Archive for category merger
Last week, President Obama named Tom Wheeler of Core Capital Partners to be Chairman of the Federal Communications Commission (FCC). Interested parties of all types, from hedge fund managers to Silicon Valley entrepreneurs, are pondering how Mr. Wheeler will manage the agency and what he’ll focus on.
A look back at his musings on a personal blog (aptly named Mobile Musings) and on his more formal writings as chairman of an advisory committee to the FCC may provide some insights. Out of the gate, Mr. Wheeler will be confronted with several pressing issues, ranging from the FCC’s merger-review authority to the broadcast-spectrum auctions to net neutrality to the IP transition.
When it comes to drawing the limits of the FCC’s authority, I have argued that where the conduct under scrutiny fits squarely within the four corners of antitrust (such as mergers), the FCC should take a backseat to the antitrust agencies; for conduct that is not easily recognized as an antitrust violation (such as discrimination by a vertically integrated network owner), the FCC should take the lead. Does Mr. Wheeler agree?
Before the Department of Justice (DOJ) moved to block the AT&T/T-Mobile merger, in April 2011 Mr. Wheeler suggested in his blog that the FCC could regulate the wireless industry via merger-related conditions:
The Communications Act, however, does not prohibit the regulation of the ‘terms and conditions’ of wireless offerings, nor does it prohibit the FCC from imposing merger terms and spectrum auction rules that might seem to be regulation in another guise. It is this authority which offers the Federal government the opportunity to impose on AT&T merger conditions that could define the four corners of wireless regulation going forward; rules that would ultimately impact all wireless carriers.
Shortly after the DOJ filed its complaint in September 2011, Mr. Wheeler opined:
. . . absent a new vehicle the regulation of marketplace behavior that has characterized telecom regulation for almost a century is headed towards the same fate as the dial tone – another fatality of digital zeroes and ones. This trend could have been reversed by the conditions imposed by the government on an AT&T/T-Mobile merger. Skirting the regulatory authority issue in favor of a more flexible public interest standard, AT&T and the FCC/Justice Department would simply agree via a consent decree to pseudo-regulatory behavioral standards.
Keeping the FCC relevant in the evolving telecom landscape is certainly one consideration. But so long as the FCC can impose behavioral remedies on merging parties to promote the public interest, anything goes, including regulation that is wholly disconnected from the merger. Although mergers might generate effects that are not recognized as antitrust harms, there is little chance that a merger would escape antitrust scrutiny. This suggests a more limited role for the FCC when it comes to merger review.
As explained in my new book with Robert Litan, the FCC’s discretion to hold up telecom mergers in return for behavioral remedies invites “rent seeking” activity by competitors, who use the FCC’s merger review as a basis to lobby for welfare-reducing obligations on their rivals. Unless this discretion is removed by Congress, we must hope for a magnanimous regulator at the FCC to waive his discretion—an unlikely outcome given that discretion is a regulator’s currency in Washington. Mr. Litan gently reminded me during a C-SPAN interview that one regulator, Fred Kahn, ceded his discretion while heading the Civil Aeronautics Board. Based on his blog musings, it seems unlikely that Mr. Wheeler will do the same.
Broadcast Spectrum Auction
The first order of business on the auction front is deciding who can participate in the broadcast-spectrum auction and to what extent. In April of this year, the DOJ weighed into this debate by advocating “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum.” It’s not clear whether the DOJ would support barring AT&T and Verizon from the auction entirely, but for those contemplating that idea, consider these consequences: According to a study released last week by Georgetown’s McDonough School of Business, auction revenues would decline by as much as 40 percent as the demand for spectrum artificially contracts, and monthly wireless bills would increase by about 9 percent as capacity-constrained carriers are forced to deploy more expensive solutions.
Fortunately, the pure-exclusion option appears to have little support among policymakers. In his departing speech last week, outgoing Chairman Genachowski advocated a balanced approach in which all four major wireless carriers would have a reasonable chance to expand their spectrum holdings, noting that “even the largest cellphone carriers need access to more airwaves to meet their customers’ booming demand for mobile data.” Regulators might look to the recent UK spectrum auction, in which the regulator (Ofcom) imposed modest caps on the amount of additional low-frequency bands that the two largest providers (Vodafone and O2) were allowed to buy—they already owned significant amounts of that spectrum before the auction—rather than bar those firms from bidding entirely.
