Even if one is of the opinion that merger rules are more relaxed now than under the prior presidential administration, some quantitative tests always are used by the Department of Justice when evaluating proposed mergers, and immediate past precedent might be a key issue.
The proposed merger of AT&T and T-Mobile in 2011 was scuttled because the Hirschman Herfindahl Index (“HHI”) would have increased by 700 points in an industry already classified by the HHI and highly concentrated. The HHI is a standard tool used by regulators globally and will be used again as Sprint and T-Mobile US propose to merge.
It is not incorrect to read the DoJ’s objections to that earlier merger as opposition to any merger between two of the four nationwide providers of mobile wireless services: AT&T, Verizon, T-Mobile and Sprint.
The proposed merger of the third- and fourth- largest U.S. mobile companies would increase the HHI by over 400 points, meaning market concentration, in an industry already deemed highly concentrated (if less concentrated than some other markets), would increase.
“Like the failed AT&T and T-Mobile merger a few years ago, the proposed merger between Sprint and T-Mobile will be presumed anticompetitive and thus heavily scrutinized by antitrust authorities,” says George Ford, Phoenix Center for Advanced Legal and Economic Public Policy Studies chief economist.
To be sure, executives from T-Mobile US and Sprint say the additional scale provided by the merger will allow the bigger firm to continue to be aggressive in attacking prices, or will allow the firm to invest in 5G at a faster rate.
But I have yet to find an equity analyst who believes that will happen. Quite the reverse is expected, in fact: less price competition in the U.S. mobile market.
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