The Legal Infrastructure of Business

Monopoly in Indian arts and entertainment

Notwithstanding my previous post on a film copyright ownership issue, I saw an outstanding independent movie on iTunes last night. I couldn’t help but wonder why India, my home country, doesn’t produce enough independent movies. I was always under the impression that the public demand for cheesy, run-of-the-mill, “feel good”, romantic, incredible potboilers complete with song-and-dance routines were responsible for walloping independent movies in India. While that is certainly true to an extent, this morning, I stumbled upon an antitrust suit that may explain how “mainstream” cinema producers may actually be stifling independent movies in India.

Ironically, the complaint was not filed by an independent movie producer, but by a big movie producer against another with the Competition Commission of India, a state body responsible for enforcing the Competition Act of 2002, which prevents activities that have an adverse effect on competition. In the suit, the plaintiff alleges that the defendant, a big movie banner, abused its dominant position in the Indian film industry by enforcing an agreement with single screen cinema owners. In this agreement, the defendant distributed a much hyped and anticipated summer film to single screen cinema owners on the condition that these owners would show another film from its production banner and only that film during Diwali, India’s holiday season that begins next week.

The importance of a holiday release cannot be understated, whether in India or in the United States. Moviegoers throng cinema halls with the expectation of catching something good, while producers line up movies by balancing the risk of competition with the reward of increased holiday viewership. In this case, the defendant company intends to eradicate its risk by shutting out its competitors’ films, and reaping the full reward of the holiday season viewership. This surely can’t be the first time a big movie production has used such unfair monopolistic tactics to stifle competition. Nor are these tactics confined to one big production company or the holiday season alone.

Sadly, the biggest losers in this game may not be these big fish producers, but independent movie producers who cop both ends of the stick all year. Independent movies are typically high quality, low key and low budget, regional language films that bank on a few single screen cinemas or multiplexes to showcase themselves and to advertise through word of mouth. Without screen availability, producers almost always have to bear a loss despite great movie offerings, and invariably lose the incentive to produce them at all. From an economic standpoint, that means lost jobs and lost revenues and taxes, and in a huge country like India, that amounts to a lot of money. But this also has huge social costs. Independent movies dissect cultural problems, people’s beliefs and attitudes, government bureaucracies, and a host of other social issues in a way that “mainstream” cinema simply cannot. These movies offer people a chance to rationalize their “feel good” entertainment with a healthy dose of practical reality and call to action. After all, isn’t the purpose of art to inspire people as well?

Despite my philosophical banter, unfortunately, India has a long way to go before it adopts a true meritocratic culture. The loopy laws of this developing country are still heavily biased in the favor of the rich and the powerful. Barriers to entry in all areas, including film making and distribution, remain extraordinarily high, because access to new opportunities is still confined to incumbents and politically well connected entities. I don’t expect this lawsuit to go anywhere. There will probably be an out-of-court settlement between the two warring producers, and a tacit agreement to share the holiday season spoils. That’s it. The poor independent movie producer will remain ignored and shunted forever, and viewers will be forced to consume the same garbage they have been ingesting all along. They will leave the cinema halls thinking they have viewed something very entertaining, simply because they haven’t been supplied anything even remotely subliminal.

That brings me to my questions. Should the arts and entertainment industry be subject to a more stringent and enforceable set of antitrust regulations in a country like India? Should quality and merit dictate distribution of arts and entertainment?

 

References:

http://www.timeslive.co.za/entertainment/movies/2012/11/02/ajay-devgan-yash-raj-films-in-legal-spat-over-film-promotions

http://www.newkerala.com/news/newsplus/worldnews-97093.html

http://www.bollywoodmantra.com/news/ajay-devgn-slapped-legal-notice-on-yash-raj-films/10105/

http://m.timesofindia.com/entertainment/bollywood/news-interviews/A-dummies-guide-to-the-Devgn-YRF-legal-battle/articleshow/17087124.cms

The Boom in Natural Gas Production: Did It Create the Potential for a Natural Monopoly?

