T-Mobile CEO Tells Congress That Reducing Competition Will Increase Competition
T-Mobile and Sprint are trying to merge, which would make three major cell phone providers instead of four.
Image: Andrew Harrer/Bloomberg via Getty Images
Sprint and T-Mobile are attempting to merge as part of a $23 billion deal that will reduce the number of overall major players in the U.S. wireless market from four to three.
On Wednesday, executives from both companies told a Senate Judiciary subcommittee investigating the deal that reducing the overall number of competitors in the space will somehow result in more competition, better service, and lower prices, something telecom merger history—and basic mathematics—fail to support.
“This consolidation will lead to lower prices,” T-Mobile CEO John Legere told hearing attendees.
“This is actually moving from two to three,” Legere claimed, insisting that joining forces with Sprint will make a more “viable competitor” for AT&T and Verizon.
But that’s not how competition, especially in the already competitively-challenged telecom sector, actually works. Historically, as a market gets more concentrated, there’s proportionally less incentive for the remaining companies to seriously compete on price. And since pleasing shareholders is a corporation’s primary responsibility, they’re quick to oblige.
That’s why regulators have repeatedly blocked this merger and others like it. Regulators blocked a previous tie up between Sprint and T-Mobile in 2014—as well as an attempt by AT&T to acquire T-Mobile in 2011—because they felt that reducing the overall number of players in the space would dramatically harm competition.
“For the second time in a decade the DOJ and FCC are asked to bless a transaction that would reduce the number of national wireless carriers from four to three,” said Public Knowledge President Gene Kimmelman. “Based on what we know, they should come to the same conclusion this time as they did with the AT&T/T-Mobile deal, and find that this deal also would harm consumers and should be stopped.”
History has repeatedly-shown such worries to be well justified. Canadian consumers, for example, pay some of the highest prices in the world for mobile data, thanks to consolidation that left the wireless industry with just three major wireless carriers. Even with four carriers, U.S. mobile customers don’t fare much better in comparison with their European counterparts.
Still, T-Mobile has had a profoundly-positive impact on the U.S. wireless sector, highlighting how the DOJ’s decision to block AT&T’s planned merger was the right decision.
Added competition from T-Mobile and Sprint forced their larger counterparts at AT&T and Verizon to ditch metered data and bring back unlimited data plans several years ago. T-Mobile’s policies have also forced a notable reduction in the cost of overseas roaming, as well as the elimination of long term contracts, and early termination fees.
But T-Mobile’s consumer-friendly branding does have its limits.
For example, T-Mobile supported the Trump administration’s attack on net neutrality, a move that’s likely to drive up rates further for consumers. The company has also been routinely criticized for heavy-handed tactics in terms of hamstringing employee unionization efforts, and more recently came under fire for hiring Trump ally Corey Lewandowski as a merger advisor.
Regardless of T-Mobile’s promises, some lawmakers remained skeptical that T-Mobile would remain as focused on disrupting AT&T and Verizon post merger.
“Will a combined T-Mobile-Sprint need to compete as hard?” Senator Amy Klobuchar asked the companies at this week’s hearing. “Will that competitive energy remain when the lowest-cost provider is gone and the merged company is similar in scale to Verizon and AT&T?”
Historically, the answer to that question has been a resounding no. Meanwhile, others were quick to question the companies’ claims that the merger will somehow be a boon for American job creation.
The Communications Workers of America, for example, issued a study in the wake of this week’s testimony claiming the deal could result in the loss of up to 30,000 jobs as redundant positions are inevitably eliminated. More objective Wall Street analysts have agreed, estimating that retail store closures are likely to eliminate between 10,000 and 30,000 redundant positions.
That’s in stark contrast to what company executives told Congress.
“In his sworn testimony, Mr. Legere pledged that the merger would result in opening 600 new retail stores and would create 11,000 incremental new jobs by 2024, and yet the CWA projects the merger will result in 5,000 store closures and the elimination of 30,000 jobs,” argues Peter Adderton, the founder of Boost Mobile, a Sprint-owned prepaid wireless vendor.
Again, the idea that megamergers, especially in telecom, result in higher prices and significant job losses isn’t really debatable. You only need to look at the historical landscape of similar deals, from Charter’s recent acquisition of Time Warner Cable, to years’ worth of similar blockbuster deals by the likes of AT&T and Comcast.
Each and every time, we’re promised an amazing universe of synergies that are only made possible via sector consolidation and the erosion of smaller competitors. And time and time again, like Charlie Brown and his football, we’re eager to repeat our mistakes, having learned nothing.