President Donald Trump, meeting with business leaders, says regulations might be reduced as much as 75 percent. That might well lead a rational person, even discounting the actual eventual magnitude of the changes, to conclude that large mergers will have a better chance of gaining approval. Of course, that same president also has spoken against at least one large pending telecom combination (AT&T buying Time Warner).
With the caveat that there always are big business reasons why some speculate upon, or favor large mergers, it seems unlikely regulatory bodies will suddenly overturn basic antitrust screens applied to large mergers in any industry that dramatically consolidate market power.
JP Morgan Securities sees a 90 percent chance of T-Mobile US being acquired over the next five years. That would be part of a consolidation of the U.S. telecom business some believe will be more vertical than horizontal (access providers combining with app providers, for example, more than mobile or fixed operators getting significantly bigger).
The problem with horizontal mergers always is the resulting market concentration. As a rule of thumb, any fixed network access provider (mobile, fixed, cable TV) combination that reaches above about 30 percent of U.S. homes--or has more than about 30 percent market share) has been denied.
So either regulators will have to argue that cable TV companies and telcos are not in the same business, major asset divestitures will have to happen, regulators will have to scrap the historic screening tools they have been using for antitrust reviews. The U.S. mobile market, using the standard screening formulas, already features a market that is too concentrated.
So one of the hoped-for mergers--between Sprint and T-Mobile US--would lead to even higher concentration, beyond the level regulators have approved in the past.
To be sure, many would argue that the U.S. market can sustainably support only three leading providers, not four. That has been the issue for European regulators and Asian regulators as well. There is a clear preference for maintaining four leading suppliers, rather than allowing the market to consolidate to three big providers.
That is why some believe the more-likely mergers will be vertical, not horizontal. That would imply a cable company acquiring either Sprint or T-Mobile US--or both-- as those transactions would not further concentrate the market. For the same reasons, a sale of either Sprint or T-Mobile US to foreign buyers or Dish Network would have a much-easier time of gaining antitrust approval, as those transactions would not further concentrate market power.
That noted, some equity analysts think the odds of a Sprint and T-Mobile US merger now stand at more than 35 percent, up from 10 percent in September 2016, with a 70 percent chance of approval, if announced, JP Morgan analyst Philip Cusick said.
Always looking for profits to be made from big deals, such speculation is to be expected. But it might strike some observers as fanciful. The Heffindahl-Hirshman Index is used globally by regulators to measure market concentration.
To approve a Sprint merger with T-Mobile US, U.S. regulators would have to ignore the HHI, a global test of market power that historically has been used in the U.S. and other global markets. Since the purpose of a horizontal merger is gaining of scale, it is hard to see how any of the big mobile companies could merge with each other. The HHI screen would be violated.
Vertical mergers (cable TV plus mobile), or acquisitions of any big mobile company by international buyers, would not inherently violate the HHI screens.
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