The T-Mobile and Sprint Merger Will Only Hurt Consumers
When market concentration increased after past mergers, prices surged and jobs were lost. There’s no reason to think this time will be different.
Today, as a commissioner at the Federal Communications Commission, I voted to block the merger of T-Mobile and Sprint, the country’s third- and fourth-largest wireless carriers. But I am only one of five votes at the agency, and a majority of my colleagues have already voiced their support for this transaction. On top of that, the Department of Justice recently reached an agreement with the carriers, giving them a green light to combine. The largest wireless merger in history is now headed toward approval. If you own a mobile phone—as 96 percent of American adults do—that’s bad news.
We’ve all seen what happens when market concentration increases following a merger. A condensed airline industry brought us baggage fees and smaller seats, even as the price of fuel fell. A condensed pharmaceutical industry has led to a handful of drug companies raising the prices of lifesaving medications, taking advantage of those struggling with illness.
There’s no reason to think the mobile-phone industry will be different. Shrinking the number of national providers from four to three will hurt consumers, harm competition, and eliminate thousands of jobs. In deciding to overlook these harms, the FCC and the Department of Justice have been wooed by a few unenforceable concessions and hollow promises from the two companies involved.
The T-Mobile–Sprint merger will end a golden age in wireless that helped bring to market lower prices and more innovative services. It will mean an end to the competitive rivalry that reduced consumer rates by 28 percent during the past decade. Similarly, the pressure to support unlimited-data plans and free international roaming will fade. Offers by carriers to pay early-termination fees to help families switch to plans that fit their lives will fall by the wayside. And the network improvements that will bring us the next generation of wireless service, known as 5G, will proceed more slowly and yield fewer jobs without the fuel of competitive pressure.
In short, our existing wireless market will devolve into a cozy oligopoly dominated by just three carriers. This will do nothing to make it easier for Americans to stay connected. After all, our wireless phones are how we communicate, pay for all kinds of services, seek out jobs, keep up on the news, and stay in touch with the world around us. Arguably, no service is now more central to our daily lives. But for all this connectivity, we pay a price. Most households now spend more than $1,000 a year on wireless service. Moreover, that figure probably understates the true cost because it does not include the expanding range of devices, applications, and content we use with this service. So it’s no small problem that, according to the Department of Justice’s complaint and the FCC’s own pricing-pressure analysis, this merger is likely to raise rates over time.
Why are the two agencies so eager to approve this blatantly anticompetitive deal? T-Mobile and Sprint have promised that if they are allowed to merge, they will hold off on raising prices for three years. They have also committed to deploying 5G networks nationwide within six years and divesting some assets to help prop up Dish Network as a new wireless competitor to replace Sprint. So the opportunity to use this transaction to advance 5G services and help bridge a digital divide that plagues too much of this country may seem compelling.
The promises that T-Mobile and Sprint are making do little more than camouflage the damage this transaction will cause the competition. For instance, the agreement to freeze prices is littered with loopholes for fees and surcharges. Plus, keeping rates constant is not an especially good deal for consumers when wireless prices have been falling.
Likewise, the commitment to serve rural and urban areas with next-generation 5G service may sound attractive for a nation struggling with the digital divide, but it ultimately falls flat. Both carriers already pumped out a stream of press releases promising to build this network before the transaction. In fact, according to Sprint itself, far from failing, its 5G network today covers more Americans than any other carrier’s. Competition spurred U.S. carriers to build 4G networks that cover 99 percent of the American population, and competition will serve us best in 5G too.
But the centerpiece of the promises T-Mobile has made to justify this transaction is the creation of a new fourth carrier. There’s good reason to be skeptical of this promise. As promised, the arrangement will give Dish Network the opportunity to resell T-Mobile services while it builds out its own network. But T-Mobile has no real incentive to help a competitor and will have every reason to look for ways to get out of its promise to do so.
If all goes as planned, Dish Network will have a new, full-fledged wireless system in seven years. But seven years is a long time to wait for a fourth competitor with its own network facilities. In wireless technology, that’s a lifetime. And if this jerry-rigged new competitor fails, consumers will be out of luck.
Finally, real questions remain about the willingness of the FCC to actually enforce these promises. Just the year before last, the agency let another company, Charter Communications, off the hook for new, competitive broadband networks that it agreed to deploy to get approval for its merger with Time Warner Cable. The facts aren’t much different this time around. When it comes to holding companies accountable for their premerger promises to build new infrastructure, history suggests this FCC will look the other way.
Both the FCC and Department of Justice should know better than to think that tinkering around the edges of this deal can save it. And if the substance that got us to this point is bad, the process is even worse. Three commissioners at the FCC publicly conveyed their full support for this transaction before they even had any in-house legal, economic, or engineering analysis to review. Then, once we had a document produced by the commission’s expert staff, key parts were rewritten by political leadership without any opportunity for public comment. This is not how good government should operate.
I recognize I am only one vote. My colleagues may not see this transaction like I do. But if the federal government fails to put the brakes on this merger, there is another way. A bipartisan group of attorneys general from 16 states and the District of Columbia are now suing to stop this transaction. They have determined that this merger results in an unacceptable loss of competition, and the public should hope they succeed in blocking in it.
These state officials understand something fundamental: With less competition, rates rise and innovation falls. All the evidence demonstrates that this holds true in the mobile-phone industry too. If this merger succeeds, consumers will pay the price.