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Susan Crawford is a columnist for Backchannel and a professor at Harvard Law School. She is also the author of The Responsive City and Captive Audience.
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This 2017 merger reprise—an attempt to revive the bad old days when harmful acquisitions were shooed past regulators—should also be soundly rejected. The problem is not just that we’d have three instead of four wireless giants in the US, though that’s certainly a major issue. An even bigger threat to the consumer is what would happen next. As I see it, a Sprint/T-Mobile combination would inevitably end up being a wholesale partner for our Giant Cable Companies (Comcast and Spectrum). The resulting business deals would allow those behemoths to neatly control many segments—wired, wireless, prepaid, post-paid—of the stagnant and expensive connectivity marketplace in America. That isn’t a future we should want.
The players have gotten so bloated that it’s hard to remember who owns what—so let’s review the landscape. AT&T-DIRECTV is about to become AT&T-Time Warner in a few weeks, with former AT&T telecom executive John Stankey becoming the overseer of HBO, Warner Bros., and the rest of Time Warner. AT&T, with its nearly 135 million wireless customers, wants to be a vertically integrated content delivery company. Verizon, with its nearly 150 million wireless customers, pursued its own content dreams by recently swallowing up AOL and Yahoo.
We’ve long had a “duopoly with a fringe” among American wireless companies, with AT&T and Verizon dominating just about everything (and accounting for 67 percent of the post-paid market). Today, T-Mobile is third in line with about 72 million customers (17 percent of the market). Sprint has about 59 million (15 percent). According to the FCC, the four companies together account for virtually all of the US wireless market. Structurally, that’s been the case for years.
But something interesting has happened in the past few years with those two smaller players. In 2011, when the DOJ and FCC blocked AT&T’s proposed merger with T-Mobile, AT&T had claimed that T-Mobile was too small to compete effectively on its own. Since then, T-Mobile has continued to change its business model, adopting unlimited data plans and offering consumer-friendly innovations in the handset subsidy market. Along with Sprint, T-Mobile now has a huge presence in prepaid, mobile, data-only plans for people who don’t want to sign up for multi-year contracts or who have poor credit (and so wouldn’t qualify for monthly plans). It’s doing pretty well on its own.
Combining Sprint with T-Mobile would give the resulting entity most of the market in prepaid plans—not great news for poorer (or just price-sensitive) people who now can play off Sprint’s prepaid Virgin Mobile USA and Boost Mobile plans against T-Mobile’s MetroPCS prepaid offerings. The combined entity would undoubtedly have power to raise its prices for these plans. And, of course, a market with just three players would find it far easier to coordinate prices overall than a market with four players would—that reasoning hasn’t changed since 2011.
Wireless is already a “highly concentrated” market, to use DOJ terms, and any merger that substantially increases concentration in such a market is presumptively anti-competitive according to the DOJ’s 2010 Horizontal Merger Guidelines. A Sprint/T-Mobile merger would do that. (And indeed, Bloomberg reported last week that staff employees of the Trump DOJ Antitrust Division were leaning against the deal for this reason. But the buzz from insiders is that the staff lawyers will be overruled by their managers.)
As I noted earlier, that’s only the more obvious reason to bounce this proposal.
Additionally, a combined Sprint/T-Mobile would provide a truly nationwide operator with lower-band spectrum and an enormous presence in the prepaid (poorer) market. And that would set the stage for deep and unpleasant consequences not only in the wireless market but also for overall connectivity in the US. That’s because, though most don’t realize it, the wireless and wired access markets are not hermetically sealed off from one another. True—wireless, with its relatively low capacity and high price-per-GB can’t compete effectively head-to-head with wired; it’s no substitute. But it is a complementary segment of the overall connectivity marketplace. It’s data that is in demand, really, not content: People want more mobile data.
Imagine that you’re a giant cable company in America. It doesn’t take much imagination: There are really only two of them, Comcast and Spectrum, who never enter each other’s territories, divide most of the country’s wired subscribers between them (25 million for Comcast, 23 million for Spectrum), and run the lion’s share of the high-capacity (although not fiber) lines into American homes and businesses. If you’re one of those two companies, it’s an attractive idea to think of serving the Metro PCS-y segment of this connectivity market by lining up Sprint-T-Mobile as a wholesale provider of wireless connectivity to a whole new range of customers.
Think about it. You wouldn’t be cannibalizing your existing, very-high-priced, bundled wired offerings of sports and connectivity. Instead, you’d be opening up new lines of business: getting your existing customers who have Verizon or AT&T wireless handsets to switch to Comcast wireless as part of their Comcast bundle, or getting new customers who don’t want to pay for or can’t afford a wire at home to buy Comcast data plans. In an era in which the cablecos are looking for ways to grow now that they’ve wired all the locations they’re going to wire, moving out into wireless over a combined Sprint/T-Mobile network makes a lot of sense. As does simply raising prices, very slowly, for everything they sell.
The two giant cable companies won’t want to resell Verizon or AT&T wireless services to make this move. It’s just too complicated. Verizon and AT&T are shifting to be diversified media delivery entities themselves—more like Comcast, actually—and will demand too much respect to be worthwhile. But a combined Sprint/T-Mobile will be a pure, data-only company in just the right position to turn around and make a deal with the cable companies.
The mind boggles. Already, Comcast and Spectrum have made their customers into involuntary wifi hotspots. (You can see this in Spectrum’s terms of service, which say that “Spectrum reserves the right to preconfigure the Spectrum Managed Router to distribute a wireless Internet access point [i.e. a Spectrum WiFi Hotspot] separate from the Home Network.”) If Sprint/T-Mobile goes through, even in locations where the giant cable companies don’t have wires, they will presumably be able to harness the Sprint/T-Mobile network to provide wireless data services—giving them even more power to control prices and data flows nationwide.
Sprint/T-Mobile shouldn’t happen. We’re going in entirely the wrong direction as a country when it comes to connectivity.
The post The T-Mobile/Sprint Merger Is a Terrible Idea appeared first on OnTimeFeed.