T-Mobile and Sprint are making some big promises to sell their proposed $26.5 billion merger. They assert that the merger — which would reduce the number of national wireless companies from four to three — would give them the scale they need to build a high-capacity wireless network with 5G, or fifth-generation, technology. If the Federal Communications Commission and the Department of Justice approve the deal, T-Mobile and Sprint say, the company won’t raise prices and it will hire more people, rather than reduce the work force, which is more often the case in such mergers. And they say all this will be done while costs are cut by $6 billion a year and profits rise substantially.
All that’s missing from this list of promises is permanently blue skies.
Together, Sprint and T-Mobile would have more than 125 million customers, putting the combined company, which would keep the T-Mobile name, just behind Verizon and AT&T. Before this latest deal was agreed to on Sunday, the four companies had discussed several possible mergers in recent years. Indeed, the wireless business is already very concentrated — there were six national companies as recently as 2003 — and a deal that would further consolidate power is troubling. Having fewer competitors emboldens businesses to raise prices and force consumers into long-term service contracts because they know that people don’t have many options. That’s why the F.C.C. and the Justice Department successfully blocked AT&T’s proposed acquisition of T-Mobile in 2011 — and why regulators should be skeptical this time around as well.
It isn’t clear that T-Mobile and Sprint need this deal to roll out a 5G network. Executives of both companies have previously said that they would offer such service across the country and that their networks would be the best in the industry. Now, executives say the companies’ combined wireless spectrum will allow them to offer a 5G service so good that some people will use it to replace their home broadband connection, providing competition to the likes of Comcast and Charter. That sounds great, but there is a long history of telecom executives failing to deliver on grand promises about abundant and cheap broadband.
There is also plenty of evidence that more competition is good for consumers and the economy broadly. Just look at T-Mobile. After the AT&T acquisition fell apart, T-Mobile slashed prices and offered wireless service without long-term contracts under an aggressive chief executive, John Legere. The bet paid off handsomely — T-Mobile has added nearly 40 million subscribers in the past five years, and the rest of the companies in the industry have had to lower prices and change how they do business. If AT&T had been allowed to take over, many experts believe, prices would have gone up and cellphone contracts would have become much more onerous.
T-Mobile is promising that it will continue to operate as a scrappy upstart even after swallowing Sprint, which has struggled to win over customers and is saddled with $32 billion in debt. But there is no guarantee of that. In fact, becoming much larger could change the financial calculus at T-Mobile, encouraging it to raise prices to lift profits and pay off Sprint’s debt.
Many experts worry that the F.C.C., led by Ajit Pai, who tends to side with large telecommunications companies on important policy questions, will be overly receptive to T-Mobile’s arguments. That means the Justice Department’s antitrust division and its chief, Makan Delrahim, could play a decisive role. Mr. Delrahim has already surprised many experts by suing to block AT&T’s acquisition of Time Warner — a judge is expected to soon rule in that case — suggesting that he might be more open to challenging the T-Mobile-Sprint deal than other regulators appointed by President Trump. That said, Mr. Delrahim might only be trying to block the AT&T-Time Warner deal in order to please the president, who has railed against that acquisition and frequently criticizes CNN, which is owned by Time Warner.
Regulators ought to closely scrutinize mergers between dominant players in any industry. That responsibility, however, is heightened when they’re asked to analyze deals in industries, like telecommunications, that have high barriers to entry and few competitors. Customers count on it.