A Senate Judiciary subcommittee’s look Wednesday into the T-Mobile-Sprint merger’s potential impact on competition came down to simple arithmetic: Does subtracting one of the top four wireless competitors leave three competitors or two?
T-Mobile’s all-stock deal for Sprint would create a $146 billion wireless provider in a better position to compete against the two largest carriers, AT&T and Verizon, the companies have said. The merger, announced in April, is also under scrutiny by the Justice Department
But senators had heard from opponents of the merger who say it would take another competitor off the board.
“Their fear is that the transaction will reduce the incentives of the merged firm to continue aggressive competitive efforts that have benefited consumers,” said the subcommittee chairman Sen. Michael Lee, R-Utah.
That concern was echoed by Gene Kimmelman, CEO of consumer advocacy group Public Knowledge. Since AT&T abandoned its announced attempt to acquire T-Mobile in 2011, the marketplace has seen a competitive vibrancy “forced by direct competition between Sprint and T-Mobile, and upward pressure on AT&T and Verizon,” said Kimmelman, who joined the telecom execs on a panel of witnesses.
“The industry had enormous investment (and) massive innovation,” he said. Consumers were offered lower-priced plans, options without long-term contracts and easier ways to get new phones. “That is what we fear would be lost with this merger, as well,” Kimmelman said.
But T-Mobile CEO John Legere told the senators he challenged their equation being used to describe the marketplace.
“I strongly believe that this is moving from two to three. The merger “is creating a viable competitor (that) can compete with AT&T and Verizon, who have shown historically they will only respond when forced to respond,” he said. “We shouldn’t be punished for our competing aggressively in the past … (or from) having the ability to create the arsenal of weapons that can take this innovation and competition to the next level.”
Marcelo Claure, Sprint’s executive chairman, agreed the merger would take the industry from “two very strong competitors to three.” And the combined company could also help the U.S. maintain a global leadership position in the rollout of 5G technology, he said.
Sprint, the No. 4 wireless carrier, would struggle to deploy a 5G network on its own, Claure said. But Sprint and T-Mobile have complementary spectrum holdings and, combined, could more easily create a robust nationwide network. AT&T and Verizon “will be forced to react, invest and compete harder and that will be good for consumers and innovation,” he said.
The nation’s No. 3 and No. 4 wireless carriers tried to join forces before four years ago. But they eventually called off talks because it was believed the hurdles under the Obama administration were too high.
Legere and Claure on Wednesday said this merger, if approved by regulators, would lead to lower customer prices, increased innovation, more jobs and improved wireless service, especially in the rural U.S.
But history doesn’t necessarily suggest so, said George Slover, senior policy counsel for Consumers Union. “It’s a basic fact in antitrust that the more concentrated a market gets, the less room for competition to work,” he said.
However, there is no guarantee the four-way battle royale will continue if the merger is disallowed, said Roslyn Layton, a visiting scholar at the American Enterprise Institute. Sprint could be acquired by the company or go out of business, she said. “It’s a real risk to them if they are not (allowed to merge with T-Mobile),” she said.
T-Mobile has added 5 million subscribers each year between 2014 and 2017 and now has 74 million subscribers. Sprint has 54.6 million, down from about 58 million in 2015 when T-Mobile supplanted it as the No. 3 wireless carrier.
The combined company would likely continue the aggressive business tactics that have helped them each, Layton said. “I am very skeptical they could raise prices and decide to throw out the strategy that has worked for them,” she said.
More: T-Mobile, Sprint agree to merge as America’s national wireless carriers shrink from 4 to 3
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