The Jobs-and-Competition-Killing T-Mobile/Sprint Merger Is Back On
Here comes yet another competition and job-killing mega-merger that nobody asked for.
While the country was busy the last few weeks debating the the anti-competitive implications of AT&T’s $86 billion acquisition of Time Warner and Sinclair’s $3.9 billion acquisition of Tribune Media, another controversial and problematic merger was quietly rekindled.
The Wall Street Journal reports that Sprint and T-Mobile are again talking merger, potentially reducing the overall number of competitors in the wireless space from four to three. After more than a year of on again, off again flirtations, the two companies scrapped merger talks late last year after Sprint purportedly refused to give up control over the combined company.
Executives for Sprint and the company’s Japanese owner Softbank spent the better part of last year trying to butter up the Trump administration by letting him claim responsibility for already-pipelined job creation plans he had absolutely nothing to do with.
"We are excited to work with President-Elect Trump and his Administration to do our part to drive economic growth and create jobs in the U.S.,” Sprint CEO Marcelo Claure said in a press release in late 2016. "We believe it is critical for business and government to partner together to create more job opportunities in the U.S. and ensure prosperity for all Americans."
Ultimately those jobs had little to do with Trump or the merger they were selling, though Sprint vaguely tried to imply otherwise in a bald effort to curry favor with the administration. In reality, analysts that have dug into the pitfalls of the proposed T-Mobile, Sprint merger say the impact the deal will have on American jobs will be monumental.
As of last fall, the two companies reported employing 78,000 combined employees (50,000 for T-Mobile, 28,000 for Sprint). Jonathan Chaplin of New Street Research told the Chicago Tribune last year such a merger could eliminate as many as “approximately 30,000 American jobs” — more than Sprint currently employs.
Craig Moffett of MoffettNathanson Research predicted a slightly less dire impact, suggesting that 20,000 jobs could be eliminated by the union. 15,000 of those positions would come from the elimination of redundant retail locations, with 5,000 being “overhead” jobs at both companies’ headquarters.
T-Mobile has had a largely disruptive and positive competitive impact on the wireless market. The company’s more consumer-friendly brand messaging (which we’ll note does not extend to net neutrality or union labor) has resonated with consumers and resulted in notable improvements AT&T and Verizon have been forced to copy.
Lower international roaming costs, the elimination of long-term contracts, the return of unlimited data plans, and a notable reduction in sneaky hidden fees are all directly attributable to T-Mobile’s competitive impact on the market.
Sprint, by contrast, has struggled to have the same consumer impact. The company’s network, while improving, routinely languishes in last place in most network performance studies, and Sprint’s marketing efforts often feel like pale imitations of T-Mobile’s own brand exercises. Still, Sprint’s balance sheet and subscriber numbers have slowly been improving over the last year.
Supporters argue that the combining the two companies would create a tougher competitor to AT&T and Verizon.
But that’s not how competition (especially in telecom) works. When you reduce 25 percent of the overall competition in the market, the incentive for the remaining three companies to compete is reduced dramatically. Even with the positive impact T-Mobile has had on carrier policies, the four companies already try to avoid genuine price competition whenever possible.
AT&T and Verizon also enjoy a monopoly over much of the fiber backhaul feeding cellular towers. That drives up overall costs for both Sprint and T-Mobile as they try to compete with their larger competitors, a dynamic that wouldn’t much change post-merger. Especially with the Ajit Pai FCC pushing policies that could make that problem worse.
History and data indicates the union of the two companies would have a profound, negative impact on both employment and overall competition in the wireless space. But as the two companies try to sell the Trump administration on regulatory approval, you’ll likely see both companies and their lobbyists repeatedly claiming the exact opposite.