Should the FCC follow this path, Mr. Wheeler will hopefully recognize the oncoming battle between wireless and wireline Internet providers, which militates toward a slightly more concentrated wireless industry in exchange for more intense inter-modal broadband competition.
On the net neutrality front, the FCC is awaiting a decision from a court of appeals on whether the agency overstepped its jurisdiction in its 2010 Open Internet Order. The first order of business is determining whether the FCC has the power to regulate Internet access providers. The second order of business is how best to regulate discrimination on the Internet when it rears its ugly head.
As Federal Trade Commissioner (FTC) commissioner Josh Wright correctly explained in a recent speech at George Mason, the FCC erred in the Open Internet Order by treating discrimination by vertically integrated network owners as a per se violation, in contrast to the “rule of reason” treatment afforded to similar “vertical restraints” under the antitrust laws. Mr. Wright advocates that the FTC (and not the FCC) police such conduct under the antitrust laws, arguing that the FTC is less susceptible to political influence than the FCC, and that the FTC has related experience with case-by-case enforcement of vertical restraints.
This is a debate deserving of more attention: Mr. Litan and I argue that the FCC is the better place to police discrimination on the Internet, noting that the agency currently adjudicates discrimination complaints in the video space, and that discrimination of this sort—for example, favoring an affiliated website or application over an independent one—is not an obvious antitrust violation and may generate a harm (reduced innovation) that is not easily proven under stringent antitrust standards.
While Mr. Wheeler likely would seek to maintain the FCC’s power to regulate Internet providers, it is not clear whether he embraces the per se prohibition of discrimination in the FCC’s Open Internet Order. A blog from November 2009, roughly one year before the Open Internet Order was adopted, suggests some moderation here, as least as to whether net neutrality applies to wireless networks:
Rules that recognize the unique characteristics of a spectrum-based service and allow for reasonable network management would seem to be more important than the philosophical debate over whether there should be rules at all.
A final hot topic in telecom circles is whether to release telcos from so-called “legacy regulations” that require them to maintain two separate networks: a copper network and an IP network. A related issue is whether to extend the FCC’s wholesale-access obligations to newly packetized IP networks.
The telcos argue that they could compete more effectively against cable operators if resources currently tied up in maintaining copper networks could be allocated to IP networks. On the other side, resellers argue that a wind-down of the telcos’ copper networks might strand these entrants’ investments in copper-based equipment, thereby raising the entrants’ costs to keep up with the IP transition. These raising-rival-cost arguments assume that resellers impose significant price-disciplining effects on the telcos’ broadband services, even in a world where cable operators compete with telcos for broadband services aimed at businesses.
On this policy debate, Mr. Wheeler’s findings as chairman of an advisory committee to the FCC provide a strong hint as to where he might land. In a June 2011 presentation of the Technical Advisory Committee, Mr. Wheeler explained that the old Public Switched Telephone Network (PSTN) would collapse under its own weight:
As the number of subscribers on the PSTN falls, the cost per remaining customer increases and the overall burden of maintaining the PSTN becomes untenable. A fast transition can generate significant economic activity and at the same time lower the total cost.
The Committee recommended that the legacy copper network should be sunset by 2018.
As the fine print in any investment prospectus repeatedly warns us, past performance is no guarantee of future returns. The same lesson is likely true for the Chairman of the FCC: Past writings cannot serve as a perfect predictor for future policies. But they certainly provide a clue.
With InBev Suit, Feds Fight To Keep Beer Cheap For Young Blue-Collar Men. Maybe That’s Not A Good Idea.
Last week, the Department of Justice sued to block the merger of Anheuser Busch InBEV (“ABI”) and Grupo Modelo (“Modelo”). The coming battle between the antitrust agency and the merging parties could raise several important issues for merger review, including the role of entrants (craft beer makers) and negative externalities (associated with consuming beer).
ABI, the maker of Bud, Bud Light, and Busch, already owns 35 percent of Modelo; the DOJ’s lawsuit seeks to keep ABI’s share right there. For those who haven’t carefully studied the back of their Mexican beer bottles, Modelo is the maker of popular Mexican imports such as Corona Extra, Corona Light, and Pacifico.
