Award Winning Blog

Tuesday, February 11, 2020

TMobile-Sprint Merger Approved and 144 Million U.S. Subscribers Will Pay Dearly

            News of a reviewing District Court’s approval of the TMobile-Sprint merger has arrived today.  See. e.g.,  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.