How will regulators asses the competitive impact of a possible T-Mobile/Sprint merger?

Three years ago, AT&T confidently announced plans to merge with the 4^th largest wireless provider, T-Mobile.  After it became increasingly evident that regulators would block the merger, AT&T walked away from the merger and paid T-Mobile a $4 billion breakup fee. 

Over the past three years, AT&T is no worse for the ware.  It is the largest wireless carrier and it has invested heavily in its 4G network.  T-Mobile has been just fine too.  In fact, maybe better.  Using some of that “found” money from the merger breakup; it has invested in its network.  And, last year, it announced its “uncarrier” strategy which consists of dropping service contracts, eliminating international roaming fees, and buying customers out of existing contracts with other providers.  Not surprisingly, it is adding customers and gaining market share and credibility. 

The third largest wireless carrier in the United States is Sprint.  In 2013, Softbank acquired a 78% share of the company.  The investment has allowed Sprint to continue its Network Vision strategy of restructuring its network.  In spite of these efforts though, Sprint is having a difficult time holding onto customers and turning a profit.  A possible solution –- merge with T-Mobile.  It is expected that Sprint will soon announce a plan to acquire T-Mobile. 

Had regulators approved the AT&T/T-Mobile merger in 2011, the combined firm would have controlled over 43% of the U.S. wireless market.  To me, that merger was dead before it even reached regulators’ desks for consideration.  A Sprint/T-Mobile deal is a different, more complex, situation.  If allowed, the market would have three equally-sized firms slugging it out.

Firm	2011 Market Share (%)	AT&T/T-Mobile merger impact	2013 Market Share (%)	T-Mobile/Sprint merger impact*
AT&T	31.7	43.3	34.4	34.4
Verizon	34.3	34.3	31.8	31.8
Sprint	15.5	15.5	16.7	30.8
T-Mobile	11.6	XXX	14.1	XXX
Other – including Cricket, MetroPCS, U.S. Cellular	6.9	6.9	3.0	3.0

In 2013, T-Mobile acquired MetroPCS, and AT&T entered into an agreement to buy Cricket’s Leap Wireless.

*Market shares do not include AT&T’s purchase of Cricket’s Leap Wireless.

So, should regulators approve this deal, if proposed?  If you were looking to describe a disruptive competitor in an industry, you would point to T-Mobile in the U.S. wireless telecom industry as an example. Over the past few years, it seems to be doing the types of things that regulators like to see.  Basically, being a nuisance to the big two.  In spite of its efforts though, not much has changed as of yet.  AT&T and Verizon continue with their market dominance and enjoy very low churn rates.  They are well-positioned in related businesses like MVPD and broadband which provides them with some economies of scope.  They are able to attract “sweet” deals like the exclusive arrangement for AT&T to be the wireless carrier for Amazon’s new smartphone.  If T-Mobile and Sprint combine, the larger, rebranded #3 will be more efficient and better capitalized.  But, will consumers benefit?  Or will the elimination of a competitor more likely lead to less price competition and less innovation in the wireless telecom industry?  Regulators will have to sort all of that out.  Right now, the only guaranteed winner in this hypothetical conversation is T-Mobile, as the talk of a significant breakup fee, if the merger doesn’t go through, suggests that there is no harm in pursuing a deal.