Proposed AT&T/T-Mobile Merger: Would It Create a Virtuous Cycle or a Vicious Cycle? [July 7, 2011]   [open pdf - 275KB]

"AT&T has announced an agreement to acquire T-Mobile USA (T-Mobile) from Deutsche Telekom for $25 billion in cash and $14 billion in AT&T stock, subject to the approval of the Department of Justice (DOJ) and the Federal Communications Commission (FCC). Post-merger, Deutsche Telekom would own approximately 8% of AT&T's stock. AT&T is the second-largest mobile wireless service provider in the United States; T-Mobile is the fourth-largest. The combined company would be the largest mobile wireless service provider. In recent years, AT&T has been gaining subscribers while T-Mobile has been losing subscribers. […] In a static market, it would be less costly and/or more efficient to build out and operate a single network instead of multiple networks with partially duplicative facilities; to give a single provider use of a large block of spectrum rather than giving a number of providers use of a subset of that block; and to design and mass-produce a single suite of handsets rather than making handsets for smaller groups of customers using many different standards and network technologies. In a dynamic market with rapidly changing technology, however, the claims of scale economies must be weighed against the possibility that any lessening of competition will lessen pressure for innovation and cost and price restraint. Consolidation that gives one or two providers a dominant share of the market and of the available spectrum may promote static efficiency, but it may undermine dynamic efficiency. DOJ and the FCC may have to analyze this tradeoff as they weigh the proposed merger."

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CRS Report for Congress, R41813
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