Monday, November 28, 2011

AT&T Revising T-Mobile USA Bid?

AT&T is revising its proposal to buy T-Mobile USA, emphasizing asset sales that could reach 40 percent of T-Mobile USA assets. Presumably the plan would build on AT&T’s argument that the deal should be considered market by market, and involve asset divestitures in some local markets.

That might bolster the argument that some more regional players, such as MetroPCS Wireless and Leap Wireless, could become more-national challengers with the new assets.  AT&T proposes T-Mobile USA sales

The issue, some would note, is that the local divestiture has been a staple of mobile acquisitions in the recent past, and none of that activity appears to have slackened the growing concentration at the top of of the mobile market, as much competition might be argued to exist more broadly within the mobile market, or in the broader communications market.

In city after city, and in the country as a whole, Federal Communications Commission data show the wireless market has grown more highly concentrated.. Possible divestitures

To measure market concentration, the Department of Justice uses a formula known as the Herfindahl-Hirschman Index. It considers markets to be highly concentrated when the index tops 2500. The score for the U.S. wireless industry as a whole at last measurement, in June 2010, was 2848, up from 2151 in 2003.

Some cities score much higher, including Oklahoma City at 3100; Springfield, Mo., at 3662; and Lafayette, La., at 4703.

The Justice Department says if AT&T were allowed to buy T-Mobile, the index would rise to more than 3100 nationally, including significant increases in 91 of 97 major markets.

The Federal Communications Commission also appears to believe the market is too concentrated. Ironically, then, the FCC’s 15th “Annual Report and Analysis of Competitive Market Conditions With Respect to Mobile Wireless, Including Commercial Mobile Services”  makes no formal finding as to whether there is, or is not, effective competition in the industry.”

That report contains  no stated conclusion on the U.S. wireless market, in terms of effective competition, a surprise to some observers, who had predicted that the FCC report would declare the U.S. market “not competitive” in some substantial respects. FCC report doesn't mention "market concentration"

On the other hand, one standard test of industry concentration shows a "high degree of concentration." But many observers would simply ask what other state of affairs could possibly be the case.

The report does use the “Herfindahl-Hirschman Index,” (HHI), which is calculated by summing the squared market shares of all firms in any given market, and is a commonly used measure of industry concentration.

Antitrust authorities in the United States generally classify markets into three types: Unconcentrated (HHI < 1500), Moderately Concentrated (1500 < HHI < 2500), and Highly Concentrated (HHI > 2500).

In the mobile wireless services industry, the weighted average of HHIs (weighted by population across the 172 Economic Areas in the United States) was 2811 at the end of 2009, compared to 2842 at the end of 2008.

By that measure, the U.S. wireless market is “highly concentrated.” But observers will argue about what that means. Access services of any type are “highly concentrated” in almost every market, in the sense that there are typically two dominant wired providers.

Wireless markets typically have more providers than that, but even wireless is “highly concentrated.” Whether access markets, wireless or wireline, can be anything but highly concentrated seems to be the issue. There is a good reason why access markets traditionally have been “monopoly” markets. Until recently, it was thought impossible to have facilities-based competition in access markets.

In fact, in most markets globally, that will still generally be the case. Hence we see wholesale networks being built in several countries, the theory being that markets will not support more than one optical access network.

Mobile voice coverage would not strike most observers as being anything but competitive. The report states that 89.6 percent of consumers can buy service from five or more suppliers, for example. To be sure, the number of competitors is higher, across the board, in more-populated areas, as you would expect.

Wireless broadband coverage is relatively consistent with the voice findings, as 68 percent of U.S. consumers have a choice of four or more providers. The caveat is that the. competition is mostly confined to more-densely-populated areas, again as you would expect. Rural consumers clearly do not have as many choices.

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