In our class on October 15 we discussed natural monopolies, which arise in businesses characterized by very high fixed costs and relatively low marginal costs. These situations sometimes lead to government interventions that secure the recovery of the fixed costs and allow for the existence of regulated monopolies in the marketplace.

The recent leap in the ability to drill for natural gas in the United States have made it possible to use this form of energy as fuel for cars and trucks on a large scale. The problem is that only 992 natural gas fueling stations currently exist in the U.S. as of May 2012. As a comparison, over 120,000 gasoline stations exist in the U.S. Therefore, the network supporting natural gas-fueled vehicles does not currently exist.

Car and truck companies, on their part, have not invested large amounts of capital in natural gas-fueled cars and trucks because there is no network of stations to fuel them. Thus, despite the ‘glut’ in natural gas, the market for natural gas vehicles has yet to take off.

 

Is Natural Gas Economical as Fuel?

Hydraulic fracturing (‘fracking’) has led to a boom in natural gas production. In 2000, nat gas coming from fracking amounted to less than 1% of production in the U.S. In 2010, it was over 20%. The Energy Information Administration (EIA) estimates that this number will climb to 46% by 2035. A recent Rice University study estimated that natural gas supply in the U.S. uncovered by fracking will quadruple by 2040, and a study by Navigant Consulting from 2008 suggests that the U.S. currently has between 88 to 118-years’ worth of nat gas supply assuming current demand levels persist.

Because nat gas is difficult to export across the ocean, the increased supply has stayed in the U.S. and duly led to a collapse in the price per 10,000 British thermal units (BTU). Nat gas prices have rebounded mainly because Chesapeake Energy, a major nat gas producer in the U.S., has deliberately restricted production in order to support the price. Since Chesapeake’s Energy’s decision to restrict production, nat gas prices have doubled. Nevertheless, nat gas production can meaningfully ramp up relatively quickly.

Natural gas is currently cheaper than gasoline and diesel. Given the considerable potential to increase supply, natural gas can become far cheaper than it is, even if demand for nat gas increases more than expected. Nat gas is more environmentally friendly than gasoline. Nat gas is also produced in the U.S., which mitigates the necessity to import oil from other countries. Finally, the technology to manufacture reliable natural gas-fueled vehicles already exists.

 

The Potential Natural Monopoly

The fixed costs associated with building natural gas fueling stations or equipping current gasoline stations with natural gas capabilities are too large for any one private company to absorb. Therefore, for natural gas to become a major fuel source, either a joint venture of several interested companies must emerge to come up with funds, or the government must intervene with a promise to recover these fixed costs.

Currently, the political support for mass-scale government-provided incentives in natural gas fueling stations is not high. Most of the talk has been focused on natural gas-fueled cars. Recently, 22 governors expressed public support for a bipartisan plan for the federal government to provide incentives for automakers to manufacture nat gas-fueled vehicles. This is a bit strange to me, since the major obstacle that prevents private car companies from mass-marketing nat gas-fueled cars is not the lack of ability to build nat gas-fueled cars, but the lack of fueling stations in the U.S.

A more doable plan to address the shortage of natural gas fueling stations focuses only on the long-haul truck market. Long-haul trucks need fewer stations to carry out their routes than consumer cars. Clean Energy Fuels, a private company backed by energy tycoon T. Boone Pickens, is currently building natural gas fueling stations across the nation. The way this company makes money is to sign agreements with state governments and private trucking companies to secure funding of the fixed costs of building nat gas fueling stations and converting diesel engines into natural gas engines.

Because companies like Clean Energy Fuels are not confronting the prohibitive fixed costs of building natural gas fueling stations all at once, they are able to make incremental progress in building a network compatible for natural gas vehicles. Clearly, however, to make major push for natural gas to become a popular fuel, an investment on a much more massive scale is required.

