DoJ Opposition to US Airways, American Airlines Merger has Telecom Implications

The unexpected lawsuit by the Department of Justice to block the proposed US Airways merger with American Airlines reminds some of us of merger strategy in the U.S. telecommunications business.

In the past, when a merger wave is about to break out, it has been better to be the first such combination, not the last. The reason is that, for all the oversight issues, it has been easier to be the first to move, rather than the last to move. 

After clearing a number of other similar transactions, DoJ now seems to have concluded that the merger wave has gone far enough. In 2008 DoJ had approved the merger of Delta and Northwest Airlines. In 2010 it approved the merger of United and Continental. 

In terms of share of domestic seats sold in September 2013, Delta Air Lines has 22 percent, Southweset Airlines has 21 percent, United Airlines has 17 percent, US Airways has 12 percent while American Airlines has 13 percent. 

Granted, the profit is in the overseas routes, but those earlier mergers, which dramatically reduced competition, seem to be bumping against an analogy to the "rule of four" that many telecom regulators apply to mobile competition.

And that rule is that four competitors are required. In the airline industry, it appears DoJ deems four to be insufficiently competitive.