, the Bon-Ton department store chain sought to enjoin the acquisition

of McCurdy’s, one of its local competitors, by May, one of its large national competitors. 881

F.Supp. at 862–63. With the acquisition, May would have acquired all of the available retail

space for a department store in all of the main malls in Rochester, New York. Id. at 865. Bon-

Ton argued that the merger would hinder its ability to enter the Rochester market because store

space in malls was critical to the department store business. Id. at 876–77. The Court issued a

preliminary injunction and denied defendants’ motions to dismiss, concluding that Bon-Ton’s

threat of “effective exclusion from the Rochester market” constituted antitrust injury. Id. at 878




                                                   18
(“Courts have held in many cases that a business which has been prevented from entering (and

thus competing in) a market have standing to sue under the antitrust laws.” (collecting cases)).

       Finally, in Tasty Baking, the manufacturer of Tastykake snack cakes sued to unravel the

merger of the manufacturers of the Hostess and Drake snack cake brands. 653 F. Supp. at 1254.

The plaintiff alleged that the transaction would “impair [its] ability to enter new markets and

develop business, by facilitating [defendants’] negotiations with retailers for better store shelf

space and promotional time slots in markets where [plaintiff] does compete and by” enabling the

merged entity to engage in predatory pricing. Id. at 1255. The Court concluded that the plaintiff

had “alleged antitrust injury,” and rejected defendants’ argument that plaintiff’s harm stemmed

from defendants’ “increased operating efficiencies” as stating “a factual dispute” but not

“demonstrat[ing] any inadequacy” in the pleading. Id. Turning to the evidence adduced at the

hearing on the preliminary injunction, the Court paid particular attention to the plaintiff’s

allegations of “threatened predatory non-pricing actions.” Id. at 1276. The Court found support

in the record for plaintiff’s claims that defendants could “successfully pressure retailers” to stop

carrying its products, to place them in less desirable locations in stores, and to allot them less

promotional time. Id. at 1273. The Court concluded that because plaintiff’s “entry into,

expansion within, and preservation of share in relevant markets could be frustrated by

defendants’” anticompetitive strategies, id., plaintiff had standing to sue. Id. at 1274.

       Mobile wireless devices, and smartphones in particular, are Sprint’s and Cellular South’s

first-run movies, mall locations suitable for department stores, and shelf space and promotional

time, for they are necessary inputs for plaintiffs’ businesses. (Cellular South Compl. ¶ 54; Sprint

Compl. ¶ 79.) Like the plaintiffs in Six West, Bon-Ton Stores, and Tasty Baking, Sprint and

Cellular South have alleged that the transaction in question threatens their continued access to



                                                  19
these inputs.26 As a general matter, plaintiffs’ threatened injuries are those of the type the

antitrust laws were designed to prevent, and courts have approved claims similar to those

specifically raised here.

       Nonetheless, the Court must still determine the sufficiency of plaintiffs’ pleadings, and in

particular the plausibility of their threat to injury-in-fact arising from the monopsony power

AT&T would gain in the market for mobile wireless devices with the acquisition of T-Mobile.

Defendants argue that, because plaintiffs’ complaints do not describe the state of competition

among device manufacturers, their claims must fail. The Court disagrees. Where monopsony

power is the concern, what matters is market concentration on the buying side of the market, not

the selling side. Weyerhaeuser Co., 549 U.S. at 320 (“Monopsony power is market power on the

buy side of the market.”); see also Todd v. Exxon Corp., 275 F.3d 191, 202 (2d Cir. 2001)

(Sotomayor, J.) (Because “the equation for measuring market power in monopsony is a mirror

26
  Contrary to defendants’ assertions (see Reply at 12 n.9), plaintiffs’ allegations in Six West,
Bon-Ton Stores, and Tasty Baking resemble those made here by Sprint and Cellular South: both
go to reduced access or increased costs even while employing “foreclosure” language at times.
Compare Six West, 2000 WL 265296, at *22 (“Plaintiff alleges that the merger causes antitrust
injury by restraining [its] access to quality motion pictures” and “limit[ing] [its] ability to obtain
select movies.” (emphasis added)) and Bon-Ton Stores, 881 F. Supp. at 876–77 (Bon-Ton’s
chairman “testified that it is more economical to open a store in a mall as opposed to a stand-
alone location or strip center,” and the Court concluded that, while the merger would not make
entry by a competitor “impossible,” it was nonetheless “obvious that a significant and substantial
barrier to entry would exist if May obtained all the present space in the four major regional
shopping malls.” (emphasis added)) and Tasty Baking Co., 653 F. Supp. at 1255 (Plaintiff
“claim[s] that defendants’ monopolization illegally will impair [plaintiff’s] ability to enter new
markets and develop business . . . .” (emphasis added)) with (Sprint Compl. ¶ 160 (“With
reduced access to the latest handsets post-acquisition, Sprint’s offers to its customers would be
less attractive and its business would be injured.” (emphasis added)) and id. ¶ 163 (alleging that
the proposed acquisition “would result in Sprint, as well as smaller carriers, facing . . . increased
costs” and “substantial delays” for “the latest phones and consumer devices”) and Cellular South
Compl. ¶ 26 (“Regional carriers will not be able to obtain the latest wireless devices in a timely
fashion and at reasonable cost.” (emphasis added)) and id. ¶ 58 (“The proposed merger would
reduce access to the latest devices . . . . (emphasis added))). Regardless, as an economic concept
market foreclosure is measured in terms of costs: when costs are prohibitive, firms exit, or
choose not to enter, markets.
                                                 20
image of the relationships that create market power in a seller[,] . . . [a] greater availability of

substitute buyers indicates a smaller quantum of market power on the part of the buyers in

question.” (citation and internal quotation marks omitted)).27 That there may be and, indeed, by

all accounts is, healthy competition among firms that sell mobile wireless devices is irrelevant to

understanding whether, by acquiring T-Mobile, AT&T could so increase its buying power as to

dictate terms to device manufacturers and otherwise impair plaintiffs’ access to these necessary

inputs.28 Judged against these standards, the Court concludes that plaintiffs’ complaints contain

sufficient facts, which must at this stage be accepted as true, to state a plausible claim to

threatened loss or damage in the market for mobile wireless devices.

        Sprint’s and Cellular South’s complaints provide factual support for the allegation that

AT&T already possesses significant market power as a purchaser of mobile wireless devices, and

that the acquisition of T-Mobile threatens them with harm. Sprint alleges that the proposed

transaction would add T-Mobile’s 34 million customers to AT&T’s 95 million customers,

leaving the merged entity with 129 million customers (a 37 percent increase) (Sprint Compl.

