Federal Government Begins Work on T-Mobile–Sprint Merger

REGULATORY ANALYSIS: The Federal Communications Commission forms a task force while the Senate Judiciary Committee holds hearings on the plans by T-Mobile and Sprint, the nation’s third and fourth wireless carriers to merge.

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Federal Communications Commission Chairman Ajit Pai has named David Lawrence, a former Justice Department antitrust lawyer, to head the task force that will coordinate the agency’s review of the T-Mobile–Sprint merger. Lawrence previously served as the counsel to the assistant attorney general in the Department of Justice Antitrust division. He focused on telecommunications and transportation during his time at the DoJ.

The appointment of Lawrence marks a major step in the FCC’s progress, considering the proposed merger. It also marks the first major step in the FCC’s self-imposed 180-day clock to process the approval. However, that doesn’t mean that the merger will be approved or denied in that period of time, because that clock can be stopped or even moved backward depending on events.

Meanwhile, the heads of the two companies appeared before the Senate Committee on the Judiciary in a hearing titled “Game of Phones,” where they made their case to members of the committee. The committee also called representatives from Public Knowledge and Consumers Union, along with a researcher for the American Enterprise Institute and a representative from Intel who explained 5G technology to the committee.

Why a Merger Would or Wouldn't Benefit Consumers

The committee hearing gave Sprint and T-Mobile another chance to explain why the merger would benefit consumers and business users, why they needed the merger to deploy 5G networks and otherwise compete with Verizon and AT&T in building strong nationwide coverage.

Roslyn Layton, a visiting scholar from the American Enterprise Institute, provided a detailed analysis explaining the impact on prices and infrastructure investment if the merger were allowed to go through.

“Despite the massive consolidation in the U.S. and worldwide telecom market over the years, consumer prices have only gone one way: down,” Layton said in her testimony. “There are few products and services that improve in quality as they decrease in price, and consumers consistently get value for money.”

Layton said that the continued downward trend of prices with an upward trend in quality forces her to call into question the conventional wisdom that a merger that reduced the number of competitors from four to three, as would happen with the T-Mobile–Sprint merger, would raise prices and reduce competition.

Having Maverick in the Mix (T-Mobile) Enhances Competition

Layton said that her studies indicate that when you have a maverick setting the strategy in one of those players, then competition is enhanced. She said that it was clear that T-Mobile learned lessons from when such tactics were deployed against it in Germany. She also said that the theory that three major players would collude also doesn’t work when a maverick organization is involved, because such organizations are known for being unwilling to cooperate over time.

Layton also noted that the change from four major players to three may happen regardless of whether the merger is allowed.

“In any event, there is no guarantee that the market will not consolidate to three networks anyway,” Layton said in her testimony. “A cable company could buy Sprint, or Sprint could exit the market. T-Mobile is willing to pay a premium, probably more than a cable company, because the synergies are most attractive to them.”

Meanwhile, China is taking advantage of the slow move in the U.S. to 5G communications because of both uncertainty and regulations.

“While we split hairs on market definition and magic numbers, we have lost focus on a bigger, more important issue,” Layton said. “China is about to eat our lunch in the internet economy. China already has the edge on 5G and supplanted the U.S. as the world’s largest mobile app market by downloads and revenue for two years running.”

'Consumers Have Never Had It Better' Than Now

As to the question regarding prices and investment in infrastructure, Layton said that the current trends should continue. “In spite of or because of consolidation, consumers have never had it better than they do today, and that trend should only continue,” she said. “We should welcome 5G because it is another milestone in the never-ending story of our civilization as a constant, dynamic evolution, continuously improving our quality of life.”

After looking at Layton’s research, as well as the research that I’ve done on my own, there seem to be clear indications that on its current path, 5G technologies aren’t going to be rushed to market in a way that will provide immediate benefit to users. Both Verizon and AT&T, while they are working on 5G, don’t have plans that will provide widespread high-capacity service.

On their own, neither T-Mobile nor Sprint can pull it off by themselves. But as the companies explained in their public interest statement, together they have the right mix of licenses, frequencies and physical infrastructure to make widespread 5G a reality much sooner.

In addition, T-Mobile has the experience required to both build-out 5G rapidly based on its rapid build-out of 4G LTE recently, and it has the experience required to convert a major carrier’s customers from CDMA that Sprint uses to the global GSM standard it (and the rest of the world) uses.

While it’s by no means assured that T-Mobile and Sprint can win the 5G race against China, experience seems to indicate that such a combination has the best chance, versus not doing the merger. 5G is going to be a critical technology within the next two years, and there’s no sense in abandoning the field to China while there’s still a solid chance to win.

 

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...