DOJ Floats A Truly Stupid Idea To Salvage The Sprint, T-Mobile Merger

from the ill-communication dept

While the Pai FCC is chomping at the bit to approve T-Mobile and Sprint’s competition and job killing megaunion, rumors are that DOJ staffers remain highly skeptical about the purported benefits of the deal. The sticking point remains the same: that the merger would reduce overall competition in the space by 25%, a move that historically almost always results in higher consumer prices, and less effort and innovation overall. Unions and Wall Street analysts also believe the deal will eliminate anywhere between 10,000 and 30,000 jobs as redundant positions are inevitably eliminated, something T-Mobile continues to deny.

While Sprint and T-Mobile lobbyists continue to apply as much pressure as they can in a bid for regulatory approval, there’s every indication the DOJ remains highly resistant to their charms. For example, Bloomberg reports that one proposed condition being pushed by the DOJ is the mandatory creation of an entirely new fourth competitor in the wake of the deal. In short, T-mobile and Sprint would be forced to divest spectrum and other assets to create a fourth competitor to keep the market semi-healthy:

“Top Justice Department officials want T-Mobile US Inc. and Sprint Corp. to lay the groundwork for a new wireless carrier — with its own network — as a condition to clearing their $26.5 billion merger, according to a person familiar with matter.

The two companies have been pondering additional concessions that could help win Justice Department approval for their deal, said people with knowledge of the discussions, who asked not to be identified because the talks are private. But the idea of spinning off a full-fledged national competitor would be a high bar for T-Mobile and Sprint to meet.

And while that might sound good to some folks as a way to mitigate overall competitive harm, the problem would be one of enforcement.

When they can be bothered to impose beneficial conditions on telecom mergers at all, US regulators have a long, proud history of not really bothering to enforce them. Comcast, for example, not only volunteered most of the conditions affixed to the company’s 2011 mega union with NBC, it repeatedly failed to adhere to most of them with little to no penalty. And Spectrum was recently found to have largely lied to regulators about meeting broadband deployment promises affixed to its megaunion with Time Warner Cable. In telecom it’s a problem that goes back decades, with companies like AT&T also routinely being allowed to tap dance around numerous conditions affixed to its acquisition of BellSouth and countless other companies.

Having regulators enforce merger conditions on a good day is usually an uphill climb. Expecting them to steer the creation and protection of an entirely new company for decades isn’t something government’s likely to excel at. And given his FCC has yet to stand up to the industry on a single issue of substance, anybody expecting Ajit Pai to be a functional beat cop here hasn’t been paying much attention.

It’s unlikely Sprint and T-Mobile are particularly keen on such a proposal, given it hamstrings what is, to them, the two biggest benefits of the deal: less overall competition, and a massive trove of wireless spectrum. But even if they did sign off on such a plan, it’s hard to see how just blocking the deal outright to protect the four competitors we already have isn’t a much cleaner and simpler solution.

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Companies: sprint, t-mobile

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Comments on “DOJ Floats A Truly Stupid Idea To Salvage The Sprint, T-Mobile Merger”

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Shufflepants (profile) says:

Re: Re:

Probably in some so called "vertical" mergers where one company buys another that is above or below them in a supply chain. So, like if a steel forging company bought a mining company that mines iron ore. So long as afterwards they still have to compete with other steel producers, the merger may let them lower their own prices because now the steel forging part of the business doesn’t have to pay a premium for the iron ore since the mining part no longer has to earn a profit on its own. Like, if it costs the mining company $100 to mine some ore, and it costs the forging company $100 to forge some ore if they already have the ore, and lets say companies want to make a 10% profit, then before the merger the forging company has to buy the ore for $110 (mining cost + $10 profit for the mining company) then spend another $100 to forge it, so their total costs are $210, then if they want a 10% profit themselves would sell for $231. But if they owned the mining company, their costs would only be $200 and could sell for $220 and be making a 10% profit.

Now, of course, the company post merger doesn’t have to settle for just a 10% margin. They could always merge, and continue to sell at $231 and be making a 15.5% profit now instead. But in theory, if there is plenty of competition in the market, they could make more total money by choosing to sell at some lower price than $231 (because they would still be making a profit on each sale) and in theory gain extra volume of sales now that more people might buy from them instead of a competitor because they are cheaper.

There are similar efficiencies to be had in "horizontal" mergers where you’re essentially buying a competitor because while many costs go up directly proportional to the number of store fronts and sales a business has, some costs go up at a rate less than directly proportional, the so called "economy of scale". This is how companies like Walmart and and Amazon can afford to sell many products for so cheap, because they sell so many things at such a large scale, they can afford to have a very small margin on each individual thing sold and out-compete smaller stores while still making massive total profits.

But of course in both cases, these only lead to lower prices for consumers when the merging companies don’t out-compete their competitors into oblivion. Because once there are no more competitors, there’s no incentive for a big company to keep prices super low.

But yes, there have been mergers that have led to lower prices for consumers, and mergers that have led to greater efficiency which in theory leads to greater wealth for the country. But it doesn’t always happen, and capitalism is inherently exploitative in the first place for myriad reasons.

Shufflepants (profile) says:

"T-mobile and Sprint would be forced to divest spectrum and other assets to create a fourth competitor to keep the market semi-healthy"

Hey, I have an idea. We can call the new company U-Mobile. And to be effective competition we’ll have to get them set up from the beginning. So, they should probably receive all of T-Mobile’s microwave towers, because how you gonna run a new cell network without the cell towers? And of course U-Mobile’s gonna need people to maintain those cell towers, so the cell tower workers from T-Mobile can go work for U-Mobile. Also, U-Mobile is gonna need a bunch of store fronts to sell phones and plans for their new network, so I guess they can just have T-Mobile’s store fronts since there’s gonna be a bunch of redundancy from the ones they’ll be acquiring from Sprint. And then of course U-Mobile’s gonna need a bunch of offices and corporate employees to keep the whole business running so T-Mobile can probably spare a bunch of those to give to U-Mobile.

Yeah, so, T-Mobile can just give all those things to U-Mobile and then T-Mobile can "merge" with Sprint, and we get a brand "new" company to compete with them.

Anonymous Coward says:

Re: Not so far-fetched

Boost Mobile doesn’t have their own network though. But you’re right, that probably would fulfill the condition in the eyes of Pai. Then again, two cups and a string would probably fulfill that condition in the eyes of Pai. Wait, it’s wireless competition. You don’t even need the string. Just two cups and some Pai.

Anonymous Coward says:

I'm going to be "that guy"

Sorry Karl, but the phrase "chomping at the bit" drives me crazy. The expression is "champing at the bit" referring to a racehorce champing his bit out of excitement (playing with it in his mouth, not biting down on it with its teeth).

Normally I wouldn’t point such things out, but this one’s in the first sentence and is highlighted through linking. It’s like someone starting off an oral argument by running their fingers down a blackboard.

Of course, your misuse of that phrase is nothing compared to regulators’ misuse of regulatory power over a telecom market that obviously does not have the public’s best interests at heart with this merger.

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