Assignment
When it tried to buy T-Mobile for $39 billion in 2011, AT&T went so far as to offer the company a "break up" fee of $4 billion if the deal fell through. Why was AT&T so determined to purchase T-Mobile? AT&T was no. 2 in the wireless phone-service market. T-Mobile was no. 4. By merging, they would have become the nation's largest wireless provider, surpassing Verizon. The deal would also have given AT&T access to the spectrum (airwaves) T-Mobile owned but couldn't afford to upgrade to 4G (state-ofthe art, fourth-generation technology). Executives at the companies said that in addition to creating jobs, the merger would result in fewer dropped calls and faster connection times for customers. The merged company would also be able to immediately expand wireless service to rural areas that lacked it. "AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction," the two companies said in their merger announcement. The announcement also referred to a government report that showed that despite many mergers in the industry over the past decade, the price of wireless service had declined. Investors cheered when they heard about the merger.
However, many consumers, the Department of Justice, and the Federal Communications Commission (FCC) were wary of the deal. The merged company would have controlled nearly half of the market. The only remaining big players in the industry would have been Verizon and Sprint. Some industry experts thought Sprint might get forced out of the market because it held the least market share. They also believed few new companies would enterhe market. Competing against a combined AT&T and T-Mobile would make it too difficult. What would the merger have meant for consumers? Dan Gillmor, the director of the Knight Center for Digital Media Entrepreneurship at Arizona State University, said he thought the deal would be bad for consumers. They would have fewer wireless providers to choose from, Gillmor said. He also predicted consumers could end up paying higher prices. "T-Mobile is the only company that's now competing seriously on price," he explained.
Researchers at the magazine Consumer Reports also concluded that T-Mobile charged less than many of its competitors for different types of plans. What firm would keep AT&T and its prices in check if it were to swallow up T-Mobile? Another issue was that a number of surveys had found that AT&T's service quality was uneven. Would it get worse following the merger? Or better? As you learned earlier in the chapter, the Department of Justice ultimately filed a lawsuit to block the merger. "The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices, and lower-quality products for mobile wireless services," said Department of Justice Deputy Attorney General James M. Cole. And even though AT&T and T-Mobile claimed the merger would produce more jobs, an investigation by the FCC came to a different conclusion.
The internal records of the two companies showed that the firms planned to lay off personnel by combining duplicate functions in their organizations such as their sales, management, and customer service departments. The FCC also disputed the companies' claim that the merger would immediately expand wireless service to rural areas. Why? Because T-Mobile serviced mostly urban areas-not rural ones. Acquiring T-Mobile became such an upward battle that AT&T eventually abandoned the effort and paid T-Mobile the $4 billion breakup fee. A few months later, T-Mobile announced it was spending $4 billion to expand and upgrade its network to 4G.17
Questions
1. Did the Department of Justice make the right decision when it blocked the merger of T-Mobile and AT&T? Why or why not?
2. What do you think the pros and cons of acquiring a competing company are? Create a list of each.
3. Name some other examples of horizontal, vertical, and conglomerate mergers you're aware of. Considering the impact of mergers on competition, what are the advantages and disadvantages of each type of merger?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.