The Wall Street Journal reports that Sprint is preparing a take-over bid for T-Mobile, and like all M&A at this stage, it is speculation whether this will happen or not. I will be taking a closer look as things transpire, but given the recent AT&T experience with T-Mobile, here is a quick insight based on US DoJ anti-trust guidelines.
Using the DoJ Horizontal Merger Guidelines and the Herfindahl-Hirschman Index, we can compare the two acquisition efforts. Based on 2012 revenues (eliminates a variable) we find that the HHI for the AT&T / T-Mobile deal is roughly 2635, which is above the DoJ merger guidelines for “highly concentrated markets.” The AT&T / T-Mobile deal would push the HHI to 3211, well above the 200 point threshold move, and generates the presumption that the merger increases market power. It is up to the acquiring firm to prove this is not the case, which AT&T argued unconvincingly.
Fast-forward to 2013, and we have AT&T/Leap, Sprint/Clearwire, T-Mobile/MetroPCS, and VzW seems to be slicing U.S Cellular piece by piece. In this further concentrated market, the HHI is 2766 and a Sprint / T-Mobile deal would increase the HHI to 3118. This 352 point move is less than AT&T / T-Mobile, so it still bears scrutiny as it is nearly as concentrated as the AT&T/T-Mobile deal. It will be up to Sprint to prove their case with the regulators.
It will be interesting to see which way Tom Wheeler, Chairman of the FCC, breaks on this issue. As a former industry lobbyist, and one that criticized the DoJ on the AT&T/T-Mobile decision, we shall see if the leopard can change its spots, and in any event, the DoJ will take serious consideration of the FCC’s position. My crystal ball is not yet clear on this matter, and I have some more things to think through, but for now, it seems a long way to a done deal. Stay tuned for further in-depth analysis.