The DOJ Isn't Buying T-Mobile's Nonsensical Merger Benefit Claims

from the ill-communication dept

Back in 2011 DOJ regulators blocked AT&T from acquiring T-Mobile, arguing that that the deal would have harmed consumers and resulted in higher rates by eliminating one of just four major wireless players. That’s a pretty easy argument to make, given every time a country allows four wireless carriers to morph into three, the sector gets less competitive and prices go up (see: Ireland or Canada). Blocking the deal wound up being a good thing: T-Mobile went on to be even more disruptive, and has helped introduce a number of consumer-friendly market shifts like cheaper international roaming and the death of long-term contracts.

In 2014 T-Mobile and Sprint tried to merge, and regulators (quite correctly) pointed out the deal wouldn’t be good for consumers or the market, and blocked it from happening.

Fast forward to 2019, and T-Mobile is once again trying to merge with Sprint, hoping to take advantage of the Trump era to finally overcome regulatory scrutiny. Both companies have been telling everyone who’ll listen that reducing the total number of competitors will somehow boost competition in the sector. Not too surprisingly, even in this era of blind telecom sector fealty, regulators are having a hard time swallowing this particular pill. Both Reuters and the Wall Street Journal cite DOJ insiders who say that the DOJ isn’t likely to approve the deal in its current form:

“The U.S. Justice Department has told T-Mobile US Inc and Sprint Corp it has concerns about their proposed $26 billion merger in its current structure, sources familiar with the matter said on Tuesday, although no final decision has been made.

T-Mobile CEO John Legere was quick to insist the “premise” of the report was “simply untrue”:

The CEO didn’t get into which aspect of the story he took issue with, but it’s not just the DOJ that has expressed skepticism of the deal’s benefits. A growing array of state regulators and attorneys general have also started kicking back against the deal, expressing concern that more consolidation is probably the very last thing the already arguably broken US telecom sector needs right now. While T-Mobile claims merging with Sprint will create a bigger, better third competitor, that’s simply not how telecom works historically. Fewer competitors equals less competition, and higher prices. History suggests that’s not really debatable.

Wall Street analyst Craig Moffett tells me his research firm dropped the chance of merger approval from around 50% to 33% given the growing state-level opposition, public disdain, and the growing call for more meaningful US antitrust enforcement in the way of the DOJ’s bungled AT&T Time Warner merger kerfuffle.

Granted the deal could still be approved. Pai’s FCC is likely to rubber stamp the deal without much thought. And the DOJ could approve the deal given the right combination of conditions. Given the vast army of revolving door lobbyists T-Mobile has under its belt (ranging from Trump ally Corey Lewandowski to former FCC Commissioners like Mignon Clyburn and Robert McDowell), there’s a lot of firepower aimed at getting this deal done, regardless of how terrible history says it’s going to be for consumers, competition, and a healthy wireless market.

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Companies: sprint, t-mobile

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Comments on “The DOJ Isn't Buying T-Mobile's Nonsensical Merger Benefit Claims”

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Rico R. (profile) says:

This isn't rocket science!

Taking the companies’ names and industry out of it, can anyone tell me how it makes sense that a merger of two companies that are in the same exact industry and compete with each other would somehow miraculously spur competition in the same exact industry? Especially when there are only like 4 major companies in that industry? It doesn’t pass the laugh test!!

Anonymous Coward says:

Re: This isn't rocket science!

There’s only one argument that I can think of that makes sense to me. They could say that either of the two companies can’t realistically compete against the other, larger companies, but if they combined their resources as a single entity, then they could.

The only way I would be inclined to accept this argument, however, is if, post-merger, the new company immediately began making inroads to the larger competitor’s market.

To put it another way, imagine two regional cable companies. Neither could really compete with the likes of Cox or Comcast, but they might have a chance if they merged. I might be willing to accept such a merger if, post-merge, they immediately started laying cable in an area that was previously only served by Cox or Comcast.

Now, even though I may have just imagined a possible situation… I don’t actually believe for a second that’s what T-Mobile and Sprint intend.

Zgaidin (profile) says:

Re: This isn't rocket science!

If (and it’s a huge if) you could argue that two smaller competitors out of four couldn’t meaningfully compete with the two larger companies, then perhaps you could argue that by merging they would reach a size that would allow them to do so. In this specific case, I think that argument is laughable, as you said and historical evidence suggests that shrinking the number of competitors in the wireless market is just awful for everyone except maybe shareholders.

Anonymous Coward says:

Re: Re:

I know this won’t go over well, but what ability to compete with T and VZ are we talking about here? T has a market cap of ~$230B, VZ has a market cap of ~$240B.

TMUS has a market cap of ~$64B, and Sprint is at ~$23B.

There are not and have not been 4 competitors in the market. You need volume to compete in purchases with entities like T and VZ. T and VZ probably do multiple times the volume of purchases with equipment vendors, which helps drive down their costs.

Claims that they both have a "footprint" that matches T & VZ ignores the fact that, until recently with TMUS, the spectrum they own is not anywhere near as valuable or as reliable for consumers.

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