¶¶ 94, 97) and controlling “in excess of 40 percent of the national markets.” (Id. ¶ 2; see id.

¶ 138; Cellular South Compl. ¶ 9 (alleging United States customer numbers for the national and

regional carriers in the second quarter of 2011).).



27
   Indeed, the prototypical monopsonist is the factory in the company town. Because the factory
is the sole employer—the sole purchaser of labor—it can dictate wages, benefits, and working
conditions regardless of how large the town’s population. See, e.g., M. Todd Henderson, The
Nanny Corporation, 76 U. Chi. L. Rev. 1517, 1553 (2009) (“Company towns were isolated
geographically, attracted specialized labor, and were therefore often monopsony buyers of labor
over large geographic and skill areas.”).
28
   See Blair & Harrison, Monopsony in Law and Economics, supra, at 93 (“A monopsony issue
in the area of horizontal mergers is raised when one buyer acquires a rival buyer and thereby
increases the possibility that there will be an undesirable concentration of power on the buying
side of the market.” (emphasis deleted)).
                                                  21
       Crucially, Sprint then alleges two links between a carrier’s power as a seller in the output

market and a carrier’s power as a buyer in the input market. The first regards volume

commitments:

       Given the expense of developing new handsets, [manufacturers] commonly require
       volume commitments from carriers in order to spread R&D and production costs over a
       large volume of unit sales. Because of these volume commitments, carriers with smaller
       subscriber bases are at a significant disadvantage in attracting [manufacturers] to develop
       new devices or technology for their networks. For example, while regional carriers now
       offer some smartphones, [manufacturers] developing handsets with the latest technology
       tend to design them for the large national carriers because they have the ability to sell the
       most phones, thus spreading R&D costs over a larger number of units.

(Sprint Compl. ¶ 84.)

       Sprint’s second alleged connection between concentration in the selling and buying

markets relates to “exclusivity arrangements or ‘time-to-market’ advantages” through which

larger carriers secure exclusive access to certain devices—typically “cutting-edge

smartphones”—for a specific period of time. (Id. ¶ 85; see Cellular South Compl. ¶¶ 58–59.)

Sprint alleges that the Federal Communications Commission (“FCC”) has found that while larger

carriers can negotiate handset exclusivity agreements, smaller carriers such as Sprint cannot.

(Sprint Compl. ¶ 85.) Sprint cites Apple’s iPhone as an example. AT&T was the exclusive

provider of the “iconic” iPhone from 2007 until early 2011, when Apple “gave Verizon a time-

to-market advantage . . . most likely because Verizon had the largest subscriber base in the

United States.” (Id. ¶ 86.) Accordingly, Sprint “had to compete without access to the iPhone for

nearly five years.” (Id.)29 That AT&T and Verizon thus wielded their purchasing power in the

past substantiates Sprint’s claim to threatened injury-in-fact from the merger:



29
  The Court can take judicial notice of the fact that Sprint gained the ability to sell the iPhone
with the release of the iPhone 4S on October 14, 2011, and that Cellular South will also
reportedly sell the iPhone. See Darren Murph, Sprint iPhone Officially Announced: iPhone 4
and 4S Both On the Way, engadget.com, October 4, 2011, available at
                                                 22
       As a result of the proposed transaction’s illegal increase in market concentration, the size
       and scale differential between AT&T and Verizon on the one hand, and Sprint and the
       fringe carriers on the other hand, would increase dramatically. This would enable both
       AT&T and Verizon to coerce exclusionary handset deals . . . without AT&T having
       gained that advantage through competition on the merits. With reduced access to the
       latest handsets post-acquisition, Sprint’s offers to its customers would be less attractive
       and its business would be injured.

(Id. ¶ 160; see id. ¶ 162 (alleging that, in addition to endowing AT&T with the ability to secure

more exclusive handset arrangements, the merger would allow AT&T to extract longer

exclusivity periods).)30

       Cellular South’s claims to antitrust injury from the proposed transaction’s effect on the

market for wireless devices are, if anything, even more plausible. Cellular South adds narrative

to the numbers and market logic alleged by Sprint:

       Cellular South and other carriers have often been refused access to current devices and
       given access only when the device is no longer the most current model. Cellular South
       and other carriers receive older phones at higher prices. The proposed merger will
       continue and exacerbate that conduct.

(Cellular South Compl. ¶ 53; see id. ¶¶ 60, 63, 87.)

       Cellular South also focuses on the proposed acquisition’s elimination of “T-Mobile as an

independent source of demand for wireless devices,” thus squarely stating a monopsony concern.



http://www.engadget.com/2011/10/04/sprint-iphone-officially-announced-on-sale-october-14/;
Roger Cheng, Apple iPhone 4S: Soon at C Spire, But Not T-Mobile, CNET.com, October 19,
2011, available at http://news.cnet.com/8301-1035_3-20122553-94/apple-iphone-4s-soon-at-c-
spire-but-not-t-mobile/. Nonetheless, Sprint’s allegation that even it, the nation’s third-largest
wireless carrier, lacked access to the iPhone for almost five years adds plausibility to its alleged
threat of harm from the proposed acquisition.
30
  The Court does not imply that handset exclusivity arrangements are themselves improper
under the antitrust laws. To the contrary, courts have concluded that restraints of this type are
not anticompetitive. See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877,
890 (2007); Elecs. Commc’ns Corp. v. Toshiba Am. Consumer Prods., Inc., 129 F.3d 240, 245
(2d Cir. 1997). Rather, the Court merely credits Sprint’s allegation that it will suffer harm from
future exclusivity arrangements if AT&T acquires additional buying power in the market for
devices.
                                                 23
(Cellular South Compl. ¶ 12; see id. ¶ 26 (“AT&T’s acquisition of T-Mobile would further

consolidate an already concentrated wireless industry and remove one independent customer (T-

Mobile) with millions of device customers from the already short list of those wireless carriers

ordering devices from device manufacturers.”).)

       But Cellular South worries about more than the mere fact of the post-merger AT&T’s

enhanced buying power in the market for devices. It alleges that the proposed transaction would

exacerbate its network interoperability woes. As will be discussed in more detail below, not all

carriers’ networks are compatible with each other: phones designed for one network cannot be

used on many others. (See Section II(B)(1), infra.) Cellular South claims that AT&T and

Verizon have exercised their purchasing power in the markets for devices and network

equipment to propagate “their own separate ‘ecosystems’ of compatible infrastructure . . . that

cannot be utilized by other competitors,” and that the proposed acquisition would increase the

big carriers’ “incentive and power to exclude competitors from those ecosystems.” (Cellular

South Compl. ¶ 50.) Accordingly, “Without T-Mobile’s independent demand for devices, device

manufacturers will be even less willing to design or build devices for any carrier, like Cellular

South, which is operating outside of the ecosystem of one or the other of [Verizon and AT&T].”

