Line Drawn on Telecom Deals
This article outlines the fact that while the U.S. wireless industry is increasing in mergers, the U.S. Justice Department antitrust authorities are keeping close tabs by issuing a stern warning that there is a set limit to how far they will let these mergers go.
The U.S. Justice Department stated recently in a regulatory filing last Friday that there is growing concern regarding the increase of concentration among wireless providers which could affect the second tier status of the number three wireless carrier Sprint Nextel Corp, and T-Mobile USA. “The department has found that four largest wireless carriers compete across many dimensions,” Justice Department lawyers wrote in a comments field Friday with the Federal Communications Commission.” The department believes it’s essential to maintain vigilance against any lessening of the intensity of competitive forces,” they added. The comments by the Justice Department are affecting the way that industry analysts and bankers are viewing the possible merger after the set of current consolidation finalizes. The article outlines the offer by Dish Network to purchase Sprint for $25.5 billion. The executives in charge of both Sprint Nextel Corp and T-Mobile are hopeful for a possible combination of their companies and feel their merger would give a greater stance against the two largest carriers, AT&T and Verizon. As stated in the article “Some of executives, including the chiefs of Sprint and T-Mobile, have hinted at a possible combination of the two companies down the road. Their pitch to the government would be that such a merger is needed to give them the scale to compete with industry leaders Verizon Wireless and AT&T Inc., which each have more wireless customers than Sprint and T-Mobile put together and account for nearly all of the profit in the U.S. wireless industry.” The U.S. government is very concerned about the loss of competition and pricing stating in the article; “as the department has argued that an independent Sprint and T-Mobile play an important role in the cell phone market, even though they have a smaller customer base, by keeping prices low and putting pressure on the larger players to innovate.”
While the article expresses other sub topics the main point of the article revolves around the possible future merger within this Oligopoly and how it could affect wireless consumers.
I feel that the main topic article is related to the chapter of oligopoly and antitrust in our class and textbook. The four companies that form the Oligopoly, Sprint, T-Mobile, Verizon Wireless and AT&T qualify as one because of the very high barriers that are required to enter into this wireless market, for a company to become a national wireless cell phone carrier they need large amounts of money (capital) to enter. The book explains that oligopoly is a type of market that lies between perfect competition and monopoly, in which a small number of interdependent firms compete. Each firm has a large share of the market, the firms are interdependent, and they face a temptation to collude.
The distinguishing features of Oligopoly are that a small number of firms compete and a natural or legal barrier prevents entry of new firms. The creation of a wireless provider has to become approved through many state and government approval processes before they are able to provide their services to the public.
The article focuses on the importance of a merger and how it will lead to stronger competiveness for Sprint and T-Mobile as they could gain greater market concentration. This can have both advantages and disadvantages for the public interest.
A merger is likely to reduce competition and give the new firm more market power. This is exactly what the U.S. Justice Department antitrust authorities are concerned about. If both companies merge, there could be a loss of competition and innovation which would lead to possible prices increases leading to a