AT&T-Verizon: The inevitable duopoly?

The cell phone industry is imperiled by a duopoly, according to the antirust watchdogs at the Department of Justice. First regulators killed AT&T's $39 billion deal to buy T-Mobile. Now the Justice Department is taking a hard look at Verizon's plan to buy $3.6 billion worth of airwave licenses from cable TV companies, which would allow it to expand its giant wireless network even further. AT&T and Verizon are indeed an intimidating pair. They have 101 million and 108 million wireless customers, respectively. That huge scale results in much fatter profits than the rest of the industry. Together the two companies now generate close to 85% of the U.S. wireless industry's total cash flow. While those huge profits appear tempting for new competitors, the hurdle for any effective challenger is replicating the two companies' scale. At the end of September, Verizon owned spectrum the company valued at $73.2 billion, which will climb to $77 billion if the Justice Department agrees to let them buy more airwaves from the cable companies.

What sort of competitor can make an investment to compete with that? Even if a company found $50 billion to spend on airwaves at today's prices, they'd still have to billions more to build the actual physical network of towers around the country. So perhaps it is no surprise that in the past year the viable candidates for the title of "duopoly killer" have all but disappeared.