Since it is clear there are societal benefits to switching to natural gas as the fuel of choice for cars and trucks, and that the fixed costs of building fueling stations is prohibitive for any one private company, why hasn’t a government sponsorship gained political traction?

There may be several reasons. One may be the current annual budget deficits, which are enormous by historical standards.

Another may be a concern that the drilling method of fracking, which has propelled the boom in natural gas production, has environmental risks that have yet to be uncovered and that outweigh the environmental benefits of replacing gasoline with natural gas.

Another may be that while gasoline is expensive and polluting, it is not expensive and polluting enough to change the entrenched ‘default’ of using gasoline for transportation. There might not be enough of a ‘crisis’ resulting from the way America is using energy to warrant a change in public opinion and a corresponding political response.

It will be interesting to see if the federal government ever steps in in a major way, and whether any litigation and/or regulation occurs due to perceived ‘unfair’ restrictions on the use of the existing natural gas fueling stations. At least in the commercial truck market, it seems that the price gap between nat gas and diesel, the current default fuel, is already propelling major change. Trucking is a highly cyclical industry, because truck companies make sporadic but large orders for engines when their truck fleets are becoming obsolete. Therefore, I suspect that the paradigm shift in this industry will occur much more suddenly than people expect, whenever the truck renewal cycle turns.

 

 

Links: 

http://online.wsj.com/article/BT-CO-20120123-708083.html

http://www.cngnow.com/Tagged%20PDFs/NaturalGasSupplyAssessment.pdf

http://www.pickensplan.com/about/

http://www.hispanicbusiness.com/2012/9/21/natural_gasfueled_cars_and_trucks_elude.htm

http://online.wsj.com/article/SB10001424052702304707604577422252404819664.html

http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/bp0812_stevens.pdf

http://www.rice.edu/nationalmedia/news2009-05-07-russian_gas.shtml

http://www.americanprogress.org/issues/green/report/2009/08/10/6513/natural-gas-a-bridge-fuel-for-the-21st-century/

http://news.pickuptrucks.com/2012/10/cng-gains-more-state-government-support.html

http://www.cleanenergyfuels.com/annualreport/2011/atglance.html

http://online.wsj.com/article/SB10001424052702304707604577422192910235090.html

 

 

Increasing competition for ComEd monopoly in Chicago

On November 6th 2012, voters in Chicago will go to the polls not only to vote for President but also on a referendum to determine whether to allow city leaders to choose an alternative supplier for the city’s residential and small-business electricity needs.

Historically, the major electricity provider in northeastern Illinois, ComEd (the current provider for 99% of the city's electricity), operated as a government-regulated monopoly whereby ComEd bought electricity from suppliers, sold it to consumers at cost (about 66% of your electricity bill), and also charged for its delivery (about 33% of your electricity bill) which included a profit to them (based on Ramsey pricing) regulated by the state government.

The Supreme Court in Illinois opened its residential electricity market to competition in 2002, allowing new energy providers to enter the market and sell electricity to consumers and businesses. Several companies have entered the market since then including Champion, IGS, and Public Power. The value of opening up the market to competition is that these companies can find and buy electricity from energy generators at a lower cost and from different vendors and new contracts than can ComEd, which is locked into long-term contracts with many of its own suppliers.

Although ComEd will remain the deliverer of the electricity and will charge for that service, and continue to have their delivery rates and profits regulated by the state, its base electricity rate/cost will be for a time higher than these start-ups.

On November 6th, voters in Chicago and many other communities in ComEd’s service territory will be asked whether to allow municipal aggregation of energy. If the referendum passes, Chicago's City Hall will seek bids from alternate suppliers to buy energy in bulk for residential and small-business customers. Basically, it will allow end-users to drive price even lower by buying bulk electricity in a Costco-esque model on top of the potential savings from switching providers. This will be a win for the city and consumers, though neutral for ComEd as the largest provider (it does not impact their profit).

Injecting competition into and chipping away at monopolistic markets, even in highly regulated state monopolies which exist most often for the public good, is always a good thing for consumers and businesses. This referendum is an undeniable movement the right direction.

