Going into today’s hearing, I thought T-Mobile/Sprint was in
a no-win situation. And, while it is
clear that the New T-Mobile will have to make written commitments that support
the lifeline program and deployment of 5G in rural communities at the very
least, I believe that the CEOs of T-Mobile and Sprint, Legere and Claure, along
with Douglas Brake from the Information Technology and Innovation Foundation,
provided convincing arguments, on the record, that the merger has net benefits
to competition and consumers.
The complementary combination of the Sprint and T-Mobile
networks brings together the capacity and coverage to expand network capacity
by 8 times. The greater capacity on the
market (increase in supply) will put downward (not upward) pressure on prices.
The cost synergies from scale will be significant. Something the firms, particularly Sprint,
cannot achieve on their own. Even with
its heavily discounted price, Sprint struggles to attract and retain
subscribers. It will need to take on a
lot of debt to build out a 5G network.
The higher cost will put pressure on it to raise its prices. Can a struggling Sprint survive on its
own? Getting to three carriers through a
merger is a whole lot better than getting there by one of them failing. (The gala apple exchange was interesting.)
The New-T-Mobile will be a “supercharged un-carrier” because
of scale. With that, I agree that it will
have the incentive to compete aggressively.
Moreover, I agree with Brake’s comments that having more competitors is
not always better. In an industry, like
wireless telecom, with high fixed costs and a minimum efficient scale at a high
level of output relative to demand, cost efficiencies (lower unit costs) are
achieved when more subscribers are on your network. Too many duplicate networks are inefficient.
This merger is NOT the same as the one between AT&T and
T-Mobile. In that merger, AT&T’s
share of the market would have jumped to more than 43% (31.7% + 11.6%). With Verizon (34.3%), the duopoly share of
the market would have been 77%, and Sprint would have been a very distant third
with just 15.5% of the market. Here, the
combination of #3 and #4, creates three equally-sized firms duking it out on
price and other product characteristics like speed, coverage, and quality of
service (e.g. dropped calls). Since
2011, Sprint’s share of the market has fallen from over 15% to about 11% today. Meanwhile, T-Mobile’s share jumped from 11%
to 18%. Why? The $4 billion breakup fee from the 2011
merger, consisting of cash and spectrum allocation, aided T-Mobile’s expansion
and boldness in challenging the top dogs.
Finally, with 5G, the wireless carriers can challenge the cable
guys. This was not a possibility in
2011. Disrupting this other market is
huge.
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