On February 11th, the $26.5 billion merger between T-Mobile and Sprint was approved after a lengthy process entailing numerous reservations and antitrust criticisms from the US government. The merger has faced multiple setbacks widely due to public concerns which became particularly severe in 2019 when ten attorneys filed a suit to block the merger as consumers would allegedly face enormous price increases. Supporters of the merger have taken the stance that developments in 5G will generate benefits for society trumping the necessity for discussion of the dangers of horizontal mergers. This post will briefly explore both sides of the argument.
Criticisms
The opposition was inevitable when two companies with substantial market share combine they inherit the freedom to set prices on their own terms, thus, undermining the basic principles of the free market. The main objection to the merger emerged due to dissatisfaction with rising inequality and concerns about the impact the deal could have on the lives of consumers. Throughout history the effects of rising inequality can lead to ‘eroding trust in democratic societies, paving the way for authoritarian and nativist regimes to take root’.[1] The US has fallen under a spotlight as ‘the top 1% of households have doubled their share of the nation’s wealth since 1980’.[2] Activists fear that the increasingly divided society characterized by a lack of trust could lead to political violence, corruption and a severely damaging impact on economic growth. The potential for adverse effects has provoked demands for US authorities to combat the wealth gap by ‘vigorously cracking down on anti-competitive behaviour in the market’.[3] Ani-trust laws were relied on heavily during the 1930s under Franklin Roosevelt which effectively regulated corporations favourably for consumers by prohibiting price-fixing, cartels, bid-rigging and disadvantageous mergers. The telecoms industry is susceptible to particular scrutiny as the sector is already noticeably concentrated, the T-Mobile & Sprint merger will worsen the situation. New York Attorney General Letitia James strongly objects to the ‘megamerger’ and has claimed “reducing the mobile market from four to three will be bad for consumers, bad for workers, and bad for innovation, which is why the states stepped up and led this lawsuit”.[4]
Positive Reception
On the other hand, some responses to the T-Mobile-Sprint merger have been optimistic with Ajit Pai, the chairman of the Federal Communications Commission calling the decision a “big win for consumers.”.[5] Pai is firmly convinced that the deal will ‘help close the digital divide and secure United States leadership in 5G’.[6] While the future of the telecom market is unpredictable, the possibility of 5G services replacing broadband has been used as the principal justification for the merger as the combination of T-Mobile and Sprint could consolidate the 5G network and compete with AT%T and Verizon. The argument strongly pushes the perspective that if 5G improves the lives of consumers and enables faster, more reliable connections, the deal should go ahead. Furthermore, if 5G does take over broadband in the near future, this merger will undeniably be one of many as broadband specific players will lose relevance. Zachs Equity Research summarises the prospects associated with 5G as it may achieve ‘speeds up to five times faster than current LTE in just a few years and reaching as much as 15 times faster by 2024’.[7]
Wider Implications
The predicated repercussions of 5G development stretch far beyond impacts on broadband functions. Market Watch asserts that 5G will ‘play a major role in the U.S. internet (IoT), data intelligence, TV and driverless vehicles’.[8] Applications of 5G have also been extended to shopping experiences as AT&T has looked into ‘dressing rooms of the future’. Mirrors will be interactive recognizing products being tried on through an RFID tag. Data collected during the mirror experience would then be used to generate personalized adds. AT&T has claimed that a fortified 5G network is essential for facilitating these types of interactions. The innovation would also improve consumer experiences after they have left the store as ‘you can seamlessly collect data such email address, sizes, style preferences, and use it to send targeted offers… imagine opting not to buy a product after trying it on due to a steep price, only to receive an email a few days later letting you know it’s on sale’.[9] The incorporation of video services has also been considered which would provide customers with video assistants as an alternative to salespersons. Arguably, if T-Mobile and Sprint intend to gain a competitive position to compete in the race for enhanced consumer experiences, the merger may be essential.
Conclusion
In conclusion, the merger between T-Mobile and Sprint has been long-anticipated and highly controversial due to the substantial market share they possess in the sector. The merger has been largely connected to the race to 5G and its transformative properties on the lives of consumers which may be particularly impacted in rural America. While certain negative consequences such as the redundancy of stores is an inevitable component of most mergers, several positive impacts have been identified. Ultimately, the suggestion that ‘data plan prices weren’t about to fall before the merger; they were set to climb’ would imply the merger may have been timely.[10]
[1] Christopher Ingraham, ‘Rising Inequality is Destabilizing Democracies Around the World, Warns UN Report’, The Independent (February, 2020). https://www.independent.co.uk/news/world/wealth-income-inequality-global-world-democracyun-report-a9331086.html
[2] Christopher Ingraham, ‘Rising Inequality is Destabilizing Democracies Around the World, Warns UN Report’, The Independent (February, 2020). https://www.independent.co.uk/news/world/wealth-income-inequality-global-world-democracyun-report-a9331086.html
[3] Amitrajeet A. Batabyal, ‘How the T-Mobile-Sprint merger will increase inequality’, San Antonio Express News (February, 2020). https://www.expressnews.com/news/article/How-the-T-MobileSprint-merger-will-increase-15048153.php
[4] Catherine Thorbecke, ‘Judge approves controversial merger of T-Mobile and Sprint’, ABC News (February, 2020). https://abcnews.go.com/Business/judge-approves-controversial-merger-mobilesprint/story?id=68907780
[5] Catherine Thorbecke, ‘Judge approves controversial merger of T-Mobile and Sprint’, ABC News (February, 2020). https://abcnews.go.com/Business/judge-approves-controversial-merger-mobilesprint/story?id=68907780
[6] Catherine Thorbecke, ‘Judge approves controversial merger of T-Mobile and Sprint’, ABC News (February, 2020). https://abcnews.go.com/Business/judge-approves-controversial-merger-mobilesprint/story?id=68907780
[7] ‘T-Mobile And Sprint Merger Puts Spotlight On 5G For Retail’, Pymnts (February, 2020). https://www.pymnts.com/news/retail/2020/t-mobile-and-sprint-merger-puts-spotlight-on-5gfor-retail/
[8] ‘5G Inside The Merger Of T Mobile And Sprint That Will Accelerate The Performance Of Telecommunications Companies, Such As iQSTEL Inc. IQST’, Market Watch (February, 2020). https://www.marketwatch.com/press-release/5g-inside-the-merger-of-t-mobile-and-sprint-thatwill-accelerate-the-performance-of-tele-communications-companies-such-as-iqstel-inc-otc-iqst2020-02-13
[9] ‘T-Mobile And Sprint Merger Puts Spotlight On 5G For Retail’, Pymnts (February, 2020). https://www.pymnts.com/news/retail/2020/t-mobile-and-sprint-merger-puts-spotlight-on-5gfor-retail/
[10] Jeremy Horwitz, ‘Open Letter to the US States: Don’t Appeal the T-Mobile and Sprint Merger’, Venture Beat (February, 2020). https://venturebeat.com/2020/02/12/open-letter-to-u-s-statesdont-appeal-the-t-mobile-and-sprint-merger/
Financial Institutions 1850-2020 