ABI’s “partial ownership” of Modelo is no small detail; it complicates the DOJ’s analysis relative to a garden-variety merger analysis. Writing in the Antitrust Law Journal, Salop and O’Brien explain that the “competitive effects of partial ownership depend critically on two separate and distinct elements: financial interest and corporate control.” Depending on those variables, partial mergers “can occur in ways that result in greater or lower harm to competition than a complete merger.” The implication of their finding is that a movement from a partial merger to a complete one could raise or lower prices.
The DOJ’s complaint doesn’t tell us much about the nature of ABI’s existing control over Modelo, except for noting that ABI’s annual report claims that ABI does not have “effective control” over Modelo. Despite this disclaimer and despite the “firewalls” designed to prevent ABI members of Modelo’s board learning about pricing information, it is possible that ABI exerts some influence over Modelo’s decision-making. Setting aside the degree of ABI’s control over Modelo’s prices, economic theory predicts that ABI’s financial interest in Modelo could affect ABI’s prices. The question is whether a full transfer of ownership would really make things worse.
The DOJ’s primary theory of harm is that the merger would facilitate coordinated pricing between ABI and MillerCoors, the second largest beer manufacturer in the United States. According to the complaint, ABI and MillerCoors have been forced to discount their prices to discourage consumers from “trading up” to Modelo brands; take away Modelo’s aggressive pricing and the industry leaders could better coordinate their price increases. Secondarily, the DOJ argues that the merger would permit ABI to unilaterally raise its prices without concern about customer defection to Modelo’s brands.
One bone of contention between the dueling antitrust experts will be the likely role of “craft beers” or microbrews in the coming years. To the extent that craft beers play a larger role in the near future—one estimate suggests that craft beers currently account for six percent of all sales but are growing at 13 percent—then a merger of two “low-end” labels is not as important for consumers. According to the Brewers Association, there were 2,000 U.S. breweries in operation by the end of 2012, and there are another 1,000 in the planning stage; the expansion of microbreweries suggests a “shift in the palate” of U.S. beer consumers toward craft beers. With this backdrop, the combination of two low-end brands might not generate much pricing power.
To be fair, ABI has some high-end labels, such as Stella Artois and Beck’s, and craft beers such as Goose Island and Shock Top. But these brands are drowned out in a sea of differentiated flavors, including popular brews such as Abita, Lagunitas, and Shiner. There is an exciting microbrew story in nearly every state—for example, you can’t visit the Blue Ridge region of Virginia without stopping at Devils’ Backbone (Roseland) or Blue Mountain Brewery (Afton).
The DOJ’s discussion of the proposed “relevant product market” is good reading. Apparently, ABI’s Bud Light Lime-a-Rita sits within the “premium plus” category. Where I come from, serving a margarita in an aluminum can is blasphemy. The agency asserts that all segments of the beer industry—from the “sub-premium” segment to “high-end”—compete in the same product market: Query whether sub-premium beers or even the “premium” segment are not constrained by the price of water, the closest available substitute. Craft beers are mentioned in passing only.
The key demographic for low-priced beer drinkers is blue-collar males in their 20s, who might shy away from the premium prices commanded by craft beers. Presumably, the DOJ’s lawsuit aims to protect these drinkers. Given the negative externalities associated with consuming alcohol, however, the movement to higher priced, heavier-tasting, craft beers that are not guzzled like Mad Dog might not be a bad thing. Which leads to one to wonder: Should the supply of beer be competitive or should we tolerate a little market power along with reduced levels of consumption?
If the DOJ has its way and blocks this merger—and if the agency is right about the likely price effects—then we will get more alcohol consumption relative to a world in which ABI owns 100 percent of Modelo. Be careful what you wish for.
Yesterday, AT&T announced it was halting its plan to acquire T-Mobile. Presumably AT&T did not think it could prevail in defending the merger in two places simultaneously—one before a federal district court judge (to defend against the DOJ’s case) and another before an administrative law judge (to defend against the FCC’s case). Staff at both agencies appeared intractable in their opposition. AT&T’s option of defending cases sequentially, first against the DOJ then against the FCC, was removed by the DOJ’s threat to withdraw its complaint unless AT&T re-submit its merger application to the FCC. The FCC rarely makes a major license-transfer decision without the green light from the DOJ on antitrust issues. Instead, the FCC typically piles on conditions to transfer value created by the merger to complaining parties after the DOJ has approved a merger. Prevailing first against the DOJ would have rendered the FCC’s opposition moot.