(Id. ¶ 52.) In other words, Cellular South alleges that the proposed acquisition threatens its

access not only to handsets that are particularly desirable, but also, more fundamentally, to whole

“ecosystems” of devices and network infrastructure—and customers. Based on these allegations,

the Court concludes that Cellular South’s complaint also satisfies Twombly as regards its claim

of threatened injury-in-fact from an anticompetitive aspect of the proposed merger—AT&T’s

acquisition of monopsony power in the market for mobile wireless devices.




                                                24
       By contrast, certain of the plaintiffs’ seemingly device-related claims do not plausibly

allege threatened injury-in-fact. Sprint states that the post-merger AT&T would, with Verizon,

compose a “Twin Bell duopoly” gatekeeper, controlling “access to the wireless bridge between

upstream developers and the consumers they seek to connect with via wireless communications.”

(Sprint Compl. ¶ 9; see id. ¶¶ 187–88.) This may be a plausible allegation, but it does not

describe a threatened loss or damage to Sprint, as opposed to one faced by the upstream

producers: merely claiming that “independent wireless carriers . . . would not have the features

and content required to compete,” (id. ¶ 188), does not suffice in the absence of facts about the

market relationship between the carriers and those producers.

       Sprint’s claim to threatened injury arising from the potential loss of T-Mobile as a partner

in ventures “to create substantial scale for the creation of new handsets and to compete with

[AT&T and Verizon] for such handsets” also fails. (Id. ¶ 161.) Sprint frames this allegation in

terms of “innovation in handsets,” (id. ¶ 169; see, e.g., id. ¶¶ 4, 91; Joint Opp’n at 29), but in

order to state a claim to antitrust injury it must do more—again, it must allege its own injury-in-

fact stemming from defendants’ allegedly anticompetitive behavior. Along these lines, Sprint

describes its past collaboration with T-Mobile in the Open Handset Alliance (“OHA”), where the

two carriers worked with “mobile device and component manufacturers, software developers,

semiconductor manufacturers,” and others to “develop[] the Android mobile phone device

platform.” (Sprint Compl. ¶¶ 88–90.) Sprint argues that the proposed acquisition would “stifle

collaborative efforts like the OHA in the future.” (Joint Opp’n at 29; see Sprint Compl. ¶ 169

(“Absent the proposed acquisition by AT&T, T-Mobile would continue to have the incentive and

ability to partner with Sprint and other carriers.”).) And yet Sprint’s chosen example, the OHA,

included a number of firms engaged in various aspects of the wireless market. (Id. ¶ 89.) Even



                                                  25
accepting that the merger would eliminate T-Mobile as a potential participant in such ventures,

there are no facts alleged that plausibly suggest their demise.

       Community Publishers, Inc. v. Donrey Corp., 892 F. Supp. 1146 (W.D. Ark. 1995), is of

no help to Sprint here. There, in determining that the plaintiff newspaper, the Daily Record, had

antitrust standing to challenge the acquisition of one of its local competitors (the Times) by

another of its local competitors (the Morning News), the Court found it significant that the

challenged acquisition would spell the likely end “of a news and advertising sharing agreement”

that was then in effect between the Daily Record and the Times. Cmty. Publishers, Inc., 892 F.

Supp. at 1166. Because of the dynamics of the local newspaper market and the fact that the

agreement was only between the Daily Record and the Times, the Court assumed that the

“anticompetitive incentive to terminate” the agreement would inevitably lead to the agreement’s

end. Id. at 1167. Here, by contrast, Sprint acknowledges that the OHA consists of many players,

from many different industries. (Sprint Compl. ¶ 89.) Even if T-Mobile was a “critical,

pioneering member[]” of the OHA, (id.), Sprint’s complaint fails to allege facts in support of the

claim that the proposed acquisition would cause the OHA to fall apart or leave Sprint without

alternative partners in its quest to develop new wireless devices.

       As discussed, however, the plaintiffs’ complaints do state plausible claims that the

proposed acquisition threatens them with loss and damage in the market for handsets generally.

Because their threatened injuries “flow[] from that which makes defendants’ acts unlawful” in

that they would result from the post-merger AT&T’s increased monopsony power in a market for

inputs that are necessary to their ability to compete, Sprint and Cellular South have adequately

alleged a threatened antitrust injury with regard to the proposed acquisition’s effects on their

access to mobile wireless devices. Brunswick Corp., 429 U.S. at 489.



                                                 26
              3. The Market for Wireless Spectrum and Network Development

       To assess Sprint’s claims of potential injury in the market for wireless spectrum, it is first

necessary to provide a brief explanation of contemporary mobile wireless technology and the

government’s role in regulating certain aspects of it.

       Mobile wireless devices “convert voice, text, and data into radio signals, which are then

transmitted to a cell site,” consisting of an antenna or an array of antennas and “typically located

on a tower or building.”31 (Sprint Compl. ¶ 24.) The FCC, “which is authorized under federal

law to allocate the use of radio spectrum, established cellular telecommunications service” in

1981. (Id. ¶ 25.) The FCC “license[s] bands of spectrum in increments measured in hertz . . . to

wireless providers.” (Id. ¶ 34.) “The value of particular spectrum bands depends on many

factors.” (Id.)

       One factor affecting a band’s value is the “propagation characteristics of the spectrum.”

(Id.) For example, “Lower frequency signals travel greater distances and penetrate buildings and

other obstructions more effectively.” (Cellular South Compl. ¶ 48; see Sprint Compl. ¶ 35.)

“The FCC has licensed radio spectrum for commercial mobile wireless use primarily in bands

between 700 MHz and 2500 MHz.” (Id. ¶ 35.) Because the 700 MHz band (so-called

“beachfront spectrum”) is the “lowest frequency spectrum that the FCC has licensed for

commercial mobile wireless communications,” and therefore has “excellent propagation

characteristics” such that “it can be built out with fewer cell sites and therefore less expensively




31
  For an explanation of how signals from the wireless networks connect to the traditional
wireline network, see Section II(B)(2), infra.
                                                 27
than high frequency spectrum,” (id. ¶ 37), licenses for it are highly desirable from the perspective

of wireless carriers. (Cellular South Compl. ¶ 48).32

       Another factor affecting a spectrum band’s value is “the extent to which an ecosystem of

compatible infrastructure, equipment, and handsets exists for the bands” (Sprint Compl. ¶ 34)

because, for example, the antenna on a mobile device and that at a cell site must be tuned to the

same band in order for them to connect.33 (Id. ¶ 57.) “Wireless carriers design and build their

network infrastructure for specific spectrum bands.” (Id. ¶ 40.) Bands that are “in use already

have ecosystems of compatible infrastructure, equipment, and handsets,” but developing a

network on bands that have only recently been allocated by the FCC, such as the desirable

beachfront spectrum on the 700 MHz band, requires “considerable investment.” (Id.)

