Should T-Mobile and Sprint Be Allowed To Merge?

Whether they really need to merge to deliver 5G - their primary argument - is an open question as both have claimed earlier they could go it alone. 

The larger issue is whether having ATT and Verizon as the US's only two wireless carriers of substance is good for consumers or for the nation's competitiveness, given the current disparities in service and pricing America suffers in comparison with other digital nations. The reality may be that a rise in T-Mobile and Sprint prices in the short term may be the lesser of two evils. JL


Jordan Weissmann reports in Slate, photo by Mark Lennihan in AP:

They need to offer evidence that letting the No. 3 and 4 mobile carriers shack up will be good for the country. T-Mobile and Sprint claim merging will make them the only U.S. company capable of deploying 5G properly, and that if they aren’t allowed to merge, other countries will jump ahead of the U.S. on wireless.

T-Mobile and Sprint have a straightforward argument for why they should be allowed to merge. You can boil much of it down to just two keyboard characters: 5G. The wireless industry is preparing to upgrade to the next generation of network technology, which should let us all binge-watch Netflix on the go with data speeds 100 times quicker than what customers enjoy on their 4G handsets today. (As CNET once put it, “Think speeds fast enough to download every episode of The Simpsons in half an hour.”) The problem, according to the two companies, is that neither one is strong enough to make the leap solo.

“Neither company standing alone can create a nationwide 5G network with the breadth and depth required to fuel the next wave of mobile Internet innovation in the U.S. and answer competitive challenges from abroad¯,” the companies said in their press release announcing the deal. This rationale looks like it will be a critical piece of T-Mobile and Sprint’s strategy for getting their tie-up approved by regulators, since the companies will need to convince the Federal Communications Commission that the merger actually advances the public interest. It’s technically not enough for them to show that joining forces won’t harm competition in the wireless industry (though of course they’ll need to assure the Justice Department’s antitrust regulators of that). They need to also offer evidence that letting the No. 3 and 4 mobile carriers shack up will actually be good for the country.

That’s where 5G comes into play. T-Mobile and Sprint don’t merely claim that merging will put them in a better position to roll out the new technology. They claim it will make them the only U.S. company capable of deploying 5G properly, and that if they aren’t allowed to merge, other countries will jump ahead of the U.S. on wireless tech. “The U.S. needs to lead in 5G,” Sprint CEO Marcelo Claure told CNBC on Monday. “The only way to lead 5G is by combining Sprint and T-Mobile. AT&T cannot do it. Verizon cannot do … the way were are going to build this 5G network.”

There’s a rather large kink in that argument, however. A couple months ago, both Sprint and T-Mobile were confidently proclaiming that they were already poised to take on their much bigger rivals, AT&T and Verizon, in the 5G race. In February, Sprint’s Claure told analysts his company was preparing to launch the country’s first nationwide mobile 5G network in the first half of next year. A few weeks later, T-Mobile boasted that it would debut 5G service in 30 American cities this year, including New York, Los Angeles, Dallas, and Las Vegas. “T-Mobile is in a unique position with 5G, with its unpopulated spectrum holdings and multi-spectrum strategy,” the company said in a statement at the time.“Both of these companies have said that they intended to be fully competitive on 5G in the future, individually,” former FCC Chairman Tom Wheeler told me after the merger was announced. “Suddenly, those comments have disappeared.”

I asked Wheeler whether he thought it was possible that T-Mobile and Sprint were bluffing before and telling the truth now. He laughed, loudly. “I think the facts speak for themselves.”

Of course, one would expect Wheeler to be skeptical of these companies. His FCC helped kill Sprint’s attempt to acquire T-Mobile in 2014 by signaling it would likely block the deal. He doesn’t think much more highly of the match now. “What this is proposing is to sacrifice known consumer benefits that have resulted from there being four competitors for the promise that someday down the road, they’ll build a technology for which the standard hasn’t even been agreed to yet, and which will probably be a premium service,” he told me. “To mortgage the competitive future on speculation that 5G might become something is a bad policy decision.”

For another perspective, I spoke with Theodore Rappaport, a New York University electrical engineering professor and founder of NYU Wireless, who is an expert on much of the technology that companies are relying on to advance 5G. Rappaport’s center receives funding from Sprint, AT&T, and Verizon, as well as 12 other wireless companies, which I kept in mind while evaluating his his thoughts. But, still, he gave me what seemed like a potentially realistic sounding case for why the merger might do some good. In short, he said that both Sprint and T-Mobile are at a major disadvantage versus AT&T and Verizon when it comes to 5G, because the two larger companies have spent years laying fiberoptic networks and acquiring portions of the wireless spectrum that will be necessary to make the faster network a reality. “A couple months ago, I think it would have been naïve to think that Sprint or T-Mobile working alone could seriously compete with the two larger carriers in terms of building out a broadband 5G network.” Merging, he said, would give the No. 3 and 4 carriers a fighting chance. (He also told me that, contra Claure’s comments, AT&T and Verizon are perfectly capable of building a decent 5G network.) That brings up another question: Even if they can’t compete on 5G, why shouldn’t T-Mobile and Sprint just remain low-cost carriers with slower network speeds? Rappaport told me that wasn’t really feasible, as very few customers will want to continue using today’s 4G wireless when apps are being built to take advantage of data speeds orders of magnitude faster. “That’s like asking someone with a dial-up modem 20 years ago if it was OK to stay at that speed range while the rest of the world moved on to cable,” he said. “Would you want to keep your 3G phone when everybody around you is using Uber on a smartphone?”

Rappaport didn’t convince me that T-Mobile and Sprint should be allowed to merge. The last few years of competition between wireless companies has been great for customers—I know I’m enjoying my unlimited data plan these days—and the benefits of letting the two companies merge still seem murky, at best. What does appears clear to me, however, is that supporting this merger comes down, at least in part, to whether you think the companies were blowing smoke to their own investors before or to regulators now.