States Will Try to Block Sprint/T-Mobile Merger If Trump’s DOJ Won’t. Good.
On June 11, New York attorney general Letitia James announced that New York, California, and seven other states filed a lawsuit seeking to block the proposed merger between Sprint and T-Mobile. Photo: Drew Angerer/Getty Images
T-Mobile, the third largest wireless service provider in America, and Sprint, the fourth largest, intend to merge. The companies say a merger would give them the financial resources they need to compete against market leaders AT&T and Verizon, roll out 5G networks, and provide better service to Americans, an argument that has won over Federal Communications Commission chairman Ajit Pai.
I was a skeptic of the AT&T/Time Warner deal, and I think the case against this one is even clearer and stronger. There was a plausible but complex argument that the vertical integration of AT&T with a content company like Time Warner would create unfair competitive advantages. Sprint/T-Mobile is a horizontal merger and therefore a much more simple, classic antitrust example: Two companies in the same business joining up to reduce the number of firms they have to compete against, and therefore gaining leverage to raise consumer prices.
As such, it is unclear if the Department of Justice will be inclined to join the FCC chairman in blessing the deal. As Elizabeth Winkler writes in The Wall Street Journal, the FCC and DOJ both have to weigh in on the merger, and they have different mandates: The FCC can weigh benefits like a promised 5G rollout against the potential for reduced competition and higher consumer prices, but the DOJ is supposed to focus more narrowly on how competition affects consumer interests. So the DOJ could still sue to block the merger, as it did with AT&T’s ill-fated proposal to acquire T-Mobile back in 2011.
I see no reason this merger should be allowed to go forward. Robust competition among four national wireless service providers has served Americans well, with prices falling by 28 percent in the last decade, according to data from the Bureau of Labor Statistics. This compares favorably (for consumers) to less competitive industries: Landline telephone service has gone up in price by 18 percent, and cable and satellite television services by 30 percent, over the same period. Going from four national wireless companies to three would reduce those desirable competitive pressures.
A possible counterargument is that the condition of Sprint’s business is so dire that we won’t have robust competition among four players for long in any case, and that the competitive landscape is best served by letting the two smallest national players merge and size up to match Verizon and AT&T. This is roughly the argument Sprint and T-Mobile executives have made, saying without a merger they’d be offering an inferior product to their competitors and they’d have to charge more to provide it; only with the merger will America have three strong wireless competitors making truly robust investments in 5G.
This theoretically could be true, but I don’t think it is.
After all, it is almost exactly what we heard when AT&T and T-Mobile wanted to merge in 2011. The Communications Workers of America, advocating for the deal at the time, declared that “T-Mobile can’t survive on its own” and that it “lacks the resources necessary to develop the 4G LTE high-speed broadband network the company would need to remain competitive.” Of course, after that declaration, the merger was blocked; T-Mobile did in fact roll out a national 4G LTE network, and it managed to overtake Sprint and become the No. 3 U.S. carrier.
So, if the argument for this merger is going to be “dire necessity,” I think we can wait for more evidence. If T-Mobile or Sprint fails to make the 5G transition and ceases to be a true national player, then the companies can be allowed to merge. But I don’t think we should just take their word that they’re incapable of competing on their own.