After years of on-and-off flirting, including a broken engagement in 2017, Sprint and T-Mobile have finally agreed to a $26.5 billion merger that will further consolidate a mobile carrier market already mostly devoid of competition.
According to the Wall Street Journal, T-Mobile will exchange 9.75 Sprint shares for each T-Mobile share. Bloomberg reports the deal values Sprint shares at $6.62. T-Mobile parent company Deutsche Telekom will own 42 percent of the combined carrier, and Sprint parent company SoftBank will own 27 percent. Public shareholders will get the remaining 31 percent.
Assuming the deal can hold up to regulatory scrutiny, the new company will be known just as T-Mobile. It will serve 126.2 million subscribers across the United States, making it the third-largest wireless network provider in the country.
There will be some benefits for consumers from this deal, primary among them the combination of wireless network infrastructure that in theory will position the new T-Mobile to offer nationwide 5G service, but make no mistake that this deal is almost entirely bad news.
According to the FCC, four major mobile carriers—AT&T, Verizon, T-Mobile, and Sprint—account for 98 percent of the total wireless market in the US. With the newly announced merger, we’re down to just three companies sharing essentially equal portions of the pie—save for some crumbs left over for regional carriers—and the reason to compete becoming increasingly absent.
T-Mobile CEO John Legere has been attempting to hype up the merger by claiming it will “create a fierce competitor” with the ability to deliver “lower prices” and “more innovation,” but basically everything we know about these types of deals tells us the exact opposite will happen.
Look no further than Canada, which has three major carriers that have no interest in competing with one another. The country is home to some of the priciest phone bills in the world. The National Post explains, “...Canadian telecoms are in a situation in which there’s no real incentive to undercut each other. The three companies know they are better off when Canadians are paying among the world’s highest rates for cell phone usage.”
Simple though it may sound, it’s far easier for companies to work together to minimize competition and maximize profits when there are only three parties involved instead of four. AT&T and Verizon are already under investigation for potentially colluding to make switching between carriers more difficult, so it’s not as though such arrangements aren’t already in play.
What makes the situation worse is the fact that T-Mobile has been a shining example of what can happen when there is an incentive to stay competitive. The company nearly got acquired by AT&T in 2011, but when the deal fell through after being challenged by the Department of Justice and Federal Communications Commission, T-Mobile started to change its approach.
It rebranded itself as the “Uncarrier” and started offering plans consumers couldn’t get from the likes of AT&T or Verizon. The company killed contracts that locked people into the same carrier for two years, offered to pay off the hundreds of dollars in termination fees to get people to switch, made unlimited calls and texts standard, and brought back unlimited data plans that had all but been eliminated by its competitors.
By being forced to compete rather than be sucked into AT&T’s orbit, T-Mobile found a niche and actually forced the likes of AT&T and Verizon to adopt some of its practices. The other major carriers dropped contracts, cut prices, and created copycat plans to keep T-Mobile at bay. Mark Cooper, a researcher at the Consumer Federation of America, told Vox in 2016 that T-Mobile sparked an “outbreak of competition.”
Expect that outbreak to come to an end when Sprint and T-Mobile become one. The only thing standing in the way at this point is the Trump DOJ, which has been all over the place when it comes to antitrust cases, and the FCC, which is headed up by a former telecom lobbyist who claims there is currently a “fiercely competitive marketplace” among mobile carriers.