T-Mobile and Sprint want to merge. Here’s why you should worry.

December 15, 2013

In a late-breaking Friday news dump, the Wall Street Journal reported that Sprint -- the country's third-biggest wireless carrier -- is hankering to buy T-Mobile, the fourth-biggest. A collective groan went up from industry-watchers: Ugh, this again? 

The wireless business, after all, has been on a relentless march towards consolidation