Feature Article

April 17, 2013

Could the U.S. Mobile Market Shrink to Three?

The U.S, mobile industry, which some might argue now has stratified into a top tier of Verizon Wireless and AT&T, with the weaker Sprint and T-Mobile USA in distant positions, probably is at a key point.

With lots of merger and acquisition activity in the market, the issue of any potential merger between Sprint and T-Mobile USA, the number three and number four providers, becomes an issue.

Regulators in France, for example, have concluded that four providers is the minimum necessary to maintain adequate mobile competition. Others might argue that three leading national competitors is a more stable long-term structure, based on the rule of three in most markets.

The U.S. Department of Justice also seems to be warning that four is the minimum number necessary in the U.S. mobile market.

The U.S. Department of Justice has argued that spectrum policy should favor Sprint and T-Mobile USA, particularly as the Federal Communications Commission prepares to auction new spectrum for mobile services.

The DoJ thinking is that there are strategic and marketplace advantages to lower-frequency spectrum (below 1 GHz), and that the two weaker carriers are at a disadvantage in that regard.

But the DoJ also seems to be signaling that four is the minimum number of competitors necessary in the U.S. market.

Acquisition offers for Sprint would not change market share positions but should position Sprint as a different sort of company. The merger of T-Mobile USA and MetroPCS likewise would not change market structure, though it would result in a T-Mobile USA with more heft.

Whether any hypothetical merger between Sprint and T-Mobile USA would get government approval is an issue, though. Some think such a merger would not be approved, based on the market concentration formula used by the DoJ and Federal Communications Commission.

Based on that algorithm, the U.S. market already is too concentrated. Some executives, including the heads of Sprint and T-Mobile, have hinted at a possible combination of the two companies down the road. But that might now be difficult to impossible.


Edited by Rich Steeves

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