In terms of competition for electricity rates, the referendum will further reduce prices by allowing the city to buy in bulk (including from the lower-rate new entrants), pushing the market toward stronger competition, higher efficiency, and better business models.

The last nut to crack in the ongoing battle against monopolies, even those run by the state for public benefit, is opening up electricity delivery to competition. Currently, electricity is delivered through a grid (power lines and pilons), operated by ComEd. While legislators and laywers battle over the acceptable profit and legal operating structure for ComEd, some innovator could be working on a new way to transmit and delivery electricity without this grid! (line-less electricity coming next?).

In the meantime, the ongoing battles over the composition and structure of electricity delivery market between consumer advocacy groups, utilities, and the government will continue.

Sources:

http://www.chicagonow.com/your-doubting-thomas/2011/07/tired-of-paying-comed-comed-no-longer-has-monopoly-over-supplying-electricity-in-illinois/

 

http://en.wikipedia.org/wiki/Government-granted_monopoly#Criticism

http://www.suntimes.com/news/15963207-418/chicagoans-powerful-vote-referendum-on-city-buying-electricity.html

http://progressillinois.com/posts/content/2011/03/30/consumer-advocates-battle-comed-rate-hikes

http://www.pluginillinois.org/res.aspx

http://articles.chicagotribune.com/2011-12-28/business/ct-biz-1228-outlook-energy-20111228_1_ameren-illinois-illinois-power-agency-comed

 

MPAA Chief Says SOPA, PIPA ‘Are Dead,’ But ISP Warning Scheme Lives On

In a new attempt to preemptively absolve themselves from any further legal headaches, Internet Service Providers are going beyond warning users about their infringement of copyright law (downloading copyrighted material illegally) and have begun to “punish” these users. The new effort consists of a graduated response to repeat offenders.  The aim is to start by educating people about their violations early on, while progressively instituting measures to deter the ones that did not comply.  This would be done by reducing their bandwidth speed to levels that would make it almost impossible to download large files, such as music of videos.  This said, the ISPs claim that offenses would not result in termination of services.

An additional piece of information is that the effort is apparently going to be  overseen by the Center of Copyright information, which is composed of the major production companies as well as record labels. Additionally, the ISPs that will be participating are some of the largest ones such as AT&T, Cablevision, Comcast, Time Warner, and Verizon, which combined represent a huge percent of the market. This would mean that almost all U.S. internet users would be subject to these warnings and punishments aimed to educate and deter users, but which also be seen as a proactive effort by ISPs to protect themselves. The article also states that if a client wanted to challenge (appeal) a notice of infringement, they would have to pay $35 fee for an independent review by the American Arbitration Association, which makes the warning process feel like an "indictment".   

I found this piece of news interesting because it seems that this issue is still very much alive after almost a decade.  On the heels of the fall of SOPA, PIPA, and other measures that the government attempted to enact to ensure there would be a common legal framework to follow, the ISPs and the copyright owners are working market-based approaches to direct behavior and incentives.  This may end up being the best solution given the resistance to create an absolute legal mandate, which could be too broad and could have serious implication regarding information flow and freedom of speech. All which were Concerns highlighted in Judge Brandeis’ dissent (INS vs. AP 248 U.S. 215 (1918))

_______________________________________________________________________________________

http://www.wired.com/threatlevel/2012/10/dodd-says-sopa-dead/

http://www.cnn.com/2012/10/18/tech/web/copyright-alert-system/

http://www.techhive.com/article/2012055/atandts-six-strikes-antipiracy-policy-launches-in-november-leaked-documents-say.html

http://en.wikipedia.org/wiki/International_News_Service_v._Associated_Press

e-book pricing conspiracy settlement to preclude Apple’s day in court

“This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” Amazon said in a statement.

