Jeffrey W. Kennedy
On June 18, 2019, the third and fourth largest nation-wide mobile carriers, T-Mobile and Sprint, respectively, submitted an application with the Federal Communications Commission (FCC) to begin the process of merging into “New T-Mobile.” See Current & Recent Transactions: T-Mobile and Sprint, WT Docket 18-197, Fed. Commc’ns Comm’n (last visited Jan. 21, 2019). New T-Mobile must now navigate multiple hurdles in order to finalize this merger. First, Sprint and T-Mobile must obtain approval from the FCC to transfer their FCC licenses to New T-Mobile. To do this, New T-Mobile must convince the FCC that “public interest, convenience, and necessity will be served” by the merger. See 47 U.S.C. § 310(d).
Second, New T-Mobile must obtain approval from the Department of Justice (DOJ) that the merger will not negatively impact commerce by substantially lessening competition or creating a monopoly. See 15 U.S.C. § 18. The New T-Mobile merger is considered a “horizontal merger” because it is a merger that involves actual or potential competitors. See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines 1 (Aug. 19, 2010). Because the New T-Mobile merger is a horizontal merger, the DOJ will try to block the merger if it is likely to “create, enhance, or entrench market power or to facilitate its exercise.” Id. at 2. According to the DOJ, “a merger enhances market power if it is likely to encourage one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives.” Id.
This is not the first time that the two companies have considered merging. In 2014, the companies began discussing the possibility of a merger. See Michael J. De La Merced, Sprint and SoftBank End Their Pursuit of a T-Mobile Merger, N.Y. Times: DealBook (Aug. 5, 2014, 7:24 PM). After the FCC and DOJ voiced their antitrust concerns, the two companies abandoned merger talks. Id. Because the FCC and DOJ are under a new administration, New T-Mobile is now hoping that the companies will be able to obtain antitrust approval and merge together.
New T-Mobile Contends the Merger Will Increase Competition
New T-Mobile has multiple arguments as to why the merger will increase competition and, thus, benefit consumers. Presently, AT&T and Verizon are unrivaled by T-Mobile or Sprint separately. Verizon and AT&T make up 34.4% and 33.0% of the market share, respectively. Anna-Maria Kovacs, Competition in the U.S. Wireless Services Market 5 (Georgetown Ctr. for Bus. and Pub. Policy 2018). Conversely, Sprint and T-Mobile only make up 13.5% and 17.9%, respectively. Id. By themselves, Sprint and T-Mobile can hardly compete with the two wireless giants, AT&T and Verizon. But together, with 30.13% of the market, New T-Mobile will be able to effectively compete with these two companies, increasing the amount of competitive nation-wide mobile carriers from two to three.
Annually, New T-Mobile estimates that it will be able to save $43.6 billion total in cost synergies by 2024. Nancy J. Victory, Description of Transaction, Public Interest Statement, and Related Demonstrations: T-Mobile and Sprint, WT Docket 18-197 15 (June 18, 2018). Not only will New T-Mobile have a competitive market share, it will also be able to use that saved money to innovate and undercut Verizon and AT&T, thus requiring Verizon and AT&T to innovate and lower prices to stay competitive.
New T-Mobile also intends to use its new resources and size to create a nationwide 5G network. Id. at 15–16. This will in turn force Verizon and AT&T to improve and expand their own 5G network, which will lead to more coverage and lower costs for customers. In fact, economist Dr. David Evans has stated that if New T-Mobile builds this nationwide 5G network, the “competitive responses from Verizon and AT&T that result in as much as a 55 percent decrease in price per GB and a 120 percent increase in cellular data supply for all wireless customers.” Id. at ii.
New T-Mobile’s nationwide 5G network will also benefit two populations: rural customers and customers with in-home wired broadband. First, separately T-Mobile and Sprint do not have the capabilities to establish a network to reach many rural customers. By merging, New T-Mobile can increase its coverage into rural America, which will give rural customers who do not have adequate coverage improved coverage. Id. This will also create competition for Verizon and AT&T in rural America, which will lower prices and improve coverage for rural customers. Second, a 5G network will “eliminate the speed and capacity differential between mobile and in-home wired broadband for many Americans.” Id. This new network will force wired broadband providers to drop prices to be competitive with New T-Mobile or else Americans may completely stop using in-home wired broadband providers.
Former Agency Heads Oppose Merger
Bill Baer, former Assistant Attorney General for the Antitrust Division of the DOJ and Thomas Wheeler, former Chairman of the FCC, are very critical of the New T-Mobile merger. They contend that the merger will lead to less competition in the wireless industry and higher prices for customers. See Bill Baer & Tom Wheeler, Here’s who loses big time if Sprint and T-Mobile are allowed to merge, CNBC (May 19, 2017, 7:24 PM). This is the same stance they took in the proposed 2014 merger of Sprint and T-Mobile, which led to Sprint backing out of the deal prior to submitting it to the DOJ and FCC. Id.
Baer and Wheeler assert that all four companies, Verizon, AT&T, T-Mobile, and Sprint, are “four vigorous national competitors,” not two powerhouses and two non-competitors as New T-Mobile contends. Id. Baer and Wheeler state that because of this vigorous competition, wireless service prices have dropped by thirteen percent between 2016 and 2017. Id. Baer and Wheeler analogize the wireless industry to the cable industry, which has had a reduction in competition causing prices to increase five percent. Id.
Baer and Wheeler also compare the proposed New T-Mobile merger to a proposed merger between AT&T and T-Mobile from 2011. Id. The DOJ and FCC blocked the AT&T and T-Mobile merger, citing a potential reduction in competition. See De La Merced, supra. After the merger fell apart, T-Mobile lowered its prices, improved its services and abandoned standard, long term contracts that all other carriers had. See Baer & Wheeler, supra. This caused AT&T to target T-Mobile’s costumers with a $200 credit if they switched from T-Mobile to AT&T. Id. This fierce, back-and-forth competition created an environment where all four companies were forced to add unlimited data plans to keep up with the others. Id. Without the FCC and DOJ blocking the merger, none of this would have happened. Id.
Many Questions Left to Be Answered
Due to the FCC only being halfway done reviewing New T-Mobile’s submitted documents and the secrecy that surrounds the DOJ’s antitrust review, all we can do right now is speculate how the new, untested administration will handle this proposed merger. See Current & Recent Transactions: T-Mobile and Sprint, WT Docket 18-197. Unlike the previous administration stressing that there must be four wireless networks, the new Antitrust Chief of the DOJ, Makan Delrahim, has stated that there is no “magical number” regarding how many mobile carriers should be in the market. See Diane Bartz, Sprint, T-Mobile in early stages of regulatory review, no decisions yet: source, Reuters (Aug. 6, 2018, 3:10 PM). Will this new administration’s open-minded approach to the Sprint/T-Mobile merger produce a different result than in 2014? Only time will tell.