       To the extent that Cellular South’s claims regarding wireless spectrum relate to cutting-

edge wireless devices, these allegations have been addressed above. (See Section II(A)(2),

supra.) Sprint, on the other hand, focuses on the fact that the merger “would add T-Mobile’s

spectrum to AT&T’s already substantial spectrum holdings.” (Id. ¶ 170.) Sprint also claims

that, “[a]bsent the acquisition of T-Mobile, all of the national wireless carriers, with the possible

exception of Verizon, likely would seek spectrum in ‘new’ bands for which the research and

32
   Sprint alleges that “AT&T and Verizon together control 92 percent of the paired 700 MHz
spectrum suitable for commercial mobile broad band use in the top 54 most populous U.S.
markets, and 100 percent of the paired 700 MHz spectrum suitable for commercial mobile
broadband in the top 10 markets.” (Sprint Compl. ¶ 38.) Cellular South alleges that, when the
FCC “auctioned much of the 700 MHz spectrum” in early 2008, “AT&T and Verizon were able
to purchase most” of it, “winning 85% (by value) of the paired spectrum.” (Cellular South
Compl. ¶ 47.) Sprint and Cellular South do not describe their own holdings of beachfront
spectrum, nor do they allege how much T-Mobile has (and therefore how much of it AT&T
would stand to gain if the proposed merger were to be consummated).
33
   Another requirement for connection is that a mobile device and a mobile network use the same
transmission technology. (See Sprint Compl. ¶ 57; Cellular South Compl. ¶ 38.) Transmission
technologies are addressed in the Court’s discussion of the market for roaming. (See Section
II(B)(1), infra.)
                                                 28
development costs for new equipment have not yet been incurred.” (Id. ¶ 171.) Thus, “[b]y

acquiring developed spectrum through the T-Mobile acquisition, AT&T would effectively and

improperly shift the costs of spectrum development to Sprint and other carriers” and “further

weaken their ability to compete on the merits by increasing their costs and delaying their access

to new equipment.” (Id.)

       What differentiates this claim from plaintiffs’ devices claims is that here, Sprint has not

alleged that the proposed transaction would be a merger-to-monopsony. Sprint does not claim

that the acquisition would enable AT&T to muscle other carriers out of FCC auctions for

wireless spectrum, but rather, that the transaction would add to AT&T’s inventory of spectrum

and reduce its network development costs. To the extent Sprint challenges the mere fact that, if

AT&T acquires T-Mobile, it will also acquire some additional amount of spectrum, Sprint does

not allege injury-in-fact. Without additional guidance as to this claim, the Court is left to assume

that AT&T’s acquisition of T-Mobile’s spectrum would threaten Sprint with injury-in-fact only

if the acquisition would curtail Sprint’s access to a supply of spectrum that it demonstrably

needed. The parties differ significantly as to the sufficiency of AT&T’s spectrum holdings,34 but

Sprint neither alleges facts about T-Mobile’s holdings nor describes its own holdings. Without

more, Sprint has not alleged facts sufficient to state a claim to antitrust injury arising from

AT&T’s acquisition of T-Mobile’s unknown stock of spectrum.

       Sprint also claims antitrust injury on the theory that “[b]y acquiring developed spectrum

through the T-Mobile acquisition, AT&T would effectively and improperly shift the costs of

34
  (Compare Sprint Compl. ¶ 36 (“AT&T holds a nationwide average of 40 MHz below 1 GHz—
almost three times Sprint’s holdings below 1 GHz, and slightly less than Verizon’s average of 54
MHz below 1 GHz.”) with Motion to Dismiss Sprint at 7 (“AT&T’s acquisition of T-Mobile is
driven by AT&T’s need to alleviate a severe shortage of spectrum and network capacity
constraints. . . . Sprint faces no spectrum constraints today, and it benefits so long as AT&T faces
high costs and constraints on its ability to innovate.”).)
                                                  29
spectrum development to Sprint and other carriers[,] . . . further weak[ening] their ability to

compete on the merits by increasing their costs and delaying their access to new equipment.”

(Id.; see id. ¶ 174.) In that it describes the carriers as collaborating successfully on market

development,35 this assertion stands in sharp contrast to a complaint that is otherwise thick with

allegations of cut-throat rivalry and predatory behavior in the market for mobile wireless

services. Furthermore, even if the carriers’ uncoordinated actions in developing new spectrum

bands have yielded positive externalities in the past, what would be anticompetitive about the

proposed acquisition if it eliminated those externalities and the carriers had to pay their own

costs or, as it seems that Sprint is alleging, if the acquisition caused the costs to be split three

ways rather than four? This assertion lacks sufficient factual support.

        For these reasons, defendants’ Motion to Dismiss Sprint is granted as to Sprint’s claims

regarding spectrum and network development costs.

        B. Vertical Effects

        AT&T, T-Mobile, Sprint, and Cellular South also buy and sell services and products

among themselves, such that Sprint and Cellular South challenge two vertical effects of the

proposed acquisition—effects that alter the dynamics of their relationship with AT&T as

purchasers of services that AT&T sells or that are allegedly related to services that AT&T sells.

        Plaintiffs’ first allegation of a vertical effect regards the market for roaming. “Roaming

agreements between carriers can be used to add coverage for subscribers beyond the carrier’s




35
  (See Sprint Compl. ¶ 41 (“When multiple carriers build their networks and develop handsets at
the same time in a newly allocated spectrum band, they all benefit from the shared costs of
development.”).)

                                                   30
network, or supplement its capacity.” (Sprint Compl. ¶ 33.)36 Regional carriers such as Cellular

South are particularly dependent on roaming agreements: because they do not have nationwide

networks, they rely on their contracts with the national carriers to provide their subscribers with

coast-to-coast access to wireless networks. (Cellular South Compl. ¶ 27.) Both Sprint and

Cellular South allege that the proposed acquisition threatens them harm because it will result in

their paying higher prices for roaming. (See Sprint Compl. ¶ 183; Cellular South Compl. ¶ 27.)

