News of a
reviewing District Court’s approval of the TMobile-Sprint merger has arrived
today. See. e.g., https://www.wsj.com/articles/u-s-district-judge-expected-to-rule-in-favor-of-sprint-t-mobile-merger-11581376688. I’m sure the decision will conclude how much
the combination will enhance competition, apparently more so than what the two
companies individually could offer.
This
conclusion does not pass the smell test.
The court will note what a great competitor TMobile has been and how
unviable Sprint will be in the middle to longer term. OK, that observation makes sense and I’ll go
one step further to note that Sprint recently has offered some of the best
deals for consumers that the company probably could not continue to offer over
time.
I part
company with the likely conclusion made by Judge Victor Marrero that the
combined company will have every incentive to become even more competitive and innovative
than what the two unaffiliated firms have generated and even what TMobile would
generate even if Sprint were to falter and eventually exit the market.
Let us step
back and answer a fundamental question no one seems willing to pose and answer:
why do companies seek to merge? Answer:
to make more money, enhance value for shareholders, possibly compete and
innovate less because a more concentrated marketplace does not necessitate “sleepless
afternoons.”
The merged
TMobile-Sprint has far greater incentives to accept its third among equals status
than to work hard to chisel at the market dominance of AT&T and
Verizon. Why bother shaving margins when
AT&T and Verizon offer rates generating some of the highest Average Revenue
Per User (“ARPU”) and margins in the world.
None of the U.S. carriers want us to know this, but if you travel abroad,
you can easily find month-to-month service for half the U.S. average rate.
Why would
TMobile want to upset the apple cart when, post-merger, it can generate higher
revenues and profits using AT&T and Verizon’s margins as an umbrella under
which it can offer slightly lower rates and call it a day? In other words, TMobile has little incentives
to start a price war.
Lastly, I
am quite leery of the logic in replacing Sprint with Dish entering a mature
market solely as a reseller of Sprint and TMobile pre-paid, no-contract brands,
coupled with a now extended deadline to have real skin (money) in the game. Dish has an uncanny ability to acquire
spectrum, do nothing with it, secure an extended deadline to buildout a network
and then seek to sell it to another company more willing to invest in
plant.
Will Dish
provide salvation for consumers in the long run? I doubt it.
In the short run, the 144 million plus subscribers in the U.S. can
expect to pay more for less “unlimited” service.
