Good Question: Are Mergers Ever Good For Consumers?

By Jason DeRusha, WCCO-TV

MINNEAPOLIS (WCCO) — AT&T wants to buy T-Mobile for $39 billion. Clearly, AT&T thinks the deal is good for its business. But what about consumers? Is having fewer choices ever good for consumers?

If federal regulators allow AT&T to gobble up T-Mobile, it would have 42 percent of all cell phone customers. Only 3 big companies would be around. It made Sen. Amy Klobuchar call for the FCC and Department of Justice to take a “close, hard look” at the merger to make sure consumers don’t end up with higher prices and worse service.

“Gone are the days when rubber barons merge and take over. Today, the competition is just vicious, absolutely vicious,” said George John, a professor at the University of Minnesota’s Carlson School of Management.

According to John, most mergers don’t work out that well for the companies involved, and “most of the time mergers don’t work out that well for the customers.”

So how much competition is enough? Two companies? Three companies? “There are generations of economists who’ve made careers out of whether 2 is enough, or 3 is enough,” said John.

In John’s view, however, even when there are pockets where there isn’t robust competition, overall, it’s hard to point to a company that’s an actual monopoly today.

“We have so much choice in this economy, there are very few industries where you have no choice,” he said.

However, when BusinessWeek Magazine commissioned a study to evaluate consumer reaction to mergers after they’ve happened, customers thought they got better service or prices from only 29 percent of mergers.

When it comes to good mergers for consumers: many experts point to the Disney-Pixar merger from 2006. That’s been called a win for consumers in terms of quality movies: like “WALL-E” and “Toy Story 3.”

The NFL and NBA both merged with competitor leagues – resulting in more a concentrated quality of players.

And there’s little debate that buyouts of financial institutions, when one is near failure, is good for consumers and their bank accounts.

“That, you have to say has been good for consumers,” said Lee Egerstrom, an analyst at MN2020.

He also pointed to the merger of International Multifoods with Smucker’s as a win for consumers, because the two companies had no overlapping product lines.

“Normally when they’re are synergies, that should send goosebumps up the sleeves of every God-fearing Minnesotan. That means a whole bunch of people are going to lose their jobs,” Egerstrom said.

According to AT&T, their coverage will be better after the merger. They showed us a map of spotty Minnesota 4G coverage today, and robust near complete coverage after they add T-Mobile’s cellular spectrum.

Plus, there is still hard core price competition among the remaining three cellular companies (Verizon, Sprint and AT&T).

“That’s why I think this merger isn’t likely to have the negative outcomes. I suspect it won’t have positive outcomes either. It’s probably a wash,” said John.

There’s one category where mergers and buyouts almost always are good for consumers, John explained, and that’s with the start-up, cutting-edge little guys .

“The reality is almost every start-up’s business plan ends with: and sell to Google, sell to Microsoft. You need the big guys with deep pockets and the abillity to blow it out into the marketplace,” he explained.

Without those kinds of buyouts and mergers, many consumer innovations would never have been widely available, he said.

More from Jason DeRusha
  • Larry D. Wendlandt

    I don’t like the anti-competitive nature of this merger and hope it will not be approved.

  • Pam

    What’s a rubber baron? Robber baron you mean???

  • Matt

    The only true monopoly in this country is the government, which should be checked at all times.

    If companies merge and it eliminates competition so be it, because if they are overcharging customers a new business will step up and knock them back down, that is the beauty of a free market.

    Also thank you Amy for continuing to add no real value to the senate, I look forward to the next election cycle.

    • Paul

      The government is not a profit-making business, therefore it’s not a monopoly. Furthermore, if your idea of free market is to eliminate competition until there is no one left, then you explained the main reason the free market system doesn’t work. No new business will be able to step up and knock them back down when they control 50% of the market share. it’s just not feasible.

      As for the next election cycle, I am looking forward to it, also. With Amy’s 60% approval rating and her constant defense of consumers, she should be a shoo in for reelection.

    • K.

      The only true monopoly in this country is the government? What a stupid statement! The government is not a business. It would not be ideal for the government to have competition or we would have anarchy. You are comparing apples to oranges and therefore, does not apply to this situation. I think Amy is doing a swell job!

  • Worried

    When ATT merged with Cingular, I had to change plans to get a phone that would work with their system. My plan was no longer covered and was really expensive – which is why I moved to T-Mobile. I’m worried the same thing is going to happen as I have unlimited data, which ATT doesn’t offer and is not planning on offering.

  • Denise

    I had Alltel before Verizon bought them out. I liked Alltel better, plus the phones and packages were cheaper than Verizon’s. WIth Verizon, it seems to take forever to get your bill figured out when there’s a change or problem. Sometimes changes are not good, depending on the situation.

  • Worried as well

    I agree with you Worried. I had ATT and loved them, then after they switched to Cingular I hated them. I had to get a new phone, the plan was more expensive and the service was horrible. I terminated my contract early because I couldn’t deal with them. When I terminated my contract with them I went to T-mobile. I have been with T-mobile forever now and still have no problems with them. I have unlimited talk,text and data from tmobile for a very good price, and worried that It will end up costing me an arm and a leg if ATT buys T-mobile. If it happens I may have to go to Sprint or Verzion, because their prices are about the same as ATT, but have better coverage then ATT.

  • BigBopper

    I live in rural Minnesota, and we really only have one option for cellular service. Sure Sprint, AT&T, and T-Mobile “say” they cover our area, but in fact they do not. I have tried all three in the last year, and I cannot complete a call from my house with any of them. I am currently still stuck in the Alltel/Verizon merger, which has sucked for the last 2 years. Once Verizon started the take over, they turned down the Alltel towers to not infringed on the Verizon towers, which resulted in poor coverage in our house, but it is still better than the other 3, but not by much. Verizon also came through and took over all the business accounts, leaving the local resellers without some of their better money makers. You cannot find an Alltel business account around here anymore.
    And before the Verizon take over, Alltel bought out Midwest Wireless, which was also a fiasco. Back with Midwest Wireless, we had a very strong signal at home, then when Alltel took over, our signal was basically cut in half, with frequent dropped calls, and now with Verizon taking over, our signal is barely there, and we are dropping calls constantly. Alltel is unwilling to do anything to improve the situation, citing that we are in a “fringe area”, which we were not prior to Verizon mucking around, and Verizon won’t do anything because we are not their customer.
    I am fed up with all the buyouts. The big boys do not care about their customers like the smaller companies do.

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