Over the weekend, Apple and Amazon reportedly informed some customers that they may receive credit for past purchases that were made between April 1, 2010 and May 21, 2012.  Should the proposed settlement between the Department of Justice and several publishers be approved, customers will be partially compensated for buying over-priced books that were a result of collusion affected to break Amazon’s discounting of ebooks.

Apple and publishers Macmillan and Penguin were sued by the U.S. government in April because they chose not to settle their cases along with three other publishers named in the government’s antitrust lawsuit (Simon & Schuster, Hachette Book Group and HarperCollins).  The proposed settlement between the government and the three publishers will create a fund to issue consumers credits.

The crux of the government’s complaint relates to a change in the way that ebooks were priced.  Prior to the pricing agreements (executed right before the iPad three was released), Amazon offered many digital titles at $9.99 each.  This model allowed publishers to negotiate a price with Amazon, but let Amazon price the title to the consumer.  Therefore, Amazon could price some books at or below cost (effectively using ebooks as a loss leader strategy at times).  This presumably had negative impacts on traditional book publishing, with consumers buying the ebook for $9.99 instead of a highly priced hardcover.

The complaint alleges that certain publishers and Apple colluded to change the structure of pricing whereby the publisher would dictate the price an ebook could be offered at (the “agency model”).  This effectively eliminated price competition between Amazon and competitors (or method of delivery).  As a result of the iPad 3, Apple and publishers joined forces to jam the new regime down on Amazon and allegedly fix prices.  The Departement of Justice quoted Steve Jobs explaining how the new system would work and customers would pay more.

With the current settlement set to be approved in February, Simon & Schuster, Hachette Book Group and HarperCollins will all cancel the contracts with the electronic booksellers.  The timing of this settlement will come before Apple and publishers Macmillan and Penguin have the opportunity to defend their actions in court.

Formally, the publishers that are agreeing to the settlement are not admitting any wrongdoing.  Hachette said in an e-mailed statement it wasn’t involved in a price-fixing conspiracy and joined the settlement “reluctantly,” without admitting liability, to avoid costly litigation.  HarperCollins, denying any antitrust breaches, said in an e-mailed statement that it settled to end a “potentially protracted legal battle” (Bloomberg).

Considering the publishers that are agreeing to the settlement are not admitting any wrong doing, it seems counter intuitive that Apple’s model will be destroyed without being vetted in court.  The settlement will effectively destroy the agency model.

On August 15, Apple filed a response to the settlement expressing its dismay that that the court would finalize the settlement before Apple’s side of the story is heard in court.  Apple points out “once its existing contracts are terminated, Apple could not simply reinstate them after prevailing at trial.”  Penguin also filed papers with the court indicating that there is no evidence or analysis that has shown that the public interest will be served by returning to the pre-agency model.

Although it does seem a little unfair to Apple, my sense is that breaking the agency model and restoring price competition is a fine course of action in this case, especially considering Steve Jobs public statements and the effect the collusion has had on consumers.

http://www.bloomberg.com/news/2012-04-11/u-s-sues-apple-for-ebook-pricing-as-three-firms-settle.html

http://online.wsj.com/article/SB10000872396390443749204578055170207536696.html

http://online.wsj.com/article/SB10001424052702304444604577337573054615152.html

http://money.cnn.com/2012/10/15/technology/amazon-apple-ebook-credit/

http://www.computerworlduk.com/news/it-business/3376321/apple-wont-accept-doj-ebooks-price-fixing-settlement-before-day-in-court/

http://www.scribd.com/doc/103019729/Apple-opposes-judgment-settling-with-three-publishers

http://articles.latimes.com/2012/sep/20/business/la-fi-apple-ebooks-20120920

Twitter Censorship

Background

In January Twitter announced that it would work with governments to implement the selective censorship of tweets in some countries, arguing that there are countries that “have different ideas about the contours of freedom of expression. Some differ so much from our ideas that we will not be able to exist there. Others are similar but, for historical or cultural reasons, restrict certain types of content, such as France or Germany, which ban pro-Nazi content.”

Previously, Twitter was only able to block content globally, rather than targeting the country where a law was violated. Now, Twitter can remove content from the specific country, and the content will remain accessible to the rest of the world. Twitter will post a censorship notice anytime the policy is exercised. Activists and dissidents fear that this censorship will stifle free speech and render Twitter no longer useful as a vehicle for social change.

Instances of censorship

On October 18, 2012, Twitter exercised its new policy for the first time. Specifically, Twitter blocked the account of a neo-Nazi group in Germany at request of the local government there.

On October 19, 2012, Twitter withheld an account in Britain, belonging to a right-wing member of the European Parliament for voicing support of discrimination toward gays.

On October 19, 2012, Twitter blocked anti-Semitic in France tweets after the Union of French Jewish Students threatened to take legal action.

Thoughts

As a leader in global social media, Twitter is in a tricky position. On the one hand, Twitter has prided itself on its commitment to free speech, and it is often cited as a key organizational tool for the Arab spring and other uprisings against oppressive regimes. On the other hand, Twitter does not want to antagonize foreign governments by allowing content that breaks the local laws, especially since Twitter has an aggressive agenda for vast growth in active users, which would require expansion into other countries that do not place the same value on free speech.

One must question whether it’s reasonable for Twitter to be responsible for the removal of the illegal content in countries where they have no employees. Though I am not fully familiar will the laws surrounding these issues, it stands to reason that if a user posts content on a website that breaks a country’s law and the website does not operate out of that country, then it should be that country’s responsibility to either allow that website to be accessible to its people, or to censor it. Despite the fact that Twitter does not independently police the content, perhaps it is unreasonable to expect that it readily responds to the demands of governments. In some ways, it seems that Twitter’s policies allow quite the win-win for some countries. That is, in many cases, these countries do not want to be seen as censoring their citizens, so blocking Twitter entirely looks bad, but now censorship falls to Twitter, so the governments themselves are once removed from the censorship. Thus, governments are able to seem like they are not really censoring their citizens, but really, they are censoring their citizens.

On the surface Twitter’s censorship policies seem to stifle free speech and activism, but the alternative may be worse. If Twitter refuses to comply with the laws of a given country, it is likely that the country will censor Twitter in its entirety. At least with the current policy, the rest of the world can hear activists, all while knowing which governments are regularly censoring. The increased transparency of Twitter’s policies goes a long way in striking a balance between upholding free speech and respecting local laws, all while continuing to expand Twitter’s user base. Additionally, in practice, Twitter has not made it particularly difficult to circumvent the censorship, and there is much speculation that the simple loopholes that remain were not an accident. It will be interesting to see how governments who seek to limit the content available to its citizens will respond to the implementation of the new policies. 

Sources:

http://www.npr.org/2012/10/20/163315105/french-tweet-sweep-shows-twitters-local-struggles

http://www.npr.org/blogs/thetwo-way/2012/10/19/163243194/twitter-blocks-offensive-accounts-in-germany-u-k-deletes-tweets-in-france

http://blog.twitter.com/2012/01/tweets-still-must-flow.html

http://www.nbcnews.com/technology/technolog/twitter-censorship-policy-leads-boycott-84791

http://thenextweb.com/twitter/2012/01/27/worried-about-possible-restrictions-on-twitter-heres-how-to-get-around-them/

 

 

UPS's Acquisition of TNT Express NV

In March 2012, United Parcel Service (UPS) agreed to buy TNT Express NV (TNT) for $6.7 billion.  On October 19, 2012, UPS and TNT received a Statement of Objections (SO) from the European Commission (EC) addressing the competitive effects of the intended merger on the international express small package market in Europe.  While UPS and TNT are not able to disclose the particular objections, the EU has indicated it will be investigating the impacts the decreasing competition will have on prices and routes. 

Background

The express package delivery business is dominated by four companies: UPS, FedEx, DHL and TNT.  UPS and FedEx are US-based companies and both dominate the US market.  DHL and TNT are European-based.  DHL has a 32% market share in Germany, 50% in Central Europe and 40% in Asia.  TNT is the smallest of the four dominant competitors and the market leader in only two European countries – the UK and Italy.  Already the largest package-delivery company, UPS’s acquisition of TNT would double its size in Europe and put it on equal footing with DHL, the current market leader. 

Given the increasing importance of express-package services and that there already are only a few competitors, EU regulators are concerned that there is too little competition on forcing players to maintain competitive pricing.  Of the four companies listed above, TNT is the low-cost option and removing it would not alleviate these concerns.  Joaquin Almunia, the EC's commissioner for competition, recently remarked, "Let me stress that many European companies use parcel express delivery services as part of their logistic chains, notably for cross-border shipments.  Therefore, it is important that the prices of these services remain constrained by vigorous competition."  Additionally, EU regulators are concerned that the potential acquisition would create a lack of competition on routes between Europe’s southern periphery and other peripheral areas. 

The EU has stated that it will be focusing on only the global integrators market (consisting of mainly UPS, FedEx, DHL and TNT), which is comprised of companies who guarantee overnight on-time deliveries of shipments through a network of hubs and depots that combine the use of trucks and planes.  Therefore, the newly formed UPS/TNT entity’s only true competitor would be DHL.  The EU is also assessing the potential merger on a country-by-country and even route-per-route basis to address worries that the new entity will have even greater dominance in certain countries as the Netherlands and Belgium than when looking at its market share for Europe as a whole.  However, UPS strongly disagrees with the EU’s narrow definition of the market and argues that there are far more than three competitors in Europe.  The UPS CEO recently stated that there are 13,000 registered courier companies in Europe and that the European market is “a very fragmented market and there are inefficiencies in the marketplace.”  According to the Wall Street Journal, research supports UPS’s view that there is increased competition in the fast-delivery segment, particularly from national postal services, airlines and freight-forwarders.   Airlines and freight-forwarders are becoming increasingly competitive as they are seeking to find new ways to utilize their spare capacity as Europe’s economic growth slows.      

Thoughts

One of my main questions is why the EU is choosing to take such a narrow view on its definition of the market.  As stated above, research shows that the global integrators are facing competition from multiple sources – national post, airlines and freight-forwarders.  All of these businesses have the necessary distribution infrastructure (planes, trucks, distribution hubs) required to compete in the express-package market.  While national posts may not currently guarantee overnight delivery, it seems very plausible that they could offer this as more and more businesses and consumers demand this type of service.  Why not include them in their examination of the market?                     

In the event that the acquisition is not consummated due to demands or concerns from the EU regarding competition, what does the EU think are alternatives for TNT?  TNT is losing money and is struggling to compete with DHL in Europe.  Recent reports state that TNT needs a partner with a strong balance sheet and a strategic angle to enable it to continue operating.  Its declining performance is a key reason it agreed to be acquired by UPS.   While the EU is right to worry about the lack of competition in the global integration market, shouldn’t the reality that the Company may cease operations if the UPS deal is not completed be given consideration?  If TNT ceased operating, DHL would effectively have sole control over the European express-package market and have much greater ability to control prices.  Also, if UPS doesn’t buy TNT, the only other likely buyer would be FedEx which doesn’t solve any of the EU’s problems with the UPS deal.    

http://www.ft.com/intl/cms/s/0/11b62e10-1a33-11e2-9922-00144feabdc0.html#axzz29zbGSwSL

http://www.economist.com/node/21561894

http://www.ups.com/pressroom/us/press_releases/press_release/Press+Releases/Current+Press+Releases/ci.United+Parcel+Service+and+TNT+Express+Receive+Statement+of+Objections.syndication

http://postandparcel.info/51001/news/companies/eu-ups-tnt-merger-depends-on-fedex-and-dhl-ability-to-compete/

http://online.wsj.com/article/SB10000872396390444165804578010010005188592.html