What does the stock market tell us about the T-Mobile/Sprint merger?

Here is an excellent post by Alec Stapp, easy to read but a bit hard to excerpt but here are the closing bits:

As a few others pointed out, these relatively small moves in AT&T and Verizon (less than 3 percent in either direction) may just be noise. That’s certainly possible given the magnitude of the changes. Contra Philippon, I think the methodology in question is too weak to rule out the pro-competitive theory of the case, i.e., that the new merged entity would be a stronger competitor to take on industry leaders AT&T and Verizon. We need much more robust and varied evidence before we call anything “bogus.” Of course, that means this event study is not sufficient to prove the pro-competitive theory of the case, either.

Olivier Blanchard, the former chief economist of the IMF, shared Philippon’s thread on Twitter and added this comment above: “The beauty of the argument. Simple hypothesis, simple test, clear conclusion.”

If only things were so simple.

Recommended.  Addendum: Philippon comments.

Comments

This is what you need to know, that an employee gets to loot the stockholders of a publicly traded company.

There have always been pirates. But I'll bet this bugger is dull as ditchwater compared to Sir Francis Drake.

What I don't understand is the endless attempts to pretend that all this looting and pillaging of companies by their executives is somehow OK, a good thing, and entirely kosher.

It's all just grist to the mill of commies like Bernie.

Any theory re stock price around T-Mobile/Sprint must also explain Tesla's steep share price rise. Competition is competition. Tech is tech. Infrastructure is infrastructure. Vertical integration is vertical integration. RIGHT?

Markets are rational. Price defines value.

Right. Yeah, right.

We been there, done this. One has to keep alpha and somehow cancel out beta, gamma, zeta, hula and the rest of the greeks. Otherwse one gets a useless debate based on the instability of central banking, which is a religious debate at this point, most people praying the central bank can hold out.

Truth. Many stock valuations are irrational. You and I are old enough to have watched the dot.com bubble.

One wonders what Tesla "number" (gross sales, gross margin, net operating income, etc.) is capitalized and discounted at what rates (0.001%?) to justify a $900 buy.

The Tesla shorts learned the hard way that the market's irrationality easily outlasts one's capital.

Even more irrational Tesla was able to issue/sell more common stock this week. Truly irrational. Tesla couldn't issue more debt, it's rated subinvestment grade. Imagine Lehman Bros. issuing new stock in September 2008.

..."Tesla was able to issue/sell more common stock this week."
aTles shrugged.

They have not run out of Tesla fanboys to buy their shitty equities. Point out Tesla's tentative financial situation and they accuse you of being a poor hater. Discussing Tesla's shitty quality control elicits similar angry reactions.

ask any trader, how it feels to a short a stock when it rises, and they'll tell you its worse. Because perception plays little role for a trader. How a stock is essentially volatility for that trader.

It is not just American health care that is exceptional, though this is the first time seeing a number.

Conclusion 3: US consumers already pay two or three times more than those of other rich countries for their cell phone plans. The gap will only increase.

And just a reminder: these firms invest 0% of the excess profits.

Germans pay $15 / month for unlimited data?

In the US it’s about $35 per phone for a unlimited data family plan with 4 phones.

Cursory google search is €80 Euro per line. Which would be €320 versus $150 for a family of 4.

?

The average USA family is 3.14 people, and that includes children arguably too young to use a smartphone. One and 2 person households make up MORE than 50% of US households. "Shill" is the word that comes to mind.

Your cursory search was very cursory. The first provider I checked has an unlimited plan already for 29 Euros:
https://www.giga.de/news/o2-startet-neue-tarife-das-muesst-ihr-wissen/
It includes free unlimited roaming in the whole EU. And guess what, that's just the first provider I found, so I'm sure you can go lower.

I think this is pretty simple. Are Sprint and T-Mobile earning their cost of capital? If they are, then a merger would be anti-competitive. If they aren't, they it will improve competition.

In ters of resources allocated, yes. Price, however, is mostly broken at this point, ratios no longer work.

One assumes that the merger will kill this particular T-Mobile feature - T-Mobile prepaid plans

Something that is utterly standard everywhere else that T-Moblle is active, but apparently, the idea of simply owning a mobile device and buying a month's worth of connectivity without a contract is not something normally offered in the U.S.

https://www.att.com/prepaid/plans.html

Yeah I got an ATT prepaid no-contract plan when I lost my phone and just wanted a temporary replacement. That ATT plan was supposed to cost only $2 per day, and only on the days that I used it. But every day I'd get a message telling me that ATT was charging me over $5 for the previous day's usage.

I've had more than enough hours of battling through ATT's worst-in-class customer service so I haven't even bothered to try to ask them what's going on.

Prepaid is not a contract nor a plan, it is simply a fixed amount which is reduced through use. A debit (or gift) card essentially, with the balance only being reduced when telephoning/surfing. And there is no charge per day in any sense.

The concept seems still foreign to the U.S., using your example. When I buy 25 euros from a store (most people are quite uninterested who the mobile company is) that is pretty much the extent of my interaction. A number of phones offer two SIM card slots, so you can use two providers simultaneously - for example, the one you use at home, and a second when you travel to another country and buy a prepaid SIM. Or to use one provider professionally (your company has a contract) and another privately (you use a prepaid account).

And with prepaid, there is no customer service basically - enter the code, see the credited amount, 99.99etc% of the time. If there is a problem, you go back to the store where you paid, and whatever the problem is generally gets quickly resolved, assuming you have the receipts. The old amount is cancelled, and a new code provided for the amount. Sometimes, the other people in line have to wait a minute or two, or the problem turns out to be a bit more involved for whatever reason, meaning that the cashier goes back to ringing up customers. Probably happens once every 6 months or year when food shopping.

This is completely not a foreign concept in the U.S. In fact, it is ubiquitous--you can buy prepaid Tracfones and other prepaid phones at any major retailer, occasionally even at drug stores. Before you make a statement, next time you may want to do at least some cursory fact checking.

Tell mkt42 - he seems to have been unclear on this ubiquitous possibility.

Get a Tracfone. If you don't use that much data, the total cost is less than $20 a month. I have a Tracfone myself. Even if you use lots of data, now they have a $10 prepaid card that adds 1 GB of data.

Odd that it is not possible to link to what T-Mobile offers

The Germans have the last laugh. Oddly enough, Deutsche Telekom which still owns about half of TMO stock and for which TMO is probably half of group cashflow at this point, went up only 4% on the news.

"If only things were so simple."

This reminds me of the limitations of randomized controlled trials. With event studies and RCTs we get a clean result in theory. But when it comes to evaluating the validity or generalizability of the result, it's not so easy. How long should the event study window be? How similar is your population to the one where the RCT was conducted?

Also, how well can markets predict the outcome? Even with the wisdom of crowds and money riding on their choices, maybe people just don't know how the companies will be affected by the merge. Election markets didn't predict Trump's victory.

Best article which is worth reading it . Thanks

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