Question

The FCC approved the AT&T-Direct TV merger in the summer of 2015 with some conditions including expansion of high speed internet access primarily in rural areas. Discuss what the benefits of such a merger are for AT&T and Direct TV as well as for consumers. What concerns should the company, consumers and the FCC have about creating such a large organization?

Answer 1

1.

Merger between AT&T and Direct TV has many benefits to the merged companies as well as the consumers. Regarding the merged companies, the first benefit is the efficiency in operation and efficient utilization of resources. It will enhance the productivity level in both the companies. The second benefit is the sharing of market knowledge to develop competitive edge over the competitors and gain market share. Further, R&D division of both the organization, will compliment each other to develop competitive advantage. The third advantage is the reduction in cut-throat competition and going for the stable pricing, benefiting the merged entity. Here, consumers will get the benefits of merger as reduced price of services and better quality of services as a result of efficient operations. Further, consumers in rural areas will also get the services, and get benefited. Next benefit will be of economy of scale and scope so that at market level, price will come down and consumers will be benefited.

2.

Though there are concerns as well. From the company's perspective, the concerns are related to the assimilation of two different organizational culture into one culture, matching of the working methods and corporate governance and employees working together as a team, rather grouping together as employees of different organization. Union related issues are also a concern for these organizations. For FCC, it is a concern that other organizations could use it as a tool to come up with their own merger plan. Market concentration level will increase and monopolization can take place. From the consumer perspective, fair pricing may not happen and merged organization can monopolize the market. cartel formation can take place. It will cause allocative and productive inefficiency in the market.