       Sprint alone raises a second claim regarding the proposed acquisition’s vertical effects,

this with regard to the market for “backhaul.” Backhaul is also a necessary input in the market

for mobile wireless services in that it connects cell sites to the traditional wireline networks

where calls are routed. In addition to acting as wireless carriers themselves, AT&T and Verizon

also supply the lion’s share of backhaul to other wireless carriers, including Sprint and, at the

present, T-Mobile. (Sprint Compl. ¶ 149.) Sprint alleges that by eliminating T-Mobile as an

independent purchaser of backhaul, the proposed acquisition will enable AT&T and Verizon to

charge Sprint and other carriers higher prices for the service. (Id. ¶¶ 7, 182.)

       What plaintiffs’ claims regarding roaming and backhaul share in common is the general

allegation that AT&T’s purchase of T-Mobile will result in plaintiffs paying more to procure

necessary inputs. Accordingly, as it did with regard to plaintiffs’ allegations about the proposed

acquisition’s effect on the market for wireless devices, the Court concludes that plaintiffs’

alleged injuries are of the type that the antitrust laws were designed to prevent. See (Section

II(A)(2), supra); Eastman Kodak Co., 504 U.S. at 478; Tasty Baking Co., 653 F. Supp. at 1273–



36
   For example, if a subscriber of Carrier A is in a location that is not served by Carrier A but that
is served by Carrier B and Carrier C, the subscriber will still be able to use her phone if and only
if Carrier A has a roaming agreement with Carrier B or Carrier C, or both. In this example,
Carriers B and C are in a position to sell roaming to Carrier A.


                                                 31
76. The inquiry focuses instead on the other component of antitrust injury: have plaintiffs

alleged, with the requisite specificity, a threatened injury-in-fact?

       At the outset, it is important to note one critical difference between plaintiffs’ devices

allegations addressed above, on the one hand, and their roaming and backhaul allegations on the

other. In the market for devices, plaintiffs allege that AT&T’s acquisition of T-Mobile would be

a merger-to-monopsony. Their allegations of loss or damage stem from the post-merger

AT&T’s purchasing power in the market for devices—an input market for all carriers. Because

plaintiffs have alleged facts about the proposed transaction’s effects on the output market (the

market for mobile wireless services), and because they posited links between AT&T’s increased

selling power in the output market and its increased purchasing power in the input market, they

have stated a plausible claim to antitrust injury in the market for wireless devices.

       In the markets for roaming and backhaul, however, plaintiffs do not raise monopsony

claims. Rather, plaintiffs allege that they, along with T-Mobile, purchase roaming and backhaul

from AT&T and Verizon in various configurations. Plaintiffs’ roaming and backhaul claims

relate not to the merged entity’s purchasing power, but rather to its selling power, for they allege

the proposed acquisition will increase concentration among sellers of roaming and backhaul (and

that they will be affected as purchasers in those markets). The economic analysis does not differ

and the antitrust laws are concerned with both monopsony and monopoly power.37 But whereas

factual allegations about the output market (for mobile wireless services), combined with

descriptions of the links between the merged entity’s power as a seller in the output market and



37
  See Weyerhaeuser Co., 549 U.S. at 322 (“‘[M]onopoly and monopsony are symmetrical
distortions of competition from an economic standpoint[.]’ . . . The kinship between monopoly
and monopsony suggests that similar legal standards should apply to claims of monopolization
and to claims of monopolization.” (first alteration in the original) (quoting Vogel v. Am. Soc. of
Appraisers, 744 F.2d 598, 601 (7th Cir. 1984))).
                                                  32
its power as a buyer in the input market (for mobile wireless devices), sufficed to support

plaintiffs’ claims regarding devices, those allegations are less directly relevant to plaintiffs’

claims regarding roaming and backhaul. In order to successfully allege that the proposed

transaction threatens them with injuries-in-fact in the markets for roaming and backhaul,

plaintiffs must describe those markets with greater specificity than they have done if Twombly is

to be satisfied.

                   1. The Market for Roaming

        Roaming allows one carrier’s subscribers to access another carrier’s network when they

are outside of their own network’s range, as long as the two carriers’ networks are compatible

and as long as the carriers have a roaming agreement. (Sprint Compl. ¶¶ 55, 57; Cellular South

Compl. ¶ 27.)

        While a number of factors determine whether two networks are compatible, the parties

emphasize transmission technology.38 (See Sprint Compl. ¶¶ 43–47; Cellular South Compl.

¶¶ 38, 40, 44.) A transmission technology is, as the name implies, a particular means of

transmitting information—perhaps akin to a language. Two different transmission technologies

predominate in the contemporary domestic market for mobile wireless services. Of the national

carriers, AT&T and T-Mobile use the “Global System for Mobile Communications” (“GSM”),

and Verizon and Sprint use “Code Division Multiple Access” (“CDMA”). (Sprint Compl. ¶ 44;

Cellular South Compl. ¶ 38.) Ninety-seven percent of Cellular South’s customers use CDMA,

whereas three percent—the customers of Corr Wireless, which Cellular South recently

acquired—use GSM. (Cellular South Compl. ¶¶ 20–21, 67.) Because they do not share a



38
  In addition to using the same transmission technology, a phone must be tuned to the same
spectrum band as a competing carriers’ network in order to function. (See Sprint Compl. ¶ 57;
Section II(A)(3), supra.)
                                                  33
language, an AT&T subscriber’s phone is technologically incapable of connecting to the Verizon

network but can connect to the T-Mobile and Corr Wireless networks, and a Sprint subscriber’s

phone cannot connect to AT&T’s or T-Mobile’s networks but can connect to Verizon’s network,

and so on.

         Carriers have used various transmission technologies over time, but this basic divide

between GSM and CDMA has persisted to the current, “third generation” networks (“3G”).39

(Id. ¶ 38; Sprint Compl. ¶ 45.) Cellular South alleges that, with the move to “fourth generation”

technology (“4G”), “all of the wireless industry is moving toward . . . 4G-LTE[,] . . . the ‘gold

standard’ of wireless service.”40 (Cellular South Compl. ¶ 40.) For the present, however, device

and network incompatibility is a powerful dynamic in the market for mobile wireless services.

This is especially true for regional carriers, such as Cellular South, which depend on their ability

to buy roaming from the national carriers in order to provide their customers with nationwide

access. (Id. ¶ 27, 65.)

         Thus, carriers sign roaming agreements to supplement their networks’ capacities and so

their customers do not lose service when traveling outside their service areas. (Sprint Compl.

