Do Merger Plans work?

Do Merger Plans work?

 In April 2018, T-Mobile and Sprint announced their merger. The mobile carriers submitted a formal application to the Federal Communications Commission on June 18, 2018, officially beginning the regulatory review process for the $26 billion deal. The latest step in the process occurred in  late July 2019 when the U.S. Justice Department officially approved the merger between Sprint and T-Mobile. However, a team of nine state attorney generals is challenging T-Mobile’s $26 billion merger with Sprint, arguing that combining the third-and fourth-largest wireless companies would lead to less competition and higher prices for customers.

According to the merger plan, T-Mobile and Sprint can merge only if they help create a new major competitor out of a company that, so far, has no wireless operation: Dish Network Corp. This would add Dish to a field of wireless companies that includes AT&T, Verizon, and the new T-Mobile. Thus, economist John Kwoka says that the suit highlights a fundamental issue baked into the plan to merge the two companies. He is a Neal F. Finnegan Distinguished Professor of Economics at Northeastern University. He is of the view that the Department of Justice recognises that going from four competitors to three wasn’t good for innovation. So, they had to bolster a fourth competitor, Dish. This means that T-Mobile would spin off Sprint’s prepaid wireless services, cell towers, and retail stores to Dish Network over the next seven years.

 

A group of economists, including Kwoka, have filed a brief with the Department of Justice to explain why they’re skeptical about whether the plan will work. Firstly, there is the timeline. It is unclear how effective Dish will be as a competitor in the wireless market during those seven years. Secondly, Kwoka says that there is a question of motivation. Dish is depending upon T-Mobile for services and assets while Dish gets off the ground as a wireless company.

 

Kwoka’s own research into these sorts of merger plans has shown that “these types of experiences rarely work out very well. The merged company has the incentive to slow down the evolution of the other company”.

 

Shahjadi Jemim Rahman

Shahjadi Rahman
Shahjadi Rahman

shahjadirahman21@gmail.com

A firm believer of the Law Of Attraction. I say the glass is always filled half, fancying the world as a runway to fly with my wings on!

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