With Sprint/T-Mobile Merger, Less Means More for Consumers

Sometimes it takes a giant to beat a giant. Such is the case in the United States cellular telecommunications market. Today, there are four primary companies actively participating in the highest echelon of the cellular market – Verizon, AT&T, T-Mobile, and Sprint. But participation doesn’t necessarily mean competition. Verizon and AT&T are the goliaths of the industry, comparable in size and stature. T-Mobile is a scrappy underdog disruptor at best, and Sprint limps along. However, this dynamic of two powerhouses and two also-rans should soon be coming to an end. In a recent ruling, U.S. District Judge Victor Marrero tossed out a lawsuit to block a federally approved merger between Sprint and T-Mobile, paving the way for three strong mobile competitors to battle it out for consumer business.

The ruling represents what could be the last hurdle in a years-long campaign by Sprint and T-Mobile to get the U.S. Government’s blessing to merge. During last year’s efforts to get the Federal Communications Commission (FCC) and the Department of Justice (DOJ) to approve the union, Sprint commissioned an independent financial analysis of the company as a going concern. The findings were brutally honest. Over the last decade, Sprint made poor bets on emerging technology, bled customers, and took on piles of debt. In short, without approval to merge with T-Mobile, Sprint would no longer be able to compete against the other three large cellular providers.

Both the FCC and the DOJ found the argument compelling, and ultimately approved the merger. Judge Marrero found the same, leading to his rejection of the lawsuit. In his opinion, he meticulously laid out the rare case in which merger denial would decrease competition. Over more than 15 pages, the opinion highlights Sprint’s run of both bad business decisions and bad luck, leading to inadequate network coverage, a declining customer base, and no way out of the downward spiral without the merger.  

The State Attorneys General suing to block the merger argued that the new T-Mobile would remove one of the four large companies from the telecom market, lessen overall competition, and ultimately, lead to rising prices and consumer harm – the traditional argument against mergers. However, Judge Marrero wrote that thanks to some of the synergistic assets and spectrum that the telecom would have post-merger, the new T-Mobile “would likely make use of [an asymmetric capacity] advantage by cutting prices to take market share from its biggest competitors.”

Contrary to concerns that the merger would reduce competition, Judge Marrero believes that “the efficiencies arising from the Proposed Merger will lead T-Mobile to compete more aggressively to the ultimate benefit of all consumers, and in particular the subscribers of each of the four major competitors.” At bottom, the merger of Sprint and T-Mobile does not follow conventional competition wisdom.

The unusual dynamic is especially crucial at a time when the country is on the cusp of industry-redefining 5th Generation Wireless Communications, or 5G. Once again, the judge writes that when it comes to deploying the new technology, fewer participants mean more competition and faster rollout. In 2018, Kyle Burgess, the former Executive Director of Consumers’ Research, argued that “The merger of T-Mobile and Sprint would actually make the market more competitive by creating a strong rival to the duumvirate status quo.” Her words now seem prophetic.

Today, the U.S. cellular telecommunications market is off-balance. While there are ostensibly four competitors, the enormous costs associated with a robust 5G rollout means only AT&T and Verizon have viable futures as stand-alone companies. T-Mobile and Sprint are currently offering only token competition in the 4G market, and sans merger, the companies do not have the resources to compete in 5G.

But now that does not have to be how the story ends. By clearing this legal hurdle, a Sprint and T-Mobile merger means a new T-Mobile would no longer just be a scrappy underdog: it would be one of the big boys. For consumers to reap the full benefits of 5G, they need a robust, truly competitive market building out infrastructure, driving innovation, and keeping prices low. For consumers, the math on the Sprint/T-Mobile merger is unique. 4 – 1 adds up to 5(G).