In 2002 AT&T, the largest telecommunications company in the US, spun off AT&T Br

Question

In 2002 AT&T, the largest telecommunications company in the US, spun off AT&T Broadband, its broadband and Internet subsidiary, as a separate company. AT&T Broadband soon merged with Comcast, another supplier of broadband cable and Internet services. Which of the following statements is/are possible explanation/s for these transactions? (Choose the single best answer, please explain your answer)

a. There are economies of scope between broadband cable service and the other telecommunications products, like long distance phone service, offered by AT&T.

b. There are diseconomies of scope between broadband cable service and the other telecommunications products, like long distance phone service, offered by AT&T.

c. There are economies of scale in delivering broadband services.
d. There are diseconomies of scale in delivering broadband services. e. Both a. and d.
f. Both b. and c.

Explanation / Answer

Option f is correct

Diseconomies of scope would mean that diversification by a single firm is not an efficient option and separate provision of services by separate firms is more efficient. (The spinoff would be more efficient when operating separately)

Similarly, a merger would mean that there are economies of scale in provision of broadband services and increase in production/provision of services would require comparatively lesser inputs and reduce average costs.

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