Feasibility of a Sprint and T-Mobile merger in telecommunications

¶ … Mobile/Sprint Merger?

Investigating the Possibility of a Sprint and T-Mobile Merger

Sprint and T-Mobile Merger (?)

AT&T Acquisition of T-Mobile (?)

Advantages to AT&T

Effects to the Consumer

The purpose of this paper is to analyze the feasibility of a Sprint and T-Mobile merger. The two companies utilize similar technology and it was thought that a merger of the two telecommunications giants would offer a certain synergy that would add value not only to the combined organization but also to consumers. With the increased competitiveness that would be gained with this merger the new conglomerate would be in a better market position to compete with industry leaders such as AT&T and Verizon. However, the business world moves very quickly and the possibility of a Sprint and T-Mobile merger no longer seems to be a remote possibility.

Instead, the giant telecommunication leader AT&T has recently made a move to purchase T-Mobile instead. So now the merger of these two companies seems infinitely more likely than the previous attempts at a merger. There are still many hurdles for the two companies to overcome before there can be a successful acquisition but the wheels are in motion and there seems to be a substantial likelihood that the deal may take place. This will have rather significant consequences for the all companies involved as well as the competitive landscape of the industry as a whole; especially on Sprint who could lose a significant margin of competitiveness. This paper will attempt to unpack the drama that has unfolded in this industry and look at what such an acquisition would mean to all the relevant parties.

Figure 1 - Mock Logo

Sprint and T-Mobile Merger (?)

Speculation on the possibilities of a T-Mobile USA and Sprint Nextel merger were identified in news articles all the way back to 2009 (Neate & Russell, 2009). Various articles, speculations, and feasibility conjectures were also identified until March of 2011 (Dignan, 2011). Rumors of the possible mergers seemed prevalent throughout the duration of the period. However, it was not clear through the research why the deal never manifested. One potential theory includes the recession and following periods of market volatility that pursued. Under such uncertainty it is reasonable to suspect that such a large transaction would have lost any sense of urgency.

The most common reason that was given for the feasibility of the potential merger was that the technologies that both companies used where highly compatible and complimentary. Thus if a merger took place, the result would be a company with greater capabilities to service the consumer. Sprint had a wireless broadband service called WiMax while T-Mobile had developed 4G technologies that enabled their customers to access the web. The combination of these two technologies together would allow the resulting post-merger company to service more customers, over more mediums, and in more places. It would also allow the organization to be more competitive with the industry leaders such as AT&T and Verizon. Despite the potential benefits that could have emerged, no deal officially manifested and a competitor stepped in with a different vision for the industry.

AT&T Acquisition of T-Mobile (?)

The deal currently on the table for the acquisition of T-Mobile has been made by the industry giant AT&T. Sometime in March of 2011 AT&T announced that it had agreed to purchase T-Mobile for thirty nine billion dollars (Sorkin, De La Merced, & Wortham, 2011). The deal would make AT&T the largest cell phone provider in the U.S. By a substantial margin. One source estimates that the total market share of the combined companies could exceed forty percent (Herman, 2011). This will undoubtedly change the structure of the competitive landscape in a significant manner if the deal goes through.

AT&T has a couple obstacles in its way before the deal can progress however. Ironically, one of these obstacles is raised by Sprint in way of a filing to the FCC (Tsukayama, 2011). The acquisition is also subject to other regulatory pressures from the FCC who must approve the deal before it is allowed to proceed any further. It has also been suggested that the FCC might also enact further regulatory restriction upon the company after the deal takes place if they allow the deal to go through. The problem with the merger is that this would make AT&T by far the dominant player in the industry and may approach monopolistic influence upon the rest of the market.

Effects to the Consumer

Consumers may gain some benefits under the proposed deal. For instance, the coverage areas and available services after the merger will undoubtedly expand. Therefore the quality of service might be increased to the consumer. However, at the same time, the quality increases could potentially come at significant costs. The acquisition will decrease the competitive pressures in the cellular market and this could have the effect of price increases. The reduced number of firms with more market share to be had by each could result in an unofficial oligopoly type scenario with the consumer losing out in the end. Therefore, whatever quality gains may be made in the medium term may lose out to the quality interruptions in the short-term as well as price increases in the long-term.

Conclusion

Capitalism is a system based upon competition among market players. If there are enough competitive players in the marketplace then there can be real benefits to society as both consumers and producers gain a surplus in equilibrium. However, if any one player achieves a dominant position in the marketplace and consequently achieves a position where they have a lot of influence, the gains in surplus move from the consumer to the producer, who in this case is AT&T. If AT&T is successful in their acquisition of T-Mobile, it could be that the consumer is the big looser in the long run.

However, at the same time this industry is rather unique in one regard. That is to offer a comprehensive infrastructure that can serve consumers throughout the entire nation a substantial investment in required. Therefore, it doesn't make sense to duplicate this infrastructure in order to maintain competitive forces when only one infrastructure system is required. Thus it is also possible that if the industry is heavily regulated then both the consumer and the producer could maintain a healthy equilibrium. That being said, corporate influence in government has seemed to reach extremely high levels and such regulations are not necessarily guaranteed by any means. Therefore, however this drama continues to unfold only one thing is for sure -- it should be interesting to watch.