¶¶ 33, 55.) “Verizon and AT&T have large wireless network footprints in the United States,”

and “therefore have a higher percentage of on-network calls than other carriers” so “their

subscribers have less need for roaming. AT&T and Verizon realize revenue from carriers who

contract for roaming services over their networks.” (Id. ¶ 56.) Implicit in the fact that Verizon

and AT&T have “less need” is the fact that they both buy and sell roaming, but Sprint’s



39
  For example, “AT&T and T-Mobile use GSM-based High Speed Pack Access (‘HSPA’)
technology” for their 3G mobile broadband service, and “Verizon and Sprint use[] CDMA-based
Evolution Data Optimized (‘EV-DO’).” (Sprint Compl. ¶ 45.)
40
     For its current 4G network, however, Sprint “uses WiMax technology.” (Sprint Compl. ¶ 46.)
                                                 34
complaint says nothing more about their purchasing activities.41 Nor does Sprint provide any

description of its own roaming contracts.

        Rather, Sprint merely alleges that “[t]he merger would raise [its] input costs for

roaming.” (Id. ¶ 183.) Because Sprint is a CDMA carrier and AT&T and T-Mobile are GSM

carriers, however, Sprint cannot purchase roaming from defendants. In order to justify its

allegation of threatened harm, Sprint posits the following sequence: After the merger, AT&T

will increase its retail wireless rates.

        Increasing its retail wireless rates would give AT&T an incentive to increase its roaming
        prices, and increasing its roaming prices to its rivals would support higher retail prices.
        With AT&T setting higher prices, Verizon would have an incentive to increase its retail
        prices and also to raise its roaming fees to CDMA carriers, including Sprint.

(Sprint Compl. ¶ 185.) Even accepting for the moment that the acquisition will prompt AT&T to

raise its retail rates, there remain three assumptions that underlie this scenario for which Sprint

alleges no factual basis: First, that AT&T’s increased retail wireless rates would give it “an

incentive to increase” the rates it charges its competitors for roaming; second, that Verizon

would match AT&T’s increase in retail rates rather than keep its prices low to attract new

customers; and third, similar to the first, that Verizon’s increased retail wireless rates would

prompt it to raise its roaming fees to Sprint.

        When counsel for Sprint was asked at oral argument to explain where the complaint

alleged facts to support these assumptions, counsel did not cite facts and instead referenced a

“basic economic principle” and an Antitrust Law Journal article upon which Sprint relied for its

discussion of customer foreclosure. (10/24 Tr. 76 (“[T]his is a basic economic principle. It’s



41
  In court, counsel for AT&T represented that “even AT&T needs roaming. In fact, we are [a]
net buyer of roaming from Cellular South.” (10/24/11 Tr. 50–51.) The Court does not consider
this representation for its factual value, but rather highlights it as an example of the kind of
information that the complaints omit.
                                                 35
cited in the leading economics article, . . . Riordan and Salop. . . . We cited it.”); see Joint Opp’n

at 39–40 (discussing the market for backhaul, where Sprint is a customer of AT&T’s (citing

Michael H. Riordan & Steven C. Salop, Evaluating Vertical Merger: A Post-Chicago Approach,

63 Antitrust L.J. 513, 557 (1995) (addressing customer foreclosure))).) But the referenced

“principle” is nowhere to be found in the materials cited, since they relate to customer

foreclosure and Sprint is not a customer of either AT&T or T-Mobile in the market for roaming.

Without more, Sprint’s allegation amounts to mere speculation, not a plausible scenario wherein

Sprint would suffer injury-in-fact from the merger. See Twombly, 550 U.S. at 570; Broadcom

Corp., 501 F.3d at 321–22. Defendants’ Motion to Dismiss Sprint is therefore granted as to

Sprint’s roaming claim.

       Cellular South, on the other hand, presents more concrete claims to antitrust injury in the

market for roaming when it alleges that, “[b]y reducing the number of potential roaming

partners, the merger threatens” it with “pay[ing] higher roaming prices.” (Cellular South Compl.

¶ 27.) The crucial difference is that Cellular South’s Corr Wireless subsidiary, which uses the

GSM transmission technology, has been a roaming customer of T-Mobile and is currently a

roaming customer of AT&T. (Id. ¶ 67.) As such, given that roaming is a necessary input for

Cellular South, the fact that “the removal of T-Mobile from the marketplace would leave only

AT&T as a potential GSM roaming partner,” (id. ¶ 68), might be enough to demonstrate Cellular

South’s antitrust standing.

       Defendants protest that only “a small fraction of Cellular South’s customer base relies on

roaming technology compatible with AT&T’s and T-Mobile’s networks.” (Motion to Dismiss

Cellular South at 8.) This is certainly true, and defendants are correct that “Cellular South’s

assertion that AT&T and T-Mobile’s merger will nevertheless somehow result in Cellular South



                                                  36
paying higher roaming rates for its CDMA technology to Verizon has no greater factual support

than the parallel allegation in Sprint’s complaint.” (Id. at 9 (emphasis deleted).) Cellular South

has not alleged facts that would plausibly suggest that any cost increase by the post-merger

AT&T for GSM roaming would hop the technological divide to CDMA roaming. Accordingly,

defendants’ Motion to Dismiss Cellular South is granted as to Cellular South’s CDMA roaming

claims.

          Defendants’ Motion is denied, however, as to Cellular South’s GSM roaming claims.

Defendants have cited no case establishing a de minimis exception to antitrust injury. Even if

Corr Wireless represents only a small part of Cellular South’s business, Cellular South’s

allegations suggest that its threatened loss from the merger is plausible.

          First, Cellular South alleges that regional carriers’ ability to procure roaming at

reasonable rates is crucial to their business model: “Reasonable and affordable roaming access

has always been, and continues to be, a prerequisite for any wireless operator that does not own a

nationwide network. . . . No wireless carrier can survive without access to a nationwide network

for voice and data transmissions when the carrier’s customers are outside the carrier’s service

area.” (Cellular South Compl. ¶¶ 64–65.) Second, Cellular South alleges that Corr Wireless had

significant difficulties securing roaming agreements in the past. (Id. ¶ 67 (“AT&T unreasonably

and wrongfully refused a 3G roaming agreement with Corr Wireless until very recently, and

even then, offered only unreasonable terms that amount to a constructive refusal to permit 3G

roaming.”).) Third, Cellular South claims that Corr Wireless’s experience was not unique, and

that AT&T has a history of engaging in “exclusionary practices.” (Id. ¶ 71.) For example,

“Cellular South alleges, on information and believe, that AT&T has engaged in a pattern and

practice of denying roaming agreements to smaller carriers, as part of its efforts to monopolize



                                                   37
local markets and to injure competition.” (Id.) Looking to the future, Cellular South worries in

particular about whether it will be able to negotiate 4G-LTE roaming agreements with the

national carriers. (Id. ¶¶ 66, 69–71.). Taken together, these allegations of threatened price

increases and possible foreclosure suffice to show Cellular South’s antitrust standing to the

extent that it relies on T-Mobile and AT&T for a critical input.