The FCC’s case against the merger was weak. I have already blogged about the FCC’s Staff Report, but one point is worth revisiting as we digest the fate of T-Mobile’s spectrum: The FCC placed a huge bet on the cable companies’ breathing life into a floundering firm. In particular, the Staff Report cited a prospective wholesale arrangement between Cablevision and T-Mobile as evidence that some alternative suitor—whose name did not rhyme with “Amy and tea” or “her eyes on”—could preserve the number of actual competitors in the marketplace. However, within days of the FCC’s placing its bet on the cable industry, Verizon announced its intention to gobble up the spectrum of Comcast, Time Warner, and Bright House. Over the weekend, Verizon declared its purchase of spectrum from Cox. To be fair, Verizon’s acquisition does not preclude T-Mobile and Cablevision from entering into some spectrum-sharing arrangement; let’s not hold our breath.
This episode highlights the danger of regulators’ industrial engineering: The wireless marketplace is so dynamic that a seemingly reasonable bet by an agency was revealed to be a stunning loser in just a matter of days. By virtue of AT&T’s “winning the auction” for T-Mobile’s assets—Deutsche Telekom, T-Mobile’s parent, is leaving the American wireless industry one way or another—the marketplace selected the most efficient suitor for T-Mobile. If the cable companies or some other suitor were interested in entering the wireless industry, then presumably they would have stepped forward when T-Mobile was still on the open market.
Can you blame the cable companies for their lack of interest in wireless? Who wants to enter an industry with declining prices that requires billions in network investment that cannot be re-deployed elsewhere in the event of a loss? When asked what Deutsche Telekom plans to do with its U.S. assets now that the AT&T deal has unraveled, a company spokesman said: “There’s no Plan B. We’re back at the starting point.” Such gloom is hard to reconcile with the FCC’s belief that a viable suitor is lurking in the background.
Short of Google’s or DISH Network’s or some non-communications giant’s swooping down in the coming days, the net costs of the FCC’s risky intervention will begin to mount. The ostensible benefits of intervention were to prevent a price increase and to preserve the cable companies’ play on T-Mobile’s spectrum. The second benefit has evaporated and the first benefit was never proven in the FCC’s Staff Report. On the cost side of the ledger, AT&T’s customers will soon experience increased congestion as their demand for wireless video and other bandwidth-intensive applications outstrip the capacity of AT&T’s network. And T-Mobile’s customers will never get to experience 4G in all its glory. (Deutsche Telekom has little incentive to upgrade a network it plans to sell.) The FCC has certainly capped AT&T’s spectrum holdings in place, but has the agency advanced the public interest?
Geoff Manne’s blog on the FCC’s Staff Analysis and Findings (“Staff Report”) has inspired me to come up with a top ten list. The Staff Report relies heavily on concentration indices to make inferences about a carrier’s pricing power, even though direct evidence of pricing power is available (and points in the opposite direction). In this post, I have chosen ten lines from the Staff Report that reveal the weakness of the economic analysis and suggest a potential regulatory agenda. It is clear that the staff want T-Mobile’s spectrum to land in the hands of a suitor other than AT&T—the government apparently can allocate scare resources better than the market—and that the report’s authors define the public interest as locking AT&T’s spectrum holdings in place.
Top Ten Lines in the Staff Report
- “While there is more to establishing likely competitive harms than measuring market and spectrum concentration, these [concentration] metrics shed light on the scope and scale of the competition that would be eliminated by the proposed transaction.” Staff Report, para. 17. An important admission. The staff is signaling that the merger analysis cannot begin and end with a concentration analysis. The Staff Report fails to explain, however, what more is needed to establish anticompetitive effects. The answer is direct evidence that the merging firms significantly constrain each other’s ability to raise prices. And the Staff Report fails on this score.
