December 20, 2018 at 5:00 am ET
Mobile broadband is an essential part of modern life, connecting us to news, information, entertainment, emergency services, and our friends and family. Today, Americans can choose between four nationwide wireless carriers – but that choice is now threatened by the proposed merger of Sprint and T-Mobile. If allowed to proceed as proposed, this merger will condense the market to just three national carriers, leading to higher prices, foreclosing the entrance of new competitors and eliminating jobs. And while the companies have promised that this deal would speed the roll out of 5G and improve rural service, the facts belie these claims. This deal offers no meaningful public benefit and threatens vast consumer harms. If ever a deal deserved to be blocked by our regulators, it is this one.
The hit to consumer welfare in the form of higher prices is a certain outcome of this deal – and anyone who has shopped for wireless service recently can see why. Today, Sprint and T-Mobile are maverick competitors, aggressively challenging the incumbents, AT&T and Verizon, by offering cheaper, innovative plans. That competition has kept wireless service offerings competitive. But if Sprint and T-Mobile combine, that maverick approach ends. As one of three mega-carriers, the combined company will become an incumbent. That means maximizing profit through price coordination, rather than competition. According to one study, prices will rise by more than 15 percent in many cases.
This will be felt most acutely by lower-income Americans who rely disproportionately on pre-paid wireless service. The combined Sprint and T-Mobile will control over 50 percent of the prepaid market, giving it enormous incentives to raise prices, knowing that low-income consumers will have few alternatives.
And the certainty of increased prices is borne out by real-world experience. In Austria, a merger reduced the number of competitors from four to three. The result? Prices went up by a double-digit percentage.
This merger would also prevent new competitors from entering the market. Right now, Mobile Virtual Network Operators are in the market. They use their own infrastructure, coupled with Sprint’s “last mile” wireless connection, to reach customers’ devices. If this deal proceeds as proposed, the combined company will have the ability and incentive to deny competitors wholesale access to their network, which would disrupt would-be new entrants’ ability to effectively compete.
We have seen this movie too many times before. From airlines to health insurance to tech, when too much power winds up in the hands of too few companies, consumer welfare and the public interest go out the window.
The anti-consumer and anticompetitive effects of this merger already provide sufficient grounds for regulators to reject the deal. And the case against this merger is only enhanced by the fact that the companies have made transparently hollow promises to the government. The biggest of these is the argument that the combined company will speed the roll out of 5G service, while neither company would be able to roll out 5G by itself. Both claims are false.
First, 5G is coming with or without this deal. AT&T and Verizon have both invested billions of dollars in their 5G buildout and will continue to do so. Second, T-Mobile and Sprint have themselves committed enormous sums to building their own nationwide 5G networks and have told customers, investors, employees and regulators that they each intend to deliver the “first,” ”fastest,” and “best” 5G. There is no reason not to take them at their word. These are both enormous corporations capable of making the capital investments required to keep up in their own industry.
Similarly, the companies have told regulators that this deal will mean improved service for rural customers. The facts tell a different story. Since their inception over 20 years ago, neither Sprint nor T-Mobile has significantly focused on providing rural service. There is no reason to believe that the combined company – having already won approval from government for the deal – will behave any differently. In fact, this deal could harm rural service since today independent rural wireless service providers rely on Sprint in particular as a partner for offering roaming service and leasing spectrum from Sprint in rural areas to provide service where Sprint doesn’t. The combined company could raise prices for those rural wireless providers, making roaming more expensive for consumers and eliminating rural coverage from the leased Sprint spectrum.
If all this wasn’t bad enough, this deal would also be a job-killer. The companies have promised Wall Street billions of dollars in cost savings from job reductions. According to one analysis from a labor union, as many as 30,000 good jobs could be lost all across the country.
The bottom line is that this merger will mean higher prices and less choice for consumers nationwide, and the foreclosure of new competitive choices emerging in the future. It will cost American jobs, and it will fail to deliver the promised benefits of accelerated 5G deployment or improved rural service. This is the very definition of a bum deal. It is up to the Justice Department and the Federal Communications Commission to just say no.
Phillip Berenbroick is senior policy counsel at Public Knowledge, a nonprofit that promotes freedom of expression and access to affordable communications tools. Carri Bennet is general counsel to the Rural Wireless Association, which represents rural wireless carriers that serve fewer than 100,000 subscribers.
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