Wireless

by Karl Bode


Filed Under:
competition, fcc, jobs, megamerger, mergers

Companies:
sprint, t-mobile



Sprint, T-Mobile to FCC: Our Job Killing, Competition Eroding Megamerger Will Create Jobs & Competition

from the if-at-first-you-don't-succeed... dept

Americans tend to be oddly gullible when it comes to megamerger promises. Especially over in the telecom sector. Time after time we're told that the latest major deal will provide all manner of amazing synergies, jobs and added competition. And time after time we subsequently realize that the only people that usually benefit from these deals are investors and executives. Shortly after that, we realize that the slow consolidation and steady erosion in competition results in higher rates and even worse service, something AT&T, Comcast and Charter customers are intimately familiar with after decades of M&A mania.

And yet it's a historical lesson we refuse to learn much of anything from.

The latest megadeal du jour in the telecom space is Sprint and T-Mobile's latest attempt at a $23 billion super-union. The two companies filed their formal sales pitch with the FCC this week, and you'd be hard pressed to find anybody who thinks agency head Ajit Pai and friends won't rubber stamp the deal. The sales pitch is filled with all the usual promises, including the insistence that reducing the overall number of players in the wireless market from four to three will somehow, magically, improve wireless sector competition, a claim I've seen an awful lot of consumers actually buying into:

"New T-Mobile will have the scale and resources to take the Un-carrier movement to the next level and into new market segments. The combined company will have lower costs and the incentives to engage in aggressive pricing to expand its 4G LTE customer base as the industry continues its major transformation towards 5G. To date, T-Mobile and Sprint, individually, have not been able to materially erode Verizon and AT&T’s wireless market share or overcome their scale advantages. New T-Mobile, however, will be able to go toe-to-toe with the two larger rivals to the benefit of competition and consumers.

So the core justification for this deal is that the combined company will more easily be able to compete with AT&T and Verizon, reducing prices for everybody. But that's not how it works, especially in telecom. What really happens is when you reduce the overall number of competitors the incentive to engage in real price competition proportionally declines, resulting in less incentive to actually compete (go ask a Canadian wireless user). This reality is a major reason why both AT&T and Verizon have yet to oppose the deal. They still dominate cell tower backhaul and know this likely means less price competition at retail.

It's also why past regulators have moved to block this very deal and others like it (like AT&T's attempted acquisition of T-Mobile). And you'd be hard pressed to find a single major merger in telecom (be it by Comcast, Charter, AT&T, or CenturyLink) that hasn't made the already marginally-competitive sector worse. This mindless obsession with M&As is a major reason that this sector sees some of the worst customer satisfaction scores of any industry or agency in America (even the IRS). These companies spend so much time growing for growth's sake to please Wall Street, scaling up customer service always lags behind.

Sprint and T-Mobile are also trying to insist that the megadeal will somehow be a huge boon for job creation, another favorite claim of those lost in the throes of M&A mania:

"...the merger will create jobs on New T-Mobile’s first day and going forward. New T-Mobile will hire employees to build the new network; extend the Un-carrier customer care model to a wider subscriber base; and support customers in growing segments like in-home broadband, enterprise, and IoT. New T-Mobile’s increased investment and rapid growth—and resultant accelerated roll-out of 5G services—also will stimulate thousands of additional jobs throughout the U.S. economy.

Here too Sprint and T-Mobile ignore history and factual analysis. Megadeals almost always result in job loss, especially in telecom where countless support, retail, network operations and middle managers will quickly be found to be redundant. The claim also runs in stark contrast to predictions from Wall Street analysts, who believe the deal is likely to eliminate anywhere between 10,000 and 30,000 jobs:

"Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

"We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” (Wall Street analyst Craig Moffett said.

Each of those, he said, would mean the loss of five full time jobs, or 15,000 jobs in total. A merger also would threaten “overhead” jobs, the kind concentrated in headquarters such as Sprint’s and T-Mobile’s in the Seattle area.

And while some like to claim that Sprint will immediately collapse without such a deal (a stretch given it's owned by deep-pocketed Japanese giant SoftBank), there's a myriad of alternative options that would actually increase competition in the space. Comcast and Charter have shown repeated interest in jumping into the wireless space, and a Sprint partnership could prove to be a shortcut. Dish Networks has also routinely proclaimed interest in using its growing spectrum holdings to jump into wireless. Meanwhile, what's the point of "saving" Sprint if the end result is collectively bad for competitors and consumers alike?