- “Second, the proposed transaction would result in the elimination of a nationwide rival that has played the role of a disruptive competitive force in the marketplace.” Staff Report, para. 17. Setting aside the weakness of the claim that T-Mobile—the only major carrier to lose subscribers in 2010—is a disruptive force, the Staff Report fails to explain how T-Mobile’s supposed disruption has anything to do with the instant merger. Is the staff saying that T-Mobile is so disruptive and so irreplaceable that any merger eliminating T-Mobile would be anticompetitive? The Staff Report’s “disruptive” evidence, chronicled from paragraphs 21 through 28, could be regurgitated in a Sprint/T-Mobile merger review or in a Leap/T-Mobile review. Would those mergers be presumptively anticompetitive as well? Critically, the evidence of T-Mobile being a disruptive force does not speak to the issue of whether T-Mobile constrains the price of AT&T.
- “Market concentration statistics of the type generated by this transaction commonly indicate that buyers would have fewer viable choices, making both unilateral and coordinated competitive effects more likely.” Whether concentration statistics indicate anticompetitive effects in general or in a hypothetical U.S. market is beside the point. What matters here is whether concentration statistics are a good predictor of higher wireless prices. And the answer is a resounding no. As the former chief economist of the FCC has noted in a forthcoming paper, wireless concentration is negatively correlated with wireless prices. At a minimum, the FCC should note this finding—the abstract has been viewed nearly 1500 times and the full paper has been downloaded 250 times from SSRN—and provide the proper caveats to any concentration analysis they conduct regarding the wireless industry.
- “Although T-Mobile faces challenges as the industry develops and responds to the increasing data demands of consumers, the record does not support the bleak short-term outlook for T-Mobile that AT&T has portrayed in its submissions.” Staff Report, para. 22. To say that T-Mobile faces challenges is an understatement: T-Mobile is uniquely losing subscribers and its German owners want out of the U.S. market. How can the agency better predict the short-term outlook for T-Mobile? Is there a crystal ball in the FCC’s basement? If the short-term were as rosy as the agency suggests, then why would T-Mobile’s owners—who presumably have the best vantage on the firm’s future performance—seek a buyer right before a turnaround in performance?
- “These initiatives [announced by T-Mobile’s CEO before the transaction] might have strengthened T-Mobile’s disruptive role in the industry, for example by highlighting its unlimited data plans, and using them to define its brand and differentiate it from rival brands that have adopted tiered pricing.” Staff Report, para. 23. How can T-Mobile go from a disruptive force to an even stronger disruptive force? You can’t be half-pregnant, and you can’t be half-disruptive. It seems that the Staff Report is now saying that T-Mobile would have been disruptive but for the transaction, which caused T-Mobile to abandon these really stupendous plans. According to footnote 61, these initiatives were announced in a T-Mobile press release on January 20, 2011. But the agency doesn’t bother to see how the market reacted to these initiates. It is curious that the agency would stake its disruptive claims on something so speculative.
- “T-Mobile has also repeatedly acted as a pricing innovator over the past few years, introducing offers such as . . . T-Mobile introduced a simple online tool that allows a subscriber to manage all services on a multi-line family plan, for example, setting and changing the limits for minutes, messages and downloads (e.g., games, ring tones) on a child’s line.” Staff Report, para. 24. According to the Staff Report, this “innovation” is among the seven most disruptive offerings from T-Mobile since 2007. Seriously? Is this impressive to anyone out there? Even assuming T-Mobile was the first to allow wireless users to adjust their settings online, how in the world did that constrain AT&T’s ability to set prices? The other innovations cited in the Staff Report are equally unimpressive. How well did that Unlimited Hotspot Calling or T-Mobile Hotspot @Home work out? If none of the major carriers embrace an offering like those, can we safely infer that they weren’t so innovative? If you want to make free Wi-Fi calls on your phone, download Viber. Yawn.
- “[O]ur analysis of the record reflects that T-Mobile charges lower prices than the other nationwide firms.” Staff Report, para. 25. Apparently, the staff doesn’t want you to know that T-Mobile had its legs cut out by regional carriers such as Leap and MetroPCS. Indeed, T-Mobile’s executives have admitted as much publicly, explaining how it was caught between the high-end service of AT&T and Verizon and the low-end, no-frills service of Leap and MetroPCS. And no firm wants to be caught in the middle of the road. Speaking of being caught, the staff should not offer such misleading statistics. To make things concrete, in Washington D.C., T-Mobile offers a $39.99 per month plan that includes 500 minutes of voice and no text messages. In comparison, Leap offers a $35 per month plan that has unlimited voice minutes and includes text messages. But the Staff Report wouldn’t count Leap’s offering because Leap is not a “national” carrier, despite Leap’s offering wireless service in 35 states covering 100 million people.
