New analysis from the American Antitrust Institute (AAI) concludes that the proposed merger of U.S. wireless carriers Sprint and T-Mobile should not survive a first look by the U.S. Department of Justice (DOJ). AAI says the government should move to block the deal to protect competition and consumers.
In less than a decade, consolidation has restructured the national U.S. wireless market. In 2002, the market featured seven major wireless carriers. By 2009, the number of significant national rivals fell to four. A Sprint-T-Mobile deal would further reduce the number of rivals from four to three, stoking even higher concentration in the national U.S. wireless market and contributing to growing concerns over a broader systemic decline in competition, market entry, and equality in the U.S. economy.
If approved, the Sprint-T-Mobile merger deal would complete the roll-up of the national U.S. wireless market. The 4-3 merger would create an oligopoly that would promote the market “stabilization” that is coveted by large players that grow tired of the rough and tumble of competition and the disruptive rivals that pressure them to compete. At the same time, the deal would eliminate important head-to-head competition between Sprint and T-Mobile, the two disruptive wireless carriers in the U.S. Either way, the competition eliminated by the merger would likely result in higher prices, less choice, lower quality, and slower innovation—to the detriment of U.S. wireless subscribers.
AAI’s analysis explains that a government complaint seeking to enjoin the merger should be based on five straightforward arguments:
- Sprint-T-Mobile is a highly concentrative merger that is presumed to be illegal under longstanding U.S. merger law. If allowed, it would virtually guarantee harm to competition and consumers through higher retail and wholesale prices, lower quality and variety, less choice, and slower innovation.
- By reducing the field of rivals from four to three, the deal is a textbook set-up for anticompetitive coordination between the remaining Big 3 carriers: Verizon, AT&T, and Sprint-T-Mobile. The merged firm would undoubtedly find that maintaining a competitive “peace” with its rivals would be more profitable than trying to gain market share by competing aggressively on price, quality, and innovation.
- Compelling economic evidence from consummated mergers and enforcement in the U.S., together with experience in wireless sectors in other countries, strongly supports concerns over the anticompetitive and anti-consumer effects of highly concentrative 4-3 mergers.
- The merger eliminates head-to-head competition between the two disruptive rivals in the national U.S. wireless market. The proposed AT&T-T-Mobile merger failed in large part because it eliminated T-Mobile as a disruptive competitor, or a “maverick.” Sprint also competes hard on price to woo consumers away from rival carriers. Such competition, and the benefits it delivers to consumers, would be lost by the merger.
- No claimed cost savings or consumer benefits from the merger outweigh the merger’s likely harmful effects. The major “efficiency” claimed by Sprint and T-Mobile—that they need the merger to roll out 5G network technology—is meritless. Indeed, the potential difficulties of integrating the different Sprint and T-Mobile networks could actually increase costs and create inefficiencies for consumers.