Did the Justice Department Embrace Competition-Lite as a Merger Lifeline?

            Many press accounts report that the U.S. Justice Department will support the spin-off of Sprint’s wireless reseller, Boost Mobile, as a concession that will resolve staff concerns about the loss of a 4^th national competitor.  See, e.g., https://www.nytimes.com/2019/06/14/technology/t-mobile-sprint-merger.html; https://www.bloomberg.com/news/articles/2019-06-09/boost-mobile-founder-met-doj-friday-on-t-mobile-sprint-review.  Notice I did not say, 4^th national carrier, because Boost Mobile resells Sprint wireless network capacity and owns no towers and transmission facilities.

            Resellers of telecommunications network capacity survive if and only if they can exploit a margin between what they have to pay a facilities-based carrier and what they can charge consumers.  This arbitrage opportunity exists, only if 2 conditions are satisfied: 1) a facilities-based carrier will sell bulk minutes or Gigabytes of network capacity and 2) the rate offered by the facilities-based carrier is low enough to enable the reseller to earn a profit, i.e., the buy low, sell higher business model remains enact.

            Let us consider this Justice Department “solution.”  Merger advocates have emphasized how the deal would not raise prices, because it would generate “more competition” among three equally muscular, but hungry competitors.  Assuming this will take place, would the lower margins available to facilities-based carriers narrow the margin they will make available to resellers?  Might the 3 remaining facilities-based carriers abandon resellers based on the view that this sales option is no longer necessary and not worth the bother?

            The key flaw in the Justice Department’s rationale lies in the assumption that spinning-off Boost Mobile will retain a robust and viable 4^th competitor.  Is this a certainty when the resurrected 4^th venture does not control the key element and cost-center for service?  Bear in mind that while some resellers, like MCI, evolved into facilities-based carriers, as occurred in the long-distance voice telephone market in the 1970s, the prospects for Boost Mobile are questionable.  Can anyone identify a Virtual Mobile Network Operator (“VMNO”) who got rid of its virtual status?  See https://en.wikipedia.org/wiki/Mobile_virtual_network_operator.  Comcast sold it wireless spectrum, Dish has yet to activate any of its terrestrial spectrum assets even with a “use or lose” deadline and one can only speculate whether a deep pocketed newbie, like Amazon, will want to play white knight.

Wireless resellers are called VMNOs for good reasons. They offer the prospect of competition if and only if their virtual network can meet the 2 conditions identified above.  The possibility exists that the Justice Department might try to mandate compliance with these 2 conditions by the merged Sprint-TMobile company.  However, does anyone think Congress and or the courts would tolerate ongoing rate setting involvement by a government agency?  Ample case law shows appellate courts, including the Supreme Court, as at best skeptical and typically intolerant of such oversight, even by the FCC.

Assistant Attorney General Makan Delrahim has embraced structural, rather than behavior safeguards for mergers that have the potential to harm consumers and competition. See

https://www.kirkland.com/publications/kirkland-alert/2018/10/doj-antitrust-division-announces.  He is sadly mistaken if he thinks spinning off a VMNO offers anything more than window-dressing to salvage a raw deal.