Maverick Capitulation: Why TMobile and Southwest Airlines Abandoned Their Core Values

     Once upon a time, TMobile prided itself as the “uncarrier” wireless company.  After acquiring Sprint, it quickly abandoned a strong commitment to innovate and enhance its value proposition.  See https://telefrieden.blogspot.com/2018/06/life-in-antitrust-wonderland-suspension.html; https://telefrieden.blogspot.com/2019/11/more-overstatements-about-lovefest.html.

          TMobile quickly realized that it did not have to spend sleepless afternoons competing with AT&T and Verizon.  The market had become so concentrated that TMobile could increase their profit margin through what antitrust experts call conscious parallelism: a go along, get along, strategy that comes close to collusion. Now, little differentiates the three national carriers aside from what “free” video streaming they offer high margin subscribers.

        Southwest Airlines, perhaps reluctantly, has followed the T Mobile strategy.  For many ears, the airline differentiated itself from the other large, legacy carriers, by offering lower fares, open seating without additional charge, and free carriage of two bags.  Eventually Southwest realized it did not have to offer the lowest rates for every route.  Recently, it announced the cancellation of open seating, disingenuously characterizing the decision as a revenue neutral response to consumer demand. See https://www.cnn.com/2024/07/26/business/southwest-boarding-history/index.html.

       Does anyone really believe Southwest will not monetize seat access just like the other carriers?  Southwest realized that it could eliminate this perk and convert seat access into a new profit center, just like the other airlines.  Why not make a bundle on decoupling air carriage from where a passenger sits.

         It is not rocket science to detect an obvious outcome: when markets concentrate, through mergers, acquisitions, barriers to market entry, and lax antitrust enforcement, the surviving businesses have little incentive to reduce rates and enhance the customer experience.  

          Because consumers have limited choices in airlines and wireless carriers, we cannot vote with our pocketbooks and take our business elsewhere when we suffer from bad—vary bad—customer care. 

          TMobile is not the fearless, iconoclastic uncarrier anymore and neither is Southwest. 

 

              

Remarkably Bad Consumer Protection at the FCC

 Wireless carrier deception and outright violations of FCC rules and regulation should not come as a surprise.  No wonder consumers hold AT&T, Comcast, Verizon, and TMobile in low esteem. They accrue billions in profits thanks to lax antitrust enforcement, FCC reticence to sanction carrier deceptions, and an apparent inability to require wireless carriers to comply with longstanding rules, including truth in billing, the right of consumers to activate used wireless handsets, and market assessments that ignore inconvenient truths about the lack of effective competition.

 My blood boils at the numerous instances that U.S. wireless carriers do not offer globally competitive rates both wireless service and handsets in the world. See https://www.billshark.com/blogs/u-s-mobile-plans-expensive; https://voicenation.com/resources/general-resources/where-around-the-world-are-people-paying-the-most-for-their-cell-phone-bill/; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country.

Apparently, senior FCC officials do not travel abroad.  If they had, they would see something ubiquitous outside the U.S.:

See: https://londoncheapo.com/technology/uk-sim-card-options-london/

Contrary to cherry picked data provided by both the FCC and wireless industry trade, associations, wireless rates in the U.S. are not particularly cheap, compared to most other developed countries, and these already high rates are rising, well in excess of general inflation measures. Compare https://www.ctia.org/the-wireless-industry/infographics-library; with https://www.whistleout.com/CellPhones/Guides/average-phone-plan-price.

 Part of the problem lies in the persuasiveness of endless advertising by the carriers touting the bundling of wireless service with so-called “free” handsets.  Few consumers do their homework to detect the bait and switch.  See https://finance.yahoo.com/news/cheaper-mobile-plans-aim-dislodge-141119809.html.

 Not Free, Top of the Line Handsets

 With impunity, Verizon currently has a video ad with a Christmas caroler touting the carrier’s generous offer to give subscribers an incredible deal on Apple iPhone 15 handsets.  In the Christmas spirit of giving, the caroler reports that the handset is available “on us.” 

 Should we infer that “on us” means free?  Bear in mind that the FCC, not the Federal Trade Commission, has consumer protection jurisdiction for so-called Title II regulated common carriers, including ventures offering pre-paid and post-paid wireless service.  Apparently, the FCC has no problem with the use of “on us” marketing. 

 In reality, the fine print in the deal provides wireless carriers and resellers ample opportunity to limit the subsidization of handsets. The phone is not free.  Consumers must subscribe to “unlimited” plans costing $75 or more.  The subscribers locks into a multi-year service agreement.

Ineffectual or Nonexistent Merger Review

 The FCC and Department of Justice failed to convince a reviewing court that TMobile’s acquisition of Sprint would reduce competition and raise prices.  The judge bought hook line and sinker the counter intuitive premise that three gigantic wireless carriers, controlling most of the market, better serve consumers than two gigantic carriers battling two smaller, renegade carriers.  Contrary to the Judge’s conclusion and the sponsored researcher’s studies presented at trial, TMobile has relaxed its maverick, competitive muscles making it possible for all three gigantic carriers to raise rates, well above the general inflation level. https://www.lightreading.com/5g/t-mobile-s-premium-pricing-passes-at-t-verizon; https://ktla.com/news/money-smart/t-mobile-planning-to-move-customers-on-older-phone-plans-to-newer-ones/; https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. 

 Subsequently, the FCC did not seem to have any problem with Verizon’s billion dollar acquisition of prepaid, wireless service heavyweight Tracfone; https://www.verizon.com/about/news/verizon-completes-tracfone-wireless-inc-acquisition and TMobile’s $1.35 billion acquisition appears similarly benign. https://www.t-mobile.com/news/business/t-mobile-to-acquire-mint-and-ultra-mobile.

Why would a facilities-based carrier pay over $ 1 billion to acquire a reseller of the carrier’s network?  To promote competition? You bet!

 Barriers to the Use of Second-Hand Devices

 In 1956, the FCC started to establish the right of consumers to connect devices to telecommunications networks, limited only by confirmation that such attachment will not cause technical harm.  This Carterfone policy should allow consumers to acquire wireless handsets on the secondary market and have carriers and resellers permit such use.  It’s not happening in far too many instances.

On several occasions, I have tried unsuccessfully to activate a used handset that a carrier has “locked.”  Carriers can legitimately lock handsets, but only during a time when a subscriber has not fully paid for the device.  Some carriers, including Verizon, state that they voluntarily unlock handsets after installment payments have paid for the device. 

Most carriers and resellers conveniently fail to unlock handsets, resorting to clearly bogus assertions that they cannot determine whether the handset has been fully paid.  Both Mint, soon to be owned by TMobile, and Xfinity Mobile prohibit unlocking with an often impossible to satisfy precondition.

This weekend I acquired a 3-4 year old Samsung Galaxy Note 9, primarily to see if I can use the 128 Gigabyte capacity to store and play music files.  Glutton for punishment, as I sometimes appear, I also wanted to see if my dear friends at Comcast would unlock the handset.

 Of course, Comcast imposed a ridiculous condition: the company would only provide an unlock code the current subscriber provided it can determine that the handset is fully paid.  In my case, I acquired the handset at an estate sale for the deceased former owner of the phone.  He’s dead and I have a worthless handset, currently operating as a paperweight and eventually contributing to the glut of electronic waste.

The Comcast agent only would recite scripts in broken English.  I got nowhere explaining that surely Xfinity Mobile could use the IMEI serial number for the phone to research whether the handset was stolen or unpaid.  Common sense would suggest that a 3-4 year old phone, worth no more than $75, surely could pass the paid for threshold.

Not in Comcast world.  I either could activate the handset on Xfinity Mobile, or acquire a different handset.  So much for my Carterfone right to interconnect a not network harming device.

No wonder why people take the path of least resistance and bundle handsets with service, particularly in light of the enticements: free Netflix, Hulu, Disney, etc. and better yet, handsets “on the carrier.”

Such a deal.

Hipster and Geriatric Antitrust Doctrine

Relentless concentration in broadband and other industries, coupled with ever increasing market power, has triggered more interest in antitrust law and policy.  Predictably, this increased scrutiny generates questions about the viability of case precedent and the empirical “proof” supporting policy.  It also encourages advocates—with a political agenda—to argue for maintenance of the status quo, or substantial change.

The “stay the course” camp sees no need to change doctrine, despite the Internet’s ascendency and the significant difference between “bricks and mortar” commerce and e-commerce.  These mandarins disparage advocates for change and dismiss anything new as “hipster,” undisciplined and wrong.  They have received millions of dollars to spread their gospel, early and often.

The insurgent group plays into the hands of status quo thinkers when their progressive goals subverts, subordinates, or ignores the core mission of antitrust law: to remedy market failures generated by single companies or cartels who use market dominance, conspiracies and other bad actions to harm competition and consumers.  Insurgents also muddy their message when they combine normative goals, inherent in antitrust enforcement, with public policy objectives well outside the antitrust enforcement mission.

A pox on both houses!  The mandarins act as though Chicago School doctrine operates as unimpeachable law.  They see no need to recalibrate and modify based on changed circumstances.  They make no distinction between downward price trends in bricks and mortar markets and the perception of “free” and enhanced value proposition from broadband-mediated services that require no cash payment, but extract great and sellable value from data mining.
The insurgents play into the hands of the mandarins when they lack the discipline and intellectual rigor needed to show the wisdom in incremental adjustments based on changed circumstances.  They become easy targets by pushing normative goals, baked into the antitrust regime, into a progressive, social policy agenda.

I seethe when reading arrogant, inflexible, hubristic and condescending hipster antitrust critiques.  I dismiss as naive, undisciplined and ineffectual the insurgents’ wish list for antirust enforcement.  The incumbents may not win on points, but they appear to have won in courts, legislatures and classrooms.  They have powerful and rich incumbents underwriting their academic work.  That investment has paid handsome dividends.

For example, the FCC and Justice Department continue to approve mergers and acquisitions that trigger “Defcon4” alerts about extreme market concentration.  Somehow, basic economics about market power and concentration do not matter if sponsored researchers can show how consumers theoretically benefit.

One can easily declare a winner when judges and their clerks, well versed in Chicago School doctrine, cannot understand that “free” does not mean without significantly high  individual and social costs.

5 Guaranteed Future Outcomes from the Sprint-TMobile Lovefest

Now that the U.S. Justice Department has planted a big kiss of approval on the combination of Sprint and TMobile, I predict 5 near term outcomes:

1) Charlie Ergen, CEO of Dish, gets yet another opportunity to find ways to evade regulator- imposed deadlines.  Facing a use or lose deadline for 5G spectrum, his company has received a lifeline from the Justice Department for further delay.  It does not take much to play the government and consumers for fools.

2)  John Legere, CEO of TMobile develops an aversion to pink and gets a haircut. You will never see him on a motorcycle again.

3)   The combined Sprint-TMobile finds ways to raise subscriber out of pocket rates, with new billing line items.

4) Somehow, some way, the robust 4th wireless carrier lacks most of the innovation, ambition and aggressive price cutting of Sprint or TMobile.  So much for re-creating a 4th carrier maverick.

5) Learning nothing about the consequences of airline, hospital, pharma and other industry consolidations, we are shocked at how U.S. wireless service rates exceed every country but Canada and Greece.