AT&T’s Market Impact May Not Prompt Divestment: Chart of the Day
High market concentration caused by the merger of wireless carriers doesn’t always result in divestitures by companies such as AT&T Inc. (T), which is seeking approval to buy T-Mobile USA for $39 billion.
The CHART OF THE DAY shows the difference between the number of markets flagged as insufficiently competitive by the Herfindahl-Hirschman Index in previous wireless phone-service mergers and the number of local markets where telecommunications companies gave up operational units or wireless spectrum.
The Federal Communications Commission, charged with reviewing whether telecommunication company mergers are in the public interest, screens local markets. This screening, done with either the Department of Justice or Federal Trade Commission, identifies areas where a merger may harm consumers or lessen competition. Disproportionate increases in the index score draw scrutiny based on merger guidelines issued by the U.S. government.
The scrutiny doesn’t necessarily result in merging companies giving up large segments of their operations. When Sprint Corp. purchased Nextel Communications in 2005, 190 cellular market areas were targeted by regulators who determined the $41 billion deal did not significantly threaten competition. The $46 billion merger between Dallas-based AT&T and New Cingular Wireless Services Inc. raised red flags in 290 markets for the FCC. Upon approval the company only divested from 29 markets.
In other cases, companies have preempted regulatory demands. When Verizon Wireless merged with Alltel Corp. in 2008, it voluntarily left 100 markets, almost half of the 218 reviewed by regulators. The FCC and DOJ required the company to leave only five additional markets to complete the deal.
Using the Herfindahl-Hirschman Index to score AT&T’s proposed T-Mobile deal represents an initial step in the merger review process. AT&T’s bid to become the largest U.S. wireless carrier may result in high scores on the index, but the commission will take a closer look at the impact of consolidation on local markets, competitors, and other companies before ruling on the deal.
(Edward Goodmann is a BGOV technology analyst.)
To contact the reporter on this story: Edward Goodmann in Washington at egoodmann@bloomberg.net
To contact the editor responsible for this story: Anthony Gnoffo at agnoffo@bloomberg.net
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