The T-Mobile, Sprint Merger Will Be Terrible For Consumers

Eliminate one of four carriers and the incentive to compete on price is reduced proportionally. Of course, T-Mobile and Sprint executives spent most of the weekend trying to claim the exact opposite.

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Apr 30 2018, 8:03pm

Image: T-Mobile

Sprint and T-Mobile spent most of the weekend trying to sell the media and consumers on the telecom industry’s latest blockbuster megamerger. A new website built specifically to sell the deal promises a cornucopia of new jobs, improved broadband service, and increased competition if the two companies are allowed to complete their $26 billion deal.

“Only the New T-Mobile will be uniquely able to accelerate the country’s position and quickly deploy a broad and deep nationwide 5G network that will deliver better service and lower prices to consumers across all parts of the U.S.,” the merger website proclaims.

“We will supercharge the pro-consumer, Un-carrier strategy to bring sustainable competition into the marketplace and create new jobs starting day one,” it insists.

History suggests those promises are going to be proven decidedly hollow.

The two companies attempted to merge in 2014 but had their efforts blocked by regulators who were justly worried about the deal’s impact on overall competition. As Canadian wireless users can attest, the reduction of major wireless competitors from four to three only reduces the overall incentive for wireless carriers to engage in real price competition.

That was the central point repeatedly made by regulators when they prohibited AT&T from gobbling up T-Mobile back in 2011. Even with four competitors, the industry frequently does its best to avoid genuine price competition, and industry watchers have noted that the overall volume of quality promotions for wireless consumers had been dropping so far in 2018.

After regulators blocked the AT&T merger, T-Mobile wound up being a largely positive impact on the sector, forcing its competitors to adopt more consumer-friendly policies like eliminating long-term contracts and early termination fees. However, even with T-Mobile intact, price competition in the sector tends to be theatrical in nature.

Eliminate one of four carriers and the incentive to compete on price is reduced proportionally. Of course T-Mobile and Sprint executives spent most of the weekend trying to claim the exact opposite on Twitter:

The narrative du jour is that Sprint can’t survive without such a deal. And while Sprint’s debt load was cumbersome, the company had been making inroads on that front with the help of its Japanese owner Softbank. And there were several other potential partnerships (with a cable or satellite TV provider) that could have kept Sprint afloat without reducing overall competition.

When Sprint executives were busy trying to claim that eliminating a major competitor somehow boosts competition, T-Mobile executives like CEO John Legere were trying to claim that the mega deal would be a great boon for employment numbers at the fused company:

That promise is notably empty as well. Wall Street analysts are on record predicting that a Sprint, T-Mobile merger could result in the loss of up to 30,000 jobs—potentially more than Sprint even currently employs. From retail operations to middle managers, there’s an endless roster of human beings who, sooner or later, will be viewed as redundant.

Needless to say, consumer groups weren’t particularly impressed by the two companies’ theatrical sales pitch.

“If approved, this deal would especially hurt consumers seeking lower-cost wireless plans, as the combined company’s plans would likely increase while competitors AT&T and Verizon would have even less incentive to lower prices,” said Phillip Berenbroick, lawyer for the consumer advocacy group Public Knowledge. “Unless the merging parties can demonstrate clear competitive benefits we have yet to see, we will urge the Department of Justice and the FCC to reject this deal.”

Whether the Trump administration approves the deal remains uncertain.

While the Trump FCC has arguably been a mindless rubber stamp for industry interests (as the attack on popular net neutrality rules makes abundantly clear), the Trump DOJ is more of a wild card. Especially in the wake of the agency’s lawsuit to stop the anti-competitive impact of AT&T’s $86 billion acquisition of Time Warner.

There’s a reason these two companies announced such a major deal on a Sunday while the majority of America was out mowing its lawn. And there’s a reason they’re trying to rush through a deal before adult regulatory supervision inevitably returns to fashion. These companies know full well the deal is a job and competition killer that benefits themselves exclusively.

If you’ve ever lived through a merger like this, you know that there’s always ample, breathless promises that “nothing will change”—and that if things do change, it will only be for the better. But the telecom sector in particular has a long, proud history of merger “synergies” that never materialize, and megadeals that only amplify the sector’s anti-consumer dysfunction.

There’s absolutely no reason to believe this latest deal will be any different.