Merger the First Step in Case Study

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The smaller firms therefore may be able to gain entry into the market but are generally unable to compete on quality with the top firms, and this is allowing the market leaders to grow as a result.

Another factor that is taken into consideration is the regulatory entry and exit conditions. In the mobile industry, there is a significant barrier in spectrum. Given that there is a finite amount of broadband wireless spectra available, and potential limits on where wireless towers can be sited, there are limits to the number of players in the market (FCC, 2010) This means that consolidation at the top of the industry could create limitations on the amount of competitors that can enter a given market. The DoJ will take this into account as well.

There are pros and cons associated with this merger. The pros are that the industry will take a more natural shape and the demise of T-Mobile will be avoided. The company is a distant #4 in an industry where prevailing conditions favor only the major players. T-Mobile, therefore, is unlikely to survive anyway. Over time, its market share will be portioned off among the major competitors, so this merger simply allows for the natural competitive process to be accelerated.

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There are still three major firms in the industry and a number of smaller players as well, some of whom may eventually emerge as strong players. The three main players will all keep each other engaged in intense competition. Moreover, the FCC can still play a role in the governance of this industry, something that cannot be said of many other industries.

The downside to allowing this merger is that it would increase the amount of concentration in the industry. The mobile business is already considered to be heavily concentrated, and it will only become more so with this merger. According to traditional merger guidelines, the merger should be rejected. The industry will become too concentrated and the major players within the industry will have too much pricing power, especially as they know that there is limited bandwidth available to allow new entrants to gain much traction. There will be little incentive for the remaining industry players to compete. It can be said, however, that this is the case already, as T-Mobile has become relatively irrelevant as its share lags the other three anyway.

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