When I ask people I know in the Trump camp how he would handle antitrust, the answer has usually been, “I have no idea.” And I generally share that view. I don’t know.
Today we got more than a hint. The Trump Antitrust Division, led by Acting Assistant Attorney General Omeed A. Assefi, sued to block a $14 billion merger between two large technology firms, Hewlett Packard Enterprises (HPE) and Juniper. Along with Cisco, these two companies control 70% of the wireless networking equipment space – think the enterprise-level equipment and software that universities and large corporate campuses use to build WiFi. It used to be quite rare to block a multi-billion dollar merger, a legacy defining moment for an antitrust leader. But now it’s routine.
So what’s the case for blocking the HPE-Juniper tie-up? It’s pretty simple – it’s wildly illegal. There are three major players in this important market, and combining HPE and Juniper will reduce that to two. Prices will go up and quality will go down. The remaining two players, Cisco and HPE, will sit fat and happy collecting rent, until Chinese firms are so much better and cheaper they will dominate the global market.
Last year, when the merger was announced, customers, aka IT managers who have to run big WiFi networks, watched in mild trepidation. Such buyers frequently choose between HPE, whose key product line is named Aruba, and Juniper, who sells a system called Mist. And Mist, a newer entrant, has forced down prices and increased quality across the space, with HPE doing heavy discounts in bidding wars to win back customers. Without that competitive discipline, customers fear bad quality and discontinued business lines. Here’s an image one customer put on his blog to illustrate how HPE handles its product line in the space.
And that’s why the Antitrust Division acted, because it’s one of those deals that probably shouldn’t have gotten out of the board room. “HPE and Juniper are successful companies. But rather than continue to compete as rivals in the WLAN marketplace, they seek to consolidate — increasing concentration in an already concentrated market,” Assefi said in the DOJ press release. “The threat this merger poses is not theoretical. Vital industries in our country — including American hospitals and small businesses — rely on wireless networks to complete their missions.”
The case itself is built on three of the 2023 merger guidelines. The merger would radically increase concentration (guideline one), it would end head-to-head competition (guideline two), and it would make it easier for the remaining players to coordinate as a de facto cartel by coordinating their pricing (guideline three).
HPE and Mist were head-to-head competitors. For years, Cisco and HPE have led the sector, but Juniper’s Mist has rapidly ascended with a focus on artificial intelligence and machine learning tools (“AIOps”). HPE executives watched nervously, and even launched a “Beat Mist!” campaign internally across their engineering and sales teams. They also rapidly sought to improve their product with a new version of network management software.
For instance, in late December 2023, HPE’s former Head of Software Development, discussing Juniper’s competition for college and university customers, explained, “I (we) fully recognize the MIST threat for Aruba [worldwide] and have done so for a long time. . . . The risk is real and NOW. We need to put CNX in the hands of the customers NOW.”
There are going to be a lot of angry libertarians and antitrust lawyers who are going to talk about how the Antitrust Division is helping China by not allowing these two great companies to combine. But the truth is that such a merger would be bad for America. HPE and Juniper compete over pricing, features, and service, and such a merger would, as consolidation did for Boeing and Intel, lead to stagnation and failure. The fight for more innovation is particularly important, because Chinese tech giant Huawei is a fierce competitor in the space, and though it can’t sell in the U.S. due to security concerns, having nimble domestic companies is important in terms of ensuring the U.S. is competitive in technology globally.
At any rate, the bottom line is that sources have been telling me about this deal for months, and how annoyed big customers were. But if you want to read a very annoyed IT guy explaining the anger among colleagues who have to set up wireless access networks, well, here you go, along with another image he provided.
So what does this merger challenge mean more broadly? Well, there are strong reasons to assume the new administration will roll back the more assertive posture of the Biden era. Since Trump’s win, Wall Street has been jubilant, and many of Trump’s backers dislike antitrust law. There are stories virtually every day about lawyers and speculators betting on a return to consolidation, as well as announced deals held back by the Biden enforcers. For instance, yesterday Bloomberg quoted Tom Savage, a portfolio manager at Picton Mahoney Asset Management in an interview, saying that “regulatory headwinds are gone.”
Yet, there are also reasons to think there will be some continuity between Biden’s more assertive pose and this new administration. The basic reason is that Biden in part built on what Trump did. In 2020, Trump initiated the revival of monopolization law by filing suits against Google and Facebook, and did challenge the AT&T-Time Warner merger in 2018. Biden’s elevated activity included winning the Google suit. This time, Trump also appointed enforcement minded lawyer Gail Slater to run the Antitrust Division. And his Federal Trade Commission Chair, Andrew Ferguson, has said that the new 2023 merger guidelines could be retained.
So which is correct? I don’t know. But on this deal, score one for a more competitive economy.
Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. Or if you work for or adjacent to a monopoly and have interesting confidential stuff to share, go ahead and do that. If you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.
cheers,
Matt Stoller