       Defendants’ appeal to the fact of FCC regulation of roaming does not, at this stage, defeat

Cellular South’s showing. Defendants argue that FCC regulations require “all mobile wireless

carriers to provide roaming for common carrier services to other carriers on a just, reasonable,

and non-discriminatory basis.” (Motion to Dismiss Cellular South at 9.42) Yet in its complaint,

Cellular South has alleged facts suggesting that AT&T presently does not negotiate roaming

agreements in good faith (see Cellular South Compl. ¶ 71)—facts which the Court must accept as

true for purposes of deciding defendants’ motion, Twombly, 550 U.S. at 556, and facts which

therefore must be heard to question the adequacy of the FCC’s rules.43



42
  Defendants cite 47 C.F.R. § 20.12; Report and Order and Further Notice of Proposed
Rulemaking, Reexamination of Roaming Obligations of Commercial Mobile Radio Service
Providers, 22 FCC Rcd 15817 (2007), modified on recon., Order on Reconsideration and Second
Further Notice of Proposed Rulemaking, Reexamination of Roaming Obligations of Commercial
Mobile Radio Service Providers and Other Providers of Mobile Data Services, 25 FCC Rcd
4181 (2010); Second Report and Order, Reexamination of Roaming Obligations of Commercial
Mobile Radio Service Providers and Other Providers of Mobile Data Services, 26 FCC Rcd
5411, 5423, at ¶ 23 (2011), appeals pending, Cellco P’ship v. FCC, Nos. 11-1135 & 11-1136
(D.C. Cir. filed May 13, 2011).
43
   Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), is not to
the contrary. In Trinko, the Supreme Court noted that, “in certain circumstances, ‘regulation
significantly diminishes the likelihood of major antitrust harm.’” 540 U.S. at 412 (quoting Town
of Concord v. Boston Edison Co., 915 F.2d 17, 25 (1st Cir. 1990)). But when considering a
motion to dismiss, “likelihood” is not the issue: this Court is concerned with plausibility.
“Asking for plausible grounds to infer” a threatened injury-in-fact “does not impose a probability
requirement at the pleading stage.” Twombly, 550 U.S. at 556. Furthermore, Trinko did not
address antitrust standing, see 540 U.S. at 416 n.5, and instead considered whether the plaintiff
had stated an antitrust claim on the merits. See id. at 417–18 (Stevens, J., dissenting) (“I would
                                                38
                 2. The Market for Backhaul

          Backhaul comprises the physical infrastructure—dedicated copper, microwave, or fiber

optic circuits—that connects cell sites to the wireline network to which wireless calls are

routed.44 (Sprint Compl. ¶ 58.) “Wireless carriers, including Sprint, depend on backhaul to

connect their cell sites to their networks and to the public switched telephone network.” (Id.

¶ 125.)

          Imagine a call placed from a cellphone to a landline phone. Voice data travels wirelessly

from the device to a cell site (on a given band of spectrum and via a particular transmission

technology, as discussed). The data then travels via backhaul from the cell site to the wireline

network (where the call is routed45). Once connected to the wireline network, the data finally

makes its way to the recipient’s phone, and the call is completed.

          The contemporary market for backhaul reflects the recent history of the

telecommunications industry. “For decades” prior to its breakup in 1984, “the Bell System

controlled wireline monopolies across the country.” (Id. ¶ 5.) Since then, Sprint alleges that “the

‘Ma Bell’ descendants, AT&T and Verizon, have largely reassembled the Bell monopolies under

their joint control.” (Id.) Therefore, AT&T and Verizon own wires—both the wireline


not decide the merits of the [antitrust] claim unless and until such a claim is advanced by” a
plaintiff with antitrust standing.).
44
  Backhaul is one form of “special access,” and is regulated by the FCC’s “special access rules.”
(Sprint Compl. ¶ 58; see id. ¶¶ 58–62 (criticizing the effectiveness of the FCC’s regulatory
regime).) At least according to counsel for Sprint, the FCC uses the terms “backhaul” and
“special access” interchangeably. (10/24/11 Tr. 65.) This Court will do the same: especially
because the FCC’s regulations do not factor into the Court’s analysis, any distinction between
backhaul and special access is not particularly relevant here. However, the fact that Sprint
makes distinct assertions about backhaul and special access, (see, e.g., Sprint Compl. ¶¶ 149,
179–80), without defining the difference between them is illustrative of the complaint’s
vagueness with regard to this market.
45
     Calls between cellphones are also typically routed through the wireline network.
                                                 39
networks, which they control as “[t]he two remaining [incumbent local exchange carriers

(“ILECs”)] of the old Bell System,” and the backhaul that connects cell sites to those networks.

(Id. ¶ 59.) Indeed, Sprint claims that AT&T and Verizon “are the predominant providers of

[backhaul],” although, crucially, they compete with “some independent telecommunications

firms” that also provide backhaul. (Id.) Specifically, Sprint alleges that “[o]ver 90 percent of all

special access services in the United States, including backhaul, are provided by the ILECs,

primarily AT&T and Verizon.” (Id. ¶ 149.)

        Because it reflects the initial inheritances from the Bell System and the subsequent

mergers among the Baby Bells, the market for backhaul is geographically bifurcated. AT&T and

Verizon have distinct traditional service territories, such that they rarely compete with each other

as backhaul providers. (Id. ¶¶ 134, 177; see also 10/24/11 Tr. 66 (Counsel for Sprint

representing that “AT&T has [a historical legacy incumbent monopoly] in [its] half of the

country.”).) AT&T’s ILEC territory comprises twenty-two states. (Sprint Compl. ¶ 181.) Sprint

alleges that “AT&T has market or monopoly power for backhaul in a number of relevant

geographic markets . . . in its traditional service territor[y].” (Id. ¶ 151.)

        Like Sprint’s claims to antitrust injury in the markets for mobile wireless devices and

roaming, Sprint’s claim to antitrust injury in the market for backhaul alleges that the proposed

acquisition would increase Sprint’s costs for a necessary input. (Id. ¶ 175.) Sprint purchases

backhaul from AT&T. (Id. ¶ 176 (“Sprint pays about $1 billion per year for . . . backhaul,

mostly to AT&T and Verizon.”).) Where these claims differ, however, is with regard to T-

Mobile’s current role in the market. T-Mobile, while not a potential roaming partner for Sprint

due to the incompatibility of their networks, both buys and sells roaming. With regard to

backhaul, by contrast, T-Mobile is only a fellow purchaser.



