Promises Mean Little for Consumers in T-Mobile-Sprint Deal

Opinion: The proposed merger of two wireless giants will reduce competition and should be blocked.
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The proposed merger of two wireless giants will reduce competition and should be blocked.Scott Barbour/Getty Images

Last week T-Mobile and Sprint, two of the four nationwide mobile wireless network operators, agreed to merge in a deal valued at $26.5 billion. Not surprisingly, the companies are making a lot of promises to gain the support of both the Federal Communications Commission and the Department of Justice, both of which must approve the merger. But consumers should not be fooled. The proposition here is simple: This deal will shrink the market for nationwide mobile wireless service from four players to three, giving consumers fewer choices and increasing the likelihood that prices will be higher and service offerings will be less consumer-friendly.

Decreased competition in a market that is already consolidated? This deal should be an easy one for the government to reject.

Both T-Mobile and Sprint have been feisty and effective competitors to AT&T and Verizon, the two largest wireless carriers. After the government blocked the merger of AT&T and T-Mobile in 2011, T-Mobile transformed itself into the “Uncarrier,” dedicated to changing the norms of the wireless industry. T-Mobile was the first mobile carrier to eliminate two-year contracts. It created innovative and cheaper family plans. It and Sprint were the first carriers to allow subscribers to unlock their phones. Sprint proudly took a chainsaw to its competitor Verizon’s bills and offered to cut those costs in half; it currently has the cheapest unlimited data plan. Both companies have fought to match AT&T and Verizon in coverage, speed, and reliability.

These moves benefitted the companies (for example, between 2015 and 2017, T-Mobile had by far the greatest growth in subscribers who pay monthly), but more significantly they benefitted all mobile wireless customers: Verizon and AT&T have responded to the competition by lowering their prices and providing unlimited data plans.

Overall, prices for mobile wireless service decreased 13 percent from June 2016 to June 2017. Should T-Mobile grow to the scale of Verizon and AT&T, the incentive to take risks and push the other two companies will be reduced, while the incentive to act in concert with them to raise prices and reduce consumer-friendly service plans will grow.

Just as importantly, T-Mobile and Sprint also compete with each other to the benefit of consumers. T-Mobile owns Metro PCS, and Sprint owns Boost Mobile and Virgin Mobile, which are three of the largest low-cost, prepaid wireless carriers. Merging the two companies will therefore also reduce competition in the prepaid wireless market, to the detriment of low-income Americans.

In the press release announcing the merger, T-Mobile CEO John Legere said, “This isn’t a case of going from four to three wireless companies—there are now at least seven or eight big competitors in this converging market.” Except that there aren’t. While it’s true that Comcast is a big company, its mobile wireless footprint is tiny—it has a little more than 577,000 customers, compared with 116 million for Verizon, 93 million for AT&T, and about 98 million if the companies merge.

Comcast’s cellular service is only available to its internet customers, but more importantly, it doesn’t own a network—it leases capacity from Verizon, which could one day decide to raise its prices or end its agreement with Comcast. If the market shrinks from four to three, Comcast will have far less leverage to go somewhere else if that happens. Charter Communications, which hasn’t even launched its mobile service yet, is in the same boat.

The claim that there are more than four viable competitors in this market is baseless—and this merger will bring that number down to three. At a time when the Department of Justice is investigating Verizon and AT&T for colluding with a wireless trade association to keep customers from easily switching carriers, shrinking the market is even more perilous for consumers.

Companies seeking to merge typically promise the sun, moon, and the stars to regulators in order to obtain approval, and T-Mobile and Sprint are no different. In a transparent attempt to appeal to the Trump administration, they promise, among other things, to increase service to rural communities, accelerate the move to extremely fast fifth-generation 5G wireless networks, and create jobs.

But these benefits will occur regardless of whether these parties combine. Having spent nearly $8 billion to buy new high-quality spectrum at a special FCC auction last year, T-Mobile already has plans to extend its reach into rural areas. It’s notable that T-Mobile is not offering to build in the 10 percent of communities that have no broadband access at all; that would be an extremely expensive proposition, and one for which carriers would seek subsidies under one of the FCC’s universal service programs.

Nor will this merger accelerate the rollout of 5G networks. The companies claim that with their increased resources, they will push their competitors to make more and faster investments in 5G. They even play the China card, asserting that without this merger, China will take the lead in rolling out the technology.

Again, those investments, and the race to be the first to build a 5G network, will happen regardless of whether this merger goes through. Just three months ago, Sprint announced plans to launch its 5G network in 2019. T-Mobile plans to begin 5G deployment in 2019 and launch a nationwide network in 2020. Verizon is already beta-testing its network, with plans to provide a full 5G service in 2019. AT&T has promised to offer 5G service in a dozen cities by year’s end.

In fact, it is equally likely that this merger could slow the combined companies’ completion of a 5G network. Sprint and T-Mobile will have to merge two networks that are technologically different, in addition to combining personnel, management, and corporate cultures. History has already shown the difficulties in incorporating two different networks: When Sprint bought Nextel in 2005, the transition was a disaster and one from which many believe Sprint has still not recovered.

The claim that the merger will create more jobs is even more specious. Like other merging parties, T-Mobile and Sprint say the combined companies will have “lower costs, greater economies of scale” and “cost synergies.” The way that most merging companies achieve those goals is by eliminating redundancies, which typically means cutting jobs, among other things. If there is a Sprint store two blocks away from a T-Mobile store, there’s no chance that the company will keep both.

This deal is straight from the antitrust textbook—a horizontal merger that will shrink the market from four to three companies, substantially decreasing competition and harming consumers. The companies’ promises are speculative and not specific to this merger. This deal should not be a hard call for either the FCC or the DoJ—it should be blocked.

WIRED Opinion publishes pieces written by outside contributors and represents a wide range of viewpoints. Read more opinions here.

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