Sprint is considering an acquisition of T-Mobile, a move that would consolidate the nation’s third- and fourth-largest wireless carriers. The Wall Street Journal, citing people familiar with the matter, reported the news Dec. 13, setting off not-this-again sighs across the industry.
“Let’s pop this trial balloon quickly, please,” John Bergmayer, a senior staff attorney with consumer advocacy group Public Knowledge, blogged later the same day.
On Twitter, PC Magazine editor Sascha Seegan Tweeted, “Anyone who thinks three carriers is competitive, PLEASE TALK TO A CANADIAN,” while Gigaom’s Kevin Fitchard marveled, “How soon Sprint forgets. Didn’t 8 years of wearing the Nextel albatross teach it anything?”
AT&T and T-Mobile spent the majority of 2011 trying to convince the Federal Communications Commission (FCC), ultimately unsuccessfully, that a merger of their businesses would be good for the industry and good for consumers. T-Mobile, which endured a deep slump through most of 2012, blamed its losses on the forced inertia during its long wait-and-see period, as the pair submitted and resubmitted documents to the FCC.
The Department of Justice ultimately filed a suit against AT&T to stop the deal.
Sprint is currently “studying regulatory concerns,” the Journal reported, and could make a bid in the first half of 2014. It estimated that the deal could be worth upward of $20 billion.
Japanese carrier Softbank, headed by billionaire Masayoshi Son, this summer purchased a 78 percent share of Sprint, with a promised plan to make aggressive moves in the U.S. wireless market. T-Mobile is owned by the German telecommunications firm Deutsche Telekom, which would like to pull out of the U.S. market, according to numerous reports.
T-Mobile’s Success Works Against It
The most compelling argument against a Sprint-T-Mobile merger is T-Mobile itself, and the role it has played since exiting its plan with AT&T.
AT&T paid T-Mobile a $4 billion breakup fee after the deal dissolved and T-Mobile quickly used it to launch a rollout of Long Term Evolution (LTE) technology, which additionally enabled it to support the Apple iPhone. John Legere soon after joined as CEO, and T-Mobile repositioned itself as the “un-carrier.” It did away with two-year contracts, made it possible to upgrade devices more frequently, offered monthly device financing, rolled international data and texting into the price of its Simple Choice plans and, most recently, pushed an initiative to get more people to use tablets on cellular networks, instead of just over WiFi.
T-Mobile changed the way it did business and—a once-unimaginable feat—left larger rivals AT&T, Verizon Wireless and Sprint with little choice but to change along with it. In this way, T-Mobile proved the importance of having a variety of players in the market (or, at least a scrappy one with little to lose).
“A stronger third-place competitor, able to keep AT&T and Verizon in check, might sound appealing. But it’s not worth the price of losing the number four competitor,” blogged Public Knowledge’s Bergmayer. “A market with only three major carriers would be much more prone to ‘coordinated effects’ where ‘competing’ companies act as an effective cartel …”
At least three other strategies would do better work of making the industry more competitive, Bergmayer continued. One is to maintain a minimum of four national carriers. A second is to ensure that smaller carriers have access to the spectrum they need to grow and compete (a nod to the still-being-settled rules of the FCC’s 2015 spectrum auction). And a third is to adopt policy that encourages more players to enter the mobile broadband market, including methods like leveraging unlicensed spectrum.
“We need more, not less, competition,” wrote Bergmayer.