                                                   40
        Sprint cannot allege, therefore, that the proposed transaction would be a merger-to-

monopoly. By acquiring T-Mobile, AT&T will not gain any backhaul infrastructure, and the

merger would not lead immediately to increased concentration among backhaul suppliers. Sprint

gets there in a roundabout way, though, by alleging first that the acquisition will decrease the

number of backhaul purchasers. Sprint quotes an industry association filing before the FCC

stating that “‘AT&T has indicated that it will move T-Mobile’s backhaul traffic on to its own

transport network wherever possible.’” (Id. ¶ 181.) The same filing states that T-Mobile

currently sources backhaul “‘for approximately 20 percent of its cell sites’” from independent

providers, i.e., not AT&T and not Verizon. (Id. ¶ 181; see id. ¶ 178–79 (describing T-Mobile “as

a purchaser of backhaul with a strong interest in obtaining services from alternative backhaul

providers” and as a source of “business opportunities for competitive providers”).) When the

merger eliminates that demand, Sprint’s theory goes, independent providers will exit the market

and the incentives for entry by new providers will be diminished. (Id. ¶¶ 152, 178–79.) At the

end of this chain of events, the market for backhaul is more concentrated and Sprint will suffer

harm when AT&T and Verizon, no longer checked by rival suppliers, are able to raise their rates.

(Id. ¶ 175.)

        It bears repeating that, as has been established and as defendants concede (see Reply at

2), such an injury would be of the type that the antitrust laws are designed to prevent.46 (See

Section II(A)(2), supra.) Having satisfied the second component of antitrust injury, if Sprint




46
   The parties’ disputes as to the application of cases finding antitrust standing when a competitor
raises its rivals’ costs by means of an anticompetitive act are therefore beside the point. (See
Joint Opp’n at 39–44 (citing, inter alia, Ford Motor Co. v. United States, 405 U.S. 562 (1972);
AlliedSignal, Inc. v. B.F. Goodrich Co., 183 F.3d 568 (7th Cir. 1999); Lucas Auto. Eng’g, Inc. v.
Bridgestone/Firestone Inc., 140 F.3d 1228 (9th Cir. 1998)); Reply at 16–17 (disputing plaintiffs’
characterization of Ford Motor Co.).)
                                                41
stated a claim to threatened injury-in-fact in the backhaul market that was plausible on its face,

Sprint would succeed.

        As it stands, Sprint’s claims fail. Sprint alleges no facts to support its theory that the

elimination of T-Mobile as a purchaser of backhaul will increase concentration among backhaul

sellers by putting the independent providers out of business. Sprint might have described the

independent providers (by more than just name (see Sprint Compl. ¶ 149)) and the local markets

where T-Mobile’s presence as an independent purchaser ensures their survival. Crucially, Sprint

might have provided even rough estimates of the percentage of the independent purchasers’

business that T-Mobile represents.47 Sprint’s complaint, however, says nothing about the sell

side of the market apart from its statements regarding AT&T’s and Verizon’s present market

power and its claims about barriers to entry and expansion. (See id. ¶¶ 149–51, 177–79.) The

Court therefore has no means by which to assess the plausibility of the scenario Sprint suggests.

That the scenario is extreme—positing that the decrease in demand after T-Mobile’s elimination

as a purchaser will be so significant as to be lethal to the independent providers, leading to a

price increase, whereas demand decreases usually coincide with price decreases—only makes

the Court’s task more difficult. At the pleadings stage, Sprint need not supply “detailed factual

allegations,” and yet it must state facts sufficient to “raise a right to relief above the speculative

level.” Twombly, 550 U.S. at 555. Because its complaint leaves so much to conjecture, Sprint

fails to adequately allege a threatened injury-in-fact in the backhaul market. Defendants’ Motion

to Dismiss Sprint is granted as to Sprint’s backhaul claim.




47
  That T-Mobile relies on independent providers for 20 percent of its backhaul needs, (Sprint
Compl. ¶ 181), is irrelevant to how much the independent providers rely on T-Mobile as a
customer.
                                                  42
                                          CONCLUSION

        Time and again, the Supreme Court has emphasized that “‘a district court must retain the

power to insist upon some specificity in pleading before allowing a potentially massive factual

controversy to proceed.’” Id. at 558 (quoting Associated Gen. Contractors, 459 U.S. at 528

n.17). It is no accident that antitrust cases provoke these recitations.

        While perhaps “elusive,”48 the antitrust injury requirement not only aligns private

antitrust enforcement to the aims of the antitrust laws; it also performs the more conventional

function of only allowing plaintiffs to proceed on claims made facially plausible by the

allegation of sufficient facts. Id. at 570; see NicSand, 507 F.3d at 451. It is unsurprising,

therefore, that established precedent forecloses competitors’ claims that challenge a proposed

transaction’s effect on competition without sufficiently alleging the threat of an injury-in-fact

that they face and that is “‘of the type the antitrust laws were designed to prevent.’” Cargill, 479

U.S. at 113 (quoting Brunswick Corp., 429 U.S. at 489). Such claims belong to the government.

But where private plaintiffs have successfully pleaded antitrust injury, the fact that they are

defendants’ competitors is no bar. Cf. id. at 120–22 (rejecting the government’s proposed per se

rule denying competitors standing to challenge acquisitions on the basis of predatory pricing

theories).49




48
  Blue Shield of Va. v. McCready, 457 U.S. 465, 477, 478 (1982); see Ronald W. Davis,
Standing on Shaky Ground: The Strangely Elusive Doctrine of Antitrust Injury, 70 Antitrust L.J.
697 (2003).
49
   “‘[T]he scheme of the [Clayton Act] is sharply to distinguish between Government suits, either
criminal or civil, and private suits for injunctive relief or for treble damages. Different policy
considerations govern each of these. They may proceed simultaneously or in disregard of each
other.’” United States v. Borden Co., 347 U.S. 514, 518–19 (1954) (first alteration in the
original) (quoting United States v. Bendix Home Appliances, 10 F.R.D. 73, 77 (S.D.N.Y. 1949)
(Rifkind, J.)).
                                                  43
       Defendants’ Motion to Dismiss Sprint and Motion to Dismiss Cellular South are both

denied insofar as they challenge plaintiffs’ claims to antitrust injury with regard to the proposed

acquisition’s effects on the market for mobile wireless devices. (See Section II(A)(2), supra.)

Defendants’ Motion to Dismiss Cellular South is denied insofar as it attacks Cellular South’s

antitrust standing to pursue claims regarding the role of Corr Wireless as a purchaser of GSM

roaming. (See Section II(B)(1), supra.) Defendants’ motions are granted as to plaintiffs’

remaining claims.



                                                                 /s/
                                                      ELLEN SEGAL HUVELLE
                                                      United States District Judge


Date: November 2, 2011




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