- “T-Mobile expressed interest [in selling wholesale access to Cablevision], had previously exhibited a willingness to sell wholesale mobile wireless capacity, and, in Cablevision’s view, was likely to continue to have excess capacity it could use to serve Cablevision’s customers in the future. Although the outcome of any negotiation is uncertain, a deal between Cablevision and T-Mobile appeared to be beneficial to both parties.” Staff Report, para. 28. The staff here wants us to believe that in addition to the proposed merger undercutting T-Mobile’s initiatives to revamp the firm, the proposed transaction would undercut a prospective deal with Cablevision that would ostensibly bring benefits to Cablevision’s customers in parts of New York, New Jersey, and Connecticut. Well now this all makes sense: Stop a merger that could generate benefits to AT&T’s and T-Mobile’s nationwide customers to preserve Cablevision’s option to offer a quad-play to its customers in three states. Cudos to the cable lobbyists for getting their client’s concerns front and center in the FCC’s merger analysis. Setting aside the uncertainty surrounding the actual wholesale discussion that Cablevision and T-Mobile may or may not have entertained, the Staff Report suggests incorrectly that Cablevision depends uniquely on T-Mobile for spectrum, and that Cablevision’s customers would benefit significantly from having a sixth or seventh wireless option. As further evidence of how out of touch the Staff Report is from market realities, Verizon just announced that it was purchasing all of the AWS spectrum held by several cable companies, a market reality inconsistent with the staff’s views that T-Mobile’s innovative future lay in partnerships with cable companies.
- “Combined, these five regional providers accounted for approximately six percent of the industry’s total subscribers and revenues at the end of 2010. None of these providers’ networks cover more than 34 percent of the U.S. population, and for most their more advanced broadband networks are smaller.” Staff Report, para. 38. Because these regional providers do not have the potential to serve 100 percent of the U.S. population, it makes no sense to denominate their size in terms of nationwide subscribers. Doing so necessarily understates their importance in the local markets they serve. By way of analogy, Comcast’s in-region share of video subscribers or “video penetration” is roughly 44 percent, whereas its share of nationwide video subscribers is roughly 25 percent. Of course, the latter statistic bears no relation to Comcast’s pricing power. Moreover, while Leap or MetroPCS alone do not cover a majority of the nation, their roaming agreement (and complementary footprints) allows each firm to provide nationwide coverage. Again, the Staff Report appears to be playing fast and loose with the data.
- “AT&T’s unilateral incentive to raise price in this case arises because providers sell differentiated products, and many of AT&T’s customers view T-Mobile as their second choice at current prices. . . . Local number porting data (data on where customers go when they switch wireless providers while keeping their phone number) indicate that each of them [the major carriers] has customers who view T-Mobile products as their second choice.” Staff Report, para. 50. What does “many” mean in this context? And what does it mean to have at least some customers who switched to T-Mobile? Could “many” AT&T customers mean five percent? Any share less than T-Mobile’s probability-adjusted market share of roughly 16 percent (equal to T-Mobile’s share divided by 100 less AT&T’s share) would not be evidence of significant cross-price elasticity between AT&T and Sprint. The Staff Report later defines “many” as “a non-trivial fraction of AT&T’s customers.” But why is the standard so low? Later the Staff Report claims that “a substantial fraction” of AT&T customers switched to T-Mobile, and did so “in response to changes in the relative price of T-Mobile products and the introduction of new T-Mobile products.” Setting aside its loose standard (from “many” to “non-trivial” to “substantial”) of economic significance, porting data cannot tell you why a customer switched from one carrier to another. To assess cross-price elasticity, one must estimate an econometric model using customer-level wireless bills, which the Staff Report does not do. Finally, to bolster its evidence of cross-price elasticity, the Staff Report cites a T-Mobile “Losing Your Shirt” advertising campaign targeting AT&T’s customers. That T-Mobile aspired to attract AT&T customers does not constitute evidence that T-Mobile actually disciplines AT&T’s prices. Many computer companies aspire to topple Apple, but that doesn’t make it so.
As you digest these criticisms, think of how an economic expert could defend these statements upon cross examination. Although the authors of the report will never be subjected to such an exam, it is a bit surprising that such bald and unsupported statements could survive the cutting-room floor.