Competitive Implications of the Proposed Acquisition of T-Mobile by AT&T Mobility

AT&T's proposed acquisition of AT&T appears to run seriously afoul of the merger policy of federal antitrust enforcement agencies. The first step in merger analysis is typically to measure concentration -- an indicator of the extent of competition.

The standard measure of concentration is the Hirschman-Herfindahl Index (HHI), which is the sum of the squares of the market shares of the sellers in the market. According to the Federal Trade Commission and Antitrust Division Merger Guidelines, if the post-acquisition HHI exceeds 2500, an acquisition that causes the HHI to increase by more than 200 is likely to cause a significant reduction in competition if the market also has substantial barriers to entry. At present, nationwide concentration in wireless telecommunications services is roughly equal to the 2500 threshold, and the acquisition would increase the HHI by more than 600.

These numbers probably understate the effective concentration in the industry for two reasons. First, only the four major carriers can serve customers who seek mobile access in most of the nation. For connections outside their service territories, smaller carriers often resell Sprint’s service. Second, the available data do not distinguish between mobile voice service, which is more competitive, and high-speed data service, which is more concentrated.