Justice Department attorneys have told T-Mobile US and Sprint that the proposed merger is unlikely to be approved in its current form, the Wall Street Journal reports. That should not come as a surprise. It always has seemed clear that DoJ staff would raise antitrust issues: they virtually have to, using their standard antitrust tests, meaning the proposed merger would not be approved.
That is not an unexpected conclusion, based on the numerical tests the DoJ normally uses. DoJ attorneys rely on the Herfindahl-Hirschman Index to measure market concentration. It always is possible that the DoJ higher-ups could reject the recommendations. It always is possible some major merger terms could be revised.
Perfectly competitive markets have an HHI score of zero; at 10,000, a single firm controls the whole market.
The Justice Department considers an industry whose HHI tops 2500 highly concentrated. 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 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.
It is not incorrect to read the DoJ’s objections to that earlier merger as opposition to any consolidation 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.
Some would argue that a four-provider market is sustainable, but with different partners, as difficult as that might seem. Some believe a better long-term outcome is a tie-up between either Comcast or Charter with either T-Mobile US or Sprint.
Sure, there are issues. Debt burdens, market maturity, other places capital might be deployed make cable purchases of the two mobile firms non-trivial. Sooner or later, though, both firms are going to have to step up in mobility, or forgo any serious role, as their other businesses slowly contract. Fixed network broadband is an area of strength, but will not drive enough growth to replace half of present revenues within a decade.
Cable execs keep stressing they are communications companies. It is hard to do that, long term, without a key position in mobility, which drives the bulk of revenue in the U.S. communications business.
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