The pending merger of T-Mobile and Sprint presents regulators with a perfect opportunity to further propel the wireless success story in the United States. This is a story about ceaseless innovation, fierce competition, and incredible consumer gains, positioning mobile technologies at the center of American life:
- Pew reports that 95% of all American adults own a cellphone, with 77% owning a smartphone.
- Adults spend an average of 5 hours each day on their mobile devices, checking them constantly from the moment they wake until they go to sleep.
- Children are a growing part of the mobile revolution: Common Sense Media has found that kids aged 0-8 spend nearly an hour every day with a mobile device, watching videos and playing games. Nearly half have their own device.
- For an array of reasons, a growing share of households are smartphone-dependent for internet access, a trend that is particularly evident “among younger adults, non-whites and lower-income Americans.”
- It is estimated that, by next year, the time spent on one’s smartphone each day will overtake time spent watching TV, an astounding shift in a country that was once defined by its obsession with the boob tube. The shift in advertising spending, away from TV and toward mobile, has been evident for the last few years.
The mobile industry is now a critical segment of the economy, driving investment and job creation not only in the deployment and maintenance of networks, but also in device manufacturing and app development. It has been estimated that the U.S. wireless industry writ large contributes some $475 billion in GDP and supports nearly 5 million jobs. The looming transition to 5G promises to multiply these figures greatly as next-generation mobile broadband becomes the thread that ties together the internet of things, smart cities, and an untold number of other essential services that will further disrupt how we live, work, and play.
The combination of T-Mobile and Sprint will play an important role in realizing the enormous potential of 5G and in furthering disruptive innovation throughout the rapidly converging digital ecosystem. The absorption of a struggling Sprint by the unfailingly frisky and aggressively competitive T-Mobile will yield a stronger entity that is stout enough to take on the range of new competitors vying for customers in this space.
Through the Looking Glass, A Converged Reality
Gone are the days when bright lines neatly delineated discrete segments of the communications and media market. Digitization has flattened this space, lowering entry barriers to the point where it no longer makes sense for firms to compete solely within a particular slice of the market. Compounding this dynamic is how lucrative and easy it is to monetize the data emanating from consumers’ use of digital services.
Even in this converged market, it might appear that big tech firms like Facebook, which dominate the digital ad space, have little in common with a company like T-Mobile. In reality, though, they all compete fiercely for customers’ attention, positioning consumer demand as the primary force shaping the marketplace.
A desire to dominate consumer attention drives competition in our digital era. The strategies for doing so vary widely. Big tech is focused on monopolizing the online experience in order to collect as much personal information as possible, which they then use to target personalized ads. Another strategy is vertical integration, an approach that is increasingly evident in the media space.
The “Uncarrier” + A Struggling Sprint = An Even Stronger Competitor
Where does T-Mobile fit in?
T-Mobile’s competitive advantage has been and will continue to be its ability to spearhead innovations in pricing and service offerings.
While Sprint tried distinguish itself in this new world by, among other things, initially embracing a different 4G standard and going all-in on the iPhone – two strategies that failed to stem significant subscriber losses – T-Mobile fell back on its core competencies around pricing and customer service in its attempt to lure customers away from competitors. That bet paid out many times over.
There is a long history of T-Mobile taking the path less traveled in the mobile market. Its early embrace of the Sidekick, for example, not only demonstrated its mobile data bona fides, but also helped it to carve out a niche as a carrier that was more aligned with the tastes of customers who wanted an accessible and affordable texting device without having to purchase a stodgy Blackberry. T-Mobile has also been a pioneer in the development of hybrid service plans. From its FlexPay program and prorating of early termination fees (ETFs) in the late 2000s to its longtime focus on the prepaid market, T-Mobile has always offered customers a broad range of options for purchasing a smartphone and data plan.
This ethos serves as the foundation of its Uncarrier rebranding, a move that was animated by a desire to keep customers’ attention in this era of hyperactive competition. Many of its offerings (and efforts to promote them) have garnered headlines and trended on social media. Subscribership has steadily increased in response. Unique offerings have included innovations like offering to pay the ETFs of customers of other carriers so they can become T-Mobile customers, and free data programs (e.g., Binge On) that allow customers to consume significantly more data without having to pay for it.
Given the success of this strategy, it is not reasonable to believe that T-Mobile would simply abandon what it stands for as a company, how it competes to serve its customers, and its pursuit of innovation. Even after absorbing Sprint, New T-Mobile will remain the third-largest wireless company. As such, maintaining its focus on pricing innovation, coupled with a commitment to prioritizing 5G deployment, will be central to the company’s efforts to serve, retain, and grow its customer base. New T-Mobile will face fierce competition in price and service offerings from existing providers – and from new players in the space.
Turn That Frown Upside Down
Alas, for as much as the T-Mobile/Sprint transaction makes sense in the converged digital landscape, detractors are pushing a much different narrative. In particular, the anti-merger crowd asserts – without any persuasive data – that prices will increase, competition will be stifled, and innovation will be undermined if the T-Mobile/Sprint marriage is allowed. In other words, the sky is falling. Some have even gone so far as to compare the wireless sector with the airline industry, warning that the higher prices and consumer welfare losses (e.g., smaller seats) that plague air travel are in store for mobile customers.
This type of knee-jerk criticism of the merger misses the mark and is a disservice to rational policy discussion. The only thing the wireless and airline industries have in common is that they both send things through the air. Whereas the wireless space continues to offer consumers a better overall experience, the airlines are stuck in a race to the bottom, unless you consider reupholstered seats and larger overhead bins to be innovative. But more broadly, such repetitive prophesies of doom are as stale as they are removed from the realities of the modern milieu within which companies like T-Mobile and Sprint compete.
Failure to embrace a more dynamic, forward-looking view of this milieu doomed the DOJ’s challenge of the AT&T/Time Warner merger. As the trial judge noted in his opinion blessing the merger, the inability (or unwillingness) to acknowledge the converged nature of the digital ecosystem, where “legacy” entities like AT&T face stiff competition for eyeballs from upstarts like Netflix, “def[ies] reality.”
As regulators review the T-Mobile/Sprint merger, it is critical that they approach the transaction not with the narrow, backward-looking narrative being shopped by the anti-merger crowd but with an understanding of market realities and an appreciation of what a fiercely competitive T-Mobile brings to the table. Doing so will make clear that the merger is a great idea.
