Combining T-Mobile and Sprint could hurt wireless competition
A merger between T-Mobile (TMUS) and Sprint (S) has moved one step closer to becoming a reality with FCC Chairman Ajit Pai throwing his official support behind the deal. If the arrangement is approved—the FCC and Justice Department still have to sign off—the combined companies will have to abide by a plan that would include rolling out 5G connectivity to 99% of Americans within six years.
But allowing the two companies to team up in an already highly concentrated market could end up hurting consumers who would see reduced competition in the space.
“I’ve yet to see a situation where fewer competitors makes for a more competitive market,” explained Bill Menezes, senior principal analyst at Gartner.
“So any claims that competition will be the same as it was before because of some short-term price guarantee, are, let’s say ‘fluid’ at best,” he added.
After all, cutting down on consumers’ options means less competition for their dollars in the wireless space. And for an industry that is already tightly held by four rival companies, one less option could make quite a difference.
The new T-Mobile
In order to get Pai’s backing, T-Mobile and Sprint have agreed to a number of terms including deploying a 5G network on low-band spectrum that covers 97% of the country in three years and 99% in six years. The combined companies have also made a commitment to bring 5G connectivity to rural Americans, who lack wide access to high-speed networks.
The companies promise that 90% of rural consumers would have speeds of 50Mbps within 6 years of the deal. That could prove to be a boon for rural Americans.
It’s hard to call this agreement a major milestone though, since the U.S. is already pushing rural broadband initiatives. As Jason Leigh, research manager at IDC, explains, this is more like Sprint and T-Mobile doubling down on their previous commitments to connect rural areas.
T-Mobile could lose its touch
Under CEO John Legere, T-Mobile has made a significant impact on the consumer wireless industry. T-Mobile is the reason that unlimited data plans made a comeback—though there are caveats to those plans.
The carrier also pushed the breakup of two-year subsidized smartphone agreements, by letting customers pay off their devices over time. Doing so meant you could pay off your phone entirely within two years and then switch to a new carrier if you chose.
The company did a good deal to try to lure consumers away from the larger AT&T and Verizon over the years. But by combining with Sprint, there’s the risk that the newly formed carrier would be less likely to offer such deals.
However, Leigh and Menezes both think the new company will continue to try to pull consumers away from AT&T (T) and Verizon (VZ) through marketing campaigns. Menezes, in particular, believes that the company will likely use add-on services to entice potential users. That includes things like Hulu, Spotify, and other services that would be included in a consumer’s monthly bill.
But if the combined T-Mobile and Sprint ends up moving away from the marketing strategies that have helped grow their customer base, it could leave consumers with one less, more affordable option for their post-paid carrier needs.
T-Mobile and Sprint said they would also drop their Boost Mobile pre-paid subsidiary to push the merger through, but the two companies will still have Metro and Virgin Mobile in their arsenal.
In 2011, Sprint sued to stop T-Mobile and AT&T from joining forces, saying that the move would be “brazenly anti-competitive.” That merger would have brought together the second and third largest carriers in the U.S. leaving Verizon as the largest and Sprint as the smallest.
A merged Sprint and T-Mobile would still be the third largest carrier behind AT&T and Verizon. With their smaller sizes, both Sprint and T-Mobile have had to get creative in drawing in new consumers. The companies have, at varying times, pushed offers that paid for half of consumers’ phone bills to get them to switch carriers, rolled out superior international plans, among other incentives.
Combining the companies could reduce the need for such tactics, potentially hurting consumers.
The merger isn’t done yet, though. According to Bloomberg, officials within the Justice Department, which would have to sign off on the deal, aren’t convinced T-Mobile and Sprint’s proposals do enough to quiet antitrust fears. And unless the companies make some additional concessions, the deal could be dead.
Disclosure: Verizon is the parent company of Yahoo Finance.
More from Dan: