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. 

 

              

Antitrust Judicial Review That Gets It Right

             Just when one reasonably could assume that no federal appellate court could possibly do the right thing in a merger review, pigs fly!  Judge William G. Young of the District Court in Massachusetts did not buy the conventional wisdom that all mergers “promote competition.” He rejected the proposed JetBlue’s $3.8 billion acquisition of Spirit Airlines. https://www.nytimes.com/2024/01/16/business/jetblue-spirit-airlines-ruling-merger.html; https://www.law360.com/articles/1786317/attachments/0.

             Millions of dollars in sponsored research and litigation expert witnesses have persuaded jurists and their law clerks that even though a merger reduces the number flights and airlines operating on the same city pairs, consumer welfare somehow increases. The conventional rationale explains that the combined carrier will have greater resources and no less incentives to compete aggressively with larger incumbents.

             How could it ever make sense that a profit maximizing business venture would prefer to devote sleepless afternoons reducing consumers’ out of pocket costs and enhancing their value proposition?  Why would any merged venture take the harder glide path of aggressive pricing and innovation rather than “go along and get along” by matching the dominant carriers’ rates?    

            I remember the unshakable confidence expressed by Judge Victor Marrero of the Southern District of New York, that $37 billion merger between T-Mobile and Sprint would benefit consumers by promoting more competition in the wireless marketplace. See https://casetext.com/case/united-states-v-deutsche-telekom-ag.  

             It did not happen!  

            Since acquiring Sprint TMobile evidences nothing of its former iconoclastic nature.  It has become a happy camper more than willing to engage in “consciously parallel” conduct, quite willing to follow the lead of AT&T and Verizon on price, performance, handset deals, freebie streaming subscriptions, etc.  

            The combination of Sprint and TMobile tower sites has improved TMobile’s reliability, especially in rural locales. But what evidence can anyone show that TMobile now is a deep cost cutter and conscientious innovator?  

            The Big Three now compete on what “free” video streaming service they offer and how much they can deceive consumers about “free” access to the latest and greatest smartphone.  AT&T advertisements first touted free Iphone 15s “on us” https://about.att.com/story/2023/iphone-15.html.  Soon thereafter both TMobile and Verizon quickly used the same “on us” deception.  https://www.t-mobile.com/news/devices/get-iphone-15-pro-on-us-and-be-upgrade-ready-every-year-only-at-t-mobile; https://www.verizon.com/smartphones/apple-iphone-15-pro/.  

            You call this maverick innovation?  The three national carriers deliberately use the same slogan to imply that consumers can get a free handset on them. This is evidence of robust competition?  

            The con job usually works, but maybe someday more consumers will understand that a marketplace with Alaska Airlines, JetBlue, Hawaiian Airlines, and Spirit Airlines works better than if two evaporate.  

            It does not take a rocket scientist to conclude that consumers suffer when four national wireless carriers dissolved into three.