Award Winning Blog

Friday, February 21, 2020

The Odds for New TMobile to Morph into TMobile on Steroids?

            Reading the District Court decision approving the merger of TMobile and Sprint (see, I am reminded of how much antitrust law relies on informed predictions of future market performance.  Judge Victor Marrero concluded that the plaintiff state Attorneys General failed to meet their burden of proving that the merger would materially harm consumers and competition.  In effect, the Judge bought the assertion that New TMobile will more aggressively compete and innovate than what the two stand-alone companies could muster, i.e., that the whole would be greater than the sum of the parts.

            This comes across as a leap of faith, substantially challenged by a hindsight review of market consolidation in other markets.  Let’s look at commercial aviation in the United States, with attention to how Southwest refined its business plan and strategy after several mergers involving both the company and other airlines.  Put more simply, is Southwest still the maverick in the same vein as TMobile?

            The answer to this question addresses how bulked-up companies, like Southwest and New TMobile, respond to a concentrated market.   Will they continue seeking to chisel additional market share from legacy carriers, possibly at the expense of profit margin, share price, average revenue per user and year-end bonuses, or will they “take the foot off the peddle”?

            In Southwest’s case, tweaks to their business plan show a reduced value proposition for consumers--what economists call consumer welfare.  Part of the reduction, results from a maturing company, but arguably a larger part results from adjustments that enhance the company’s bottom line with “nickle and dime fees.”  While Southwest has opted to continue offering checked baggage at no additional cost, the company has joined with other airlines in charging new fees that can significantly increase consumer’s total out of pocket costs. Southwest did not initiate these “enhancements,” but a concentrated market, where all other carriers charge these fees, makes it easy for the former maverick to join the group. See, e.g.,;;

            I do not share Judge Marrero’s breathless optimism that the TMobile-Sprint merger benefits competition and consumers.  Can anyone come up with examples where industry consolidation has enhanced the value proposition for consumers?  Channeling Sarah Palin, how’s that concentrated airline industry working out for you?