The third largest service provider argues that consumers will be worse off if two giants dominate the market
Perhaps this shouldn't come as a surprise to anyone: Sprint doesn't want to become a distant third in market share within the mobile service provider market. It has filed a formal comment with the Federal Communications Commission urging the regulator to kill the merger between AT&T and T-Mobile. The union, announced in March, would make the resulting company the largest mobile service provider in the U.S. In its comment, Sprint doesn't hold back.
The company cites three major objections for opposing the merger, as bullet points in its press release announcing its stance. Let's go through each one.
The proposed T-Mobile takeover would harm the broadband economy, competition and consumers. It would reverse two decades of successful U.S. government wireless competition policy and result in higher prices for consumers in the absence of marketplace choices.
Clearly, Sprint doesn't believe the market will be better off consisting of two behemoths (AT&T-T-Mobile and Verizon), itself, and a handful of very small players. The new AT&T-T-Mobile would control about 39% of the market. Verizon makes up another 31%. That would leave 70% of the market in the hands of two big players. Sprint would be a distant third, accounting for between 11% and 16% of the market (depending on who you ask). A bunch of smaller players would make up the other 14% to 19%. Here, Sprint clearly worries that the two big guys would have some pricing power and consumers would be worse off.
The proposed T-Mobile takeover would harm innovation and investment. Approval of this transaction would uniquely position the Twin Bell duopolists of AT&T and Verizon as the gatekeepers of the digital ecosystem, stifling innovation and choice in new devices and applications, and the capital markets that fund them.
The fiercer firms compete, the more innovation thrives. Since competition would be stifled in a duopolistic market, so would technological progress. Sprint worries that if these two big players control the market, they can become lazy and easily bury the smaller firms that attempt to offer new products or technology.
The proposed T-Mobile takeover has no public interest benefit. The transaction would do nothing to relieve AT&T's purported spectrum congestion. AT&T is already the largest holder of licensed spectrum and unused spectrum and has simply failed to upgrade or invest sufficiently in its network. Moreover, AT&T does not need T-Mobile to expand its LTE network to reach 97 percent of all Americans, because its current spectrum holdings and network already reach approximately 97 percent of the population.
This is perhaps the most interesting complaint, and most pointed. Sprint is arguing that this merger is purely to gobble up a competitor and won't actually enhance AT&T's network. This claim contrasts with some discussions I have had with industry sources. They characterized the merger as a spectrum play. Sprint apparently disagrees, in a sense. Although it would provide AT&T with additional spectrum, Sprint says that it already has plenty and that the company has merely failed to invest in its infrastructure. Instead, it would allow AT&T to keep that additional spectrum from its competitors.
Sprint should sweat this merger. It changes the landscape from one where it can reasonably compete with two fairly large firms and a peer to one where it will struggle to compete with two giants. The merger might force its sale to Verizon. The only problem is that Verizon might not want Sprint, for reasons explained here. If the price was right, however, Verizon might not be able to resist the bargain. But even then, Sprint surely doesn't want to end its story as a drowning firm ultimately absorbed by a giant competitor.
Image Credit: REUTERS/Brendan McDermid