Approximately 10-days ago and two-months after a merger
announcement, Sprint and T-Mobile filed applications with the FCC requesting its
approval of the transfer of Sprint’s licenses and authorization to
T-Mobile. What’s the likelihood that
regulators will approve this horizontal merger that will reduce the number of
major competitors in the U.S. wireless market from four to three?
No Way It Will Happen
·
The increase in concentration will harm
competition. According to the FTC/DOJ
Merger Guidelines, the industry is already highly concentrated (Herfindahl
Hirschman Index > 2500). Post a hypothetical merger, the HHI would jump
by over 400 points, from 2,460 to nearly 2,900.
With fewer competitors, keeping track and matching rivals’ moves
becomes easier. Less competition could translate into higher
prices for consumers.
·
T-Mobile, the Un-Carrier, and Sprint, the
smallest of the four major carriers that competes on price, combine to become
more like AT&T and Verizon instead of continuing to be disruptive forces.
·
What is different today versus the proposed
AT&T/T-Mobile merger in 2011 and previous attempts by Sprint and T-Mobile
to combine in 2014 and 2017? Critics of
the merger would argue “not much.” In
those previous tie-ups, regulators strongly signaled that merger approval would
not happen as four is always better than three.
Maybe It Will Happen, This Time
·
T-Mobile and Sprint state that the combined firm
will realize $6 billion in annual cost savings.
They argue that together they can accelerate 5G deployment (innovation) and
“create robust competition in the 5G era.”[1]
·
The merger partners are committing to expanding
rural mobile coverage and offering fixed wireless coverage that would be
competitive with the in-home broadband services offered by the likes of
Comcast, AT&T/DirecTV, Verizon FiOS, Dish Network, and Charter. This market entry would accelerate
cord-cutting and “deliver real choice and real savings to consumers.”[2]
·
The competition has gotten bigger. AT&T acquired DirecTV and Time
Warner. Verizon bought AoL and
Yahoo. Both firms have announced plans
to introduce 5G in late 2018/early 2019.
·
Verizon’s CEO is quoted as saying “Competition
will probably be different if they [Sprint and T-Mobile] are together, but it
is still going to be a very competitive market, so we don’t care.”[3]
·
Both Comcast and Charter have entered the
wireless market through reseller agreements with Verizon. These are formidable new competitors that can
leverage scale and scope to gain market share.
·
Sprint Chairman, Masayoshi Son, and President
Trump are good friends.
I’d put the odds at 60/40 of approval of the deal this time,
assuming regulators get some guarantees from the combined firm, particularly in
rural market coverage.
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