AT&T and SBC Merger - Term Paper Example

? Merger between two major telecommunications companies Any merger and acquisition is conducted with a vision that the newly formed company would make rapid progress in the market with the help of combined resources. The present study has been conducted about some of the probable threats that merger and acquisition may produce to the customers and the competition. The merger in focus is the biggest deal in the national telecommunication history; that happened in 2005 between AT&T and SBC. Concern of Customer Advocates over the merger On the month of November, 2005, SBC communications announced the acquisition of AT&T. The $ 16.6 billion deal ensured that AT&T and SBC became the largest telecom company in the nation. Although from the perspective of both the companies, this deal was most certainly revolutionary; from the perspective of the consumers, it might not have been such good news. As a matter of fact various customer advocacy groups filed petition for the cancelation of the deal as the advocacy groups believed that this deal was bad for customers and bad for business. Several customer advocacy groups such as The Utility Reform Network, Office of Ratepayer Advocates presented a market research report by an economist belonging to the California Institute of Technology. (Brown, 2009, p. 209). According to the advocacy groups the research report showed that the merger would affect various services and also customers. Such a deal would not only kill the competition in the market; but also would increase the whole sale prices by almost fifteen percent. This would lead to monopoly in the market as it would reduce market concentration and choice of the customers. A part from the telecommunication market the report also suggested that in Los Angles alone the choice of commercial buildings may go down by more than seventy percent as the newly merged company may end up controlling almost 80 percent of the buildings. A part from the rising wholesale prices the merger would also lead to a rise in the retail prices. The elimination of choices would increase the wholesale price almost by fifteen percent leading to the much higher retail prices for data and voice services used by the customers. Another major factor would be collusion not to compete. Verizon and SBC would continue to avoid competition due to the merger. This could be seen even in the cities where the businesses operate quite close to the distribution channels. One prime example could be LA. In LA the marketing channels of both Verizon and SBC over laps quite scarcely. Hence the customer groups advocated that after the merger the choices of the customers would go down, prices may go up as consumers would have very less bargaining power; add to that market concentration would also increase. The consumer groups believed that the last thing that the business and the customers need is monopoly in the market. The merger would ultimately lead to very little number of competitors (Burgemeister, 2003). From the information presented by the customer advocacy groups the impact of the merger between the two companies on the national telecommunication market can be analyzed by using the porter’s five force analysis (Churchill, 2009). The rivalry among the existing firms would be low as the merger would kill competition. This would severely impact the smaller firms. As a result the industry competition would be low. Due to the lack of competition the bargaining power of the buyers would be low as the buyers would have very little choices. As a result the company can increase the prices. The bargaining power of the suppliers would also be low. As there would be very less competition in the market, just like the customers the suppliers would also have a very little option resulting in lowered cost of raw materials. Threat of new entrants would be very low. The merger leading to monopoly may lead to a situation where, the merged company can achieve economies of scale and strong brand equity. This would most certainly acts as major barriers to entry to new firms. Lack of competition and extremely low threat of new entrants would ensure that there would virtually be very low amount of substitute products in the market (Henry, 2008). Probable Pitfalls of the merger: From the perspective of the consumers There is very little doubt that the merger between AT&T and SBC would be great the business perspective of the company. This would mean that both the companies would have the choice to get access to the technology and other financial and non-financial resources of the company. However, the same might not be applicable for the customers. Over the years the customers have been the biggest beneficiaries of privatization (Kolb, 2008). The increase in the competition not only reduced the costs but also made the business environment a lot more customer centric. Also it improved the customer service as companies tried to get hold and retain the customers; because the customers started having so many choices. But according the customer advocacy reports one of the biggest loses of the customers would be the lack of choice. Previously due to the presence of various competitors in the markets the customers could have easily switched from one enterprise to other. This merger is likely to reduce such choices of the customers. Also another major pitfall from the point of view of the customers could be the dip in customer service. According to a report by American Marketing Association (AMA) one average the companies in U.S. usually gets 65% of the total revenue from the existing customers. Hence, it is clear that a considerable effort is put up by the companies to retain the customers through excellent customer services. Majorly, this was due to the presence of the competitors. But the absence of the competitors may lead to a dip in the customer services and yet the customers may not have many options to shift to other brands due to the lack of competition. Also the customers would have little choices when it would come to switching to new products due to the big entry barriers leading to low degree of new entrants in the market. And at last but not least the hike in the prices by the marketers is also a probable threat to be faced by the customers. Ethical dilemmas There is very little doubt over the fact that any merger or acquisition in the corporate world is done with a vision that the newly combined companies would be able to grow a lot more rapidly and gain a stronger position. But there are certain ethical issues that need to be kept in mind (Kotler, 2001). One of the major ethical issues would be the disclosure by the target companies; in this case it would be AT&T. When the negotiations for the deal start, the management team faces the dilemma; as to how to disclose and how much to not. Any negative disclosure can cause the other company to offer a lower price to the share holders. Also confidentiality is a key ethical factor. Often managers face the dilemma as to how much to tell the employees about the ongoing talks of negotiation and about the probable outcomes of the final deal. Other ethical implications would be termination of the employees. In order to support the opportunity cost of merger the company decide to cut down on work force leading to termination of some of the employees. Another ethical aspect could be relocation of the employees. For the families of the employees it could be a major problem. In this specific case another ethical implications could be the use of predatory pricing by the newly merged company. As mentioned above the newly merged company may and enjoying monopoly. But if a new company decides to enter the market, the merged company may decide to reduce the prices suddenly leading to huge amount of losses by the new entrants; this may lead to the exit of the company from the market (Rao, 2010). References Brown, L. (2009). Marketing and Distribution Research. London: Ronald Press Company. Burgemeister, S. (2003). Market analysis. Berlin: GRIN Verlag. Churchill, G. (2009). Marketing Research. London: Cengage Learning. Henry, A. (2008). Understanding Strategic Management. Oxford: Oxford University Press. Kolb, B. (2008). Marketing Research: A Practical Approach. London: Sage. Kotler, P. (2001). Marketing Management. London: Prentice Hall. Rao, V. (2010). Handbook of Pricing Research in Marketing. London: Edward Elgar Publishing. Read More