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.
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.
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.
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