It's not entirely clear why America loves to play Charlie Brown and Lucy style football when it comes to megamerger promises. Time and time again we're promised the world, and time and time again we give companies the benefit of the doubt as they promise an ocean of synergies, jobs and competition that never actually materialize. By every indication the millennials that have bought into T-Mobile's consumer friendly (except for opposing that whole net neutrality thing) branding schtick are about to learn their first real lesson on this front the hard way.


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  • This comment has been flagged by the community. Click here to show it
    identicon
    Anonymous Coward, 20 Jun 2018 @ 12:09pm

    "Americans tend to be oddly gullible when it comes to megamerger promises."

    They also tend to be oddly gullible when it comes to regulation & politician promises too!

    One might say that no matter which side of the isle the oddly gullible citizen in on they are... well gullible!

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 20 Jun 2018 @ 12:30pm

      Re:

      They also tend to be oddly gullible when it comes to regulation & politician promises too!

      "Too"? That's the real root of the problem. Karl offers no support for the assertion that Americans are fooled about these mergers. They do manage to elect one of the two pro-corporate politicians in every election. Maybe the politicians are fooled by the companies, or maybe they stand to benefit, but show me a study saying the people support this merger.

      reply to this | link to this | view in chronology ]

      • This comment has been flagged by the community. Click here to show it
        identicon
        Anonymous Coward, 20 Jun 2018 @ 12:47pm

        Re: Re:

        "but show me a study saying the people support this merger."

        No study needed, the same politicians are in power, and the same ones again next election cycle. This is really NOT rocket science.

        You can run your mouth that you do not support anything until you are blue in the face, but as long as the results of everyone actions keep these folks in office, what you are saying means nothing anyways now doesn't it.

        Would it make you feel better if I was breaking into your house while promising you that I was not breaking into it at the same time? Fool me once, shame on you... fool me twice shame on me.

        The Americans have been fooled so many fucking times... they are now complicit in their own misery.

        Like you, they need a "study showing them something" that is as obvious as the sun in the sky!

        Have you read "The Emperors New Clothes"?

        You, like many others here DARE NOT say anything out of fear of being called stupid.

        I have no such fear! I am happy to say that the Emperor is butt fucking naked, I guess you folks like looking at nasty old men lying about fucking you in the ass with all of these bullshit laws and regulations while promising you study after study says this that and the other!

        How stupid do we have to be to keep falling for this fucking shit? It's the same damn con election after election... we will save you, we will save you... then they get elected and a business fucks you... cycle starts new next election.

        Every nation gets the Government it deserves.

        ~de Maistre

        You get the politicians you deserve...
        ~Obama

        Oh... the politicians are never fooled, they just trick you into thinking they are stupid... works doen't it? Who is the idiot now?

        reply to this | link to this | view in chronology ]

        • identicon
          Anonymous Coward, 20 Jun 2018 @ 12:52pm

          Re: Re: Re:

          Oh look it learn a third quote. Now if only it learned some slight measure of self awareness and stopped being the poster boy for the Dunning Kruger effect it might actually have something to say.

          reply to this | link to this | view in chronology ]

        • identicon
          Anonymous Coward, 20 Jun 2018 @ 1:10pm

          Re: Re: Re:

          >No study needed, the same politicians are in power, and the same ones again next election cycle. This is really NOT rocket science.

          People can only elect someone who stands for office, and it is rare to find a politician that is any better than those in power. Indeed they have turned politics into such a cesspit that reasonable people do not want to stand for office.

          reply to this | link to this | view in chronology ]

          • This comment has been flagged by the community. Click here to show it
            identicon
            Anonymous Coward, 20 Jun 2018 @ 4:48pm

            Re: Re: Re: Re:

            Ha ha ha... we all know that is a bunch of horse hockey.

            Decent politicians CAN'T run because we don't want them! People not only WANT, but publicly ASK, for politicians that will intentionally be corrupt and will ignore the constitution and break the law when they "feel" it serves their politics.

            Both parties actively applaud when one of their own ignores the law when it benefits political dogma... Each side will ignore the law when it benefits them! Many republicans would be happy to see Hillary in jail without due process, and so would many democrats be happy to see Trump in jail without due process.

            As long as citizens keep asking for politicians to save them from big bad business and keep accepting their corruptions as long as they get their local families jobs and things they ask for they won't care about the fact at every other person in all the rest of the states hates your special scumbag, you CAN'T get a decent politician because they do not travel that circle, only corrupt ones do.

            reply to this | link to this | view in chronology ]

  • icon
    Gary (profile), 20 Jun 2018 @ 12:31pm

    Mega Mergers

    Such mergers are the natural result of an unregulated free market. Enjoy!

    reply to this | link to this | view in chronology ]

  • identicon
    Duggery,S-type, 20 Jun 2018 @ 12:36pm

    4 to 3? You mean 5 to 4 right?

    U.S. Cellular is the 5th largest carrier in the U.S.

    reply to this | link to this | view in chronology ]

  • icon
    hij (profile), 20 Jun 2018 @ 1:01pm

    Impact in rural areas

    It is also likely to impact rural areas. This will result in a higher incentive for the big telecoms to focus on urban areas where margins are higher and more people can be found. A bigger company will not see the reason for larger investments where the return will not be as high.

    reply to this | link to this | view in chronology ]

    • identicon
      PRMan, 20 Jun 2018 @ 1:20pm

      Re: Impact in rural areas

      Actually, rural areas are a specific target of T-Mobile 5G. They can provide cell and home internet service together for nearly the same cost as only providing cell. A $150 bill (cell + 100 Mbps home internet) is much better than a $50 bill (cell only) when you are doing nearly the exact same thing.

      reply to this | link to this | view in chronology ]

  • icon
    Mononymous Tim (profile), 20 Jun 2018 @ 1:27pm

    Sprint, T-Mobile to FCC: Our Job Killing, Competition Eroding Megamerger Will Create Jobs & Competition

    FCC to Sprint, T-Mobile: Okey dokey!

    reply to this | link to this | view in chronology ]

  • identicon
    mcinsand, 20 Jun 2018 @ 1:53pm

    What if we actually learned from history (yeah, as if)

    The AT&T breakup in the '80s triggered a telecom investment boom, as well as competition such as is rarely seen. Sprint and T-Mobile have an argument that completely ignores history. The problem isn't that we need another bigger player; we need to have a fertile field rich in not-so-huge players. What we saw back then versus now says that the FTC needs to lower the threshold of allowable market share.

    Look, I'm generally a free market kind of guy, but the problem is that monster companies like this have the buying power to buy the laws that they want. In other words, monoliths like AT&T or the future Sprint-Mobile will be able to pay legislators to advance laws that the companies write to make sure that they don't have to compete in a free market.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 20 Jun 2018 @ 2:09pm

    will provide all manner of amazing synergies, jobs and added competition.

    It should probably be noted that it is impossible to provide both synergies and jobs. Merger synergies explicitly mean that the combined company will be able to do the same things with less stuff.

    The question is never whether a merger will create jobs, because the answer is always no. It may shift jobs from one location to another, but if it actually created them then the merger would never happen to begin with (and/or the CEO who oversaw the merger would be fired, the board of directors shaken up, and the company soon either on the verge of bankruptcy or voluntarily split up again). The question is simply whether greater production efficiency is offset by the corresponding decrease in market competition.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 20 Jun 2018 @ 3:03pm

    American aren't "oddly gullible" as they are conditioned to be willfully ignorant. I've argued for decades the American educational system trains people in the art of mote memorization and regurgitation of data with abosolutely no training in critical thinking whatsoever. I've lost track if the number of people I've had debates with over the years who spout facts and figures - whether they be right in wrong - with little to no understanding what that information actually means.

    reply to this | link to this | view in chronology ]

  • icon
    Jeff Rivett (profile), 21 Jun 2018 @ 3:29pm

    Pai's motivation

    It's helpful to remember that no matter how badly he screws everyone (except his corporate pals), Pai is guaranteed an extremely lucrative corporate job once he's done at the FCC. With the fox running the henhouse, it's somewhat surprising to see Pai making any kind of effort to justify his actions.

    reply to this | link to this | view in chronology ]


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