We need vigorous examination of mergers and acquisitions, particularly for markets lacking robust facilities-based competition. But of course in these contentious times, there will always be ample lobbyists and sponsored researchers available to tell decision makers how robustly competitive any and all markets are, despite all evidence to the contrary.
Tuesday, May 13, 2014
Deconstructing the “If Only” Rationale for Megamergers in Telecommunications
Year after year telecom ventures aspire to get bigger though mergers and acquisitions. Buying market share serves to increase scale which presumably guarantees greater efficiency and greater profitability.
Acquiring companies do not operate as charities, but they regularly launch charm offensives to explain how the deal will benefit consumers. One often hears the assertion that a merger will “promote competition” presumably by making the acquiring company better able to compete with other mega firms.
Acquiring companies use the If Only gambit to claim that they can only generate the benefits of enhanced competition if and only if they absorb a competitor. Does this pass the smell test?
A company acquiring market share has to make a strategic decision. Can it accrue more revenues by offering the same terms and conditions as its competitors, or can it do better by deviating from the status quo service terms and conditions? Consumers have no guarantee that when a market becomes even more concentrated the remaining firms will become more energized to innovate and sharpen their pencils. They could just as easily agree implicitly to avoid sleepless afternoons competing.
Let’s consider Sprint’s If Only campaign. Sprint claims that if and only if it can acquire T-Mobile, the merged company will become a vigorous competitor of Verizon and AT&T. So what exactly is keeping Sprint from being the kind of competitor it claims it will become if only it can acquire T-Mobile? Does Sprint lack access to the debt and equity market even with an owner like Softbank? Does Sprint lack the ability to bid for more spectrum? Will Sprint’s questionable management suddenly get better with the infusion of T-Mobile talent? What does Sprint’s costly acquisition of Nextel tell us about companies that combine incompatible technologies?
And while we’re in the inquisitive mood: what does the behavior of T-Mobile tell us about the wireless marketplace. From my perspective T-Mobile got serious about competing only after its sweetheart “merger” with AT&T did not occur. Thanks to the failure to become a part of AT&T, T-Mobile became a far more aggressive innovator and competitor. There would have been no chance that somehow AT&T would implement: bring your own device discounts, reduced or eliminated international roaming charges and aggressive pricing particularly for data plans.
Comcast’s If Only campaign comes across as even more bogus. The company surely has no problem borrowing funds given the value of its stock and the ease with which it can borrow funds. Comcast does not lack any resource, like spectrum, that only an acquisition can provide. The company touts as a virtue the “fact” that Time Warner Cable and it do not compete. In fact the company does not emphasize how the deal will benefit consumers in terms of service rates.