Have AT&T and Verizon Reached the Limits of Their Subscriber Market Share Gains?

In any mature market, there comes a point where the biggest players simply are not allowed to get any bigger. That might be the case for the U.S. mobile industry, in the wake of the U.S. Department of Justice decision to sue to block the deal.

It isn't just that the DoJ opposition suggests a view that this deal would be anti-competitive in a serious way; it might also suggest that other mergers, such as Sprint with T-Mobile USA, or Verizon Wireless with Sprint, might also fail to be approved.

AT&T reportedly will offer concessions in an attempt to settle the matter before it goes to court, probably by offering divestitures of subscribers and spectrum representing perhaps 25 percent of T-Mobile USA assets, in the areas of subscribers and spectrum. The issue is whether any of that will matter, if the real issue is the fact that both AT&T and Verizon Wireless are beyond the levels of market power economists and regulators often use to measure market concentration.

One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. Here is the pre-merger market HHI which already suggests that the market is not competitive. HHI is the problem

Department of Justice Acting Assistant Attorney General Sharis A. Pozen says “the conclusion we reached was clear: any way you look at this transaction, it is anti-competitive.”

“T-Mobile has been an important source of competition among the national carriers through innovation and quality enhancements,” Pozen says. “Unless this merger is blocked, competition and innovation in the mobile wireless market, in the form of low prices and innovative wireless handsets, operating systems, and calling plans, will be diminished and consumers will suffer.”

A combination of AT&T and T-Mobile would reduce the number of nationwide competitors in the marketplace from four to three, and the DoJ appears to believe that is anti-competitive, at least this particular pairing.

Have AT&T and Verizon Reached the Limits of Their Subscriber Market Share Gains?