Sprint Bid for T-Mobile US Poses Key Test of Competition Policy

U.S. service providers are preparing at least one key test of regulator willingness to allow major consolidation of the U.S. mobile service provider market, and possibly the cable TV market as well. The most direct challenge is the rumored bid by Sprint to acquire T-Mobile US, a deal many have long believed was virtually inevitable.

But there also is a possibility that Time Warner Cable, the second-largest U.S. cable TV company, now in play, might get a bid from Comcast, combining the largest and the number-two company.

That would certainly draw keen antitrust scrutiny. You can be sure that lots of quiet explorations will be made by Sprint and Comcast executives about Federal Communications Commission and Justice Department thinking and receptiveness to such deals.

Given recent DoJ opposition to the AT&T effort to buy T-Mobile USA, and the similar opposition to the merger of American Airlines and US Airways, one might be correct in thinking either the Sprint bid for T-Mobile US or any Comcast bid for Time Warner Cable would be extremely unlikely to win approval.

The problem Sprint faces is that the U.S. Justice Department already has ascertained that the U.S. mobile market is too concentrated. That is why DoJ opposed the AT&T effort to buy T-Mobile USA.

The cable TV market analysis is somewhat murkier. Though earlier Federal Communications rules specifically prohibited any single U.S. cable company from serving more than 30 percent of U.S. cable TV customers, that rule was invalidated by U.S. courts.

But antitrust authorities are sure to consider a merger of the number one and number two cable companies too big to ignore.

The Justice Department will generally investigate any merger of firms in a market where the Herfindahl-Hirshman Index (HHI) exceeds 1,000 and will very likely challenge any merger if the HHI is greater than 1,800.

The proposed AT&T effort to acquire T-Mobile USA had an HHI of 2544. It is reasonable to assume that any deal will be heavily scrutinized and most likely rejected, under such conditions.

The implications for a Sprint purchase of T-Mobile US are that although that particular merger would not allow either AT&T Mobility or Verizon Wireless to grow much larger, even the combination of Sprint and T-Mobile US would occur under conditions where DoJ believes the market is too concentrated, already.

A combined Sprint and T-Mobile US would have 28 percent market share, compared to Verizon’s 34 percent and AT&T’s 33 percent. Some will argue that such a combination of Sprint and T-Mobile US is the best way for the merged company to compete more effectively with AT&T Mobility and Verizon Wireless.

But cable executives have to be thinking, as well. If it appears the FCC and DoJ would consider a Sprint tie up with T-Mobile US, then it is possible regulators might also look at deals even as large as Comcast merging with Time Warner Cable.

Though there are many serious issues, regulators will have to confront directly the issue of mobile market structure. Though the existence of four competitors might seem better, there is an argument that three large and stable firms actually would produce better competitive benefits and innovation.

Regulators simply will have to wrestle with that question.