DOJ CLEARS CISCO’S ACQUISITION OF STARENT

On December 16, 2009, Cisco announced that the DOJ terminated the mandatory waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, with respect to Cisco’s pending acquisition of Starent Networks.

The DOJ chose not to issue a second request to review Cisco’s acquisition of Starent even though the acquisition led to increased concentration in the CDMA radio access market for wireless phones. Some analysts characterized the deal as a 3-2 or that the combined firm would have more than 85% of the market.

There are very formidable competitors in this space such as Huawei Technologies, ZTE, Ericsson, NSN, Juniper Networks and Alcatel Lucent. In addition, smaller companies like Dragonwave and Ceragon Networks participate in some areas of this sector. And the entire wireless IP networking market is filled with start-ups. Moreover, Starent did not seem to have sufficient pricing power to concern regulators. That is, though the firm has a commanding 85% of the CDMA market, this is largely the result of supplying industry behemoth Verizon. But Verizon could turn to other providers if Starent’s product deteriorates or prices were to increase post-acquisition. In other words, Verizon has power in this circumstance. In the past, Verizon relied on Starent but there was some information suggesting that Verizon could use other vendors so it does not appear to be the case that Verizon is totally reliant on Starent. Verizon is the primary customer at issue in this investigation so Verizon’s thoughts on the deal are very important to the antitrust review. Verizon was in favor of the deal. Customers in general including Verizon supported the deal. There was also evidence that the telecoms are moving to 4G and away from CDMA so the CDMA market share is not important.

The decision is noteworthy because it demonstrates that the new administration is not simply investigating every merger that raises concentration levels and that the DOJ staff will still end an investigation early if enough facts demonstrate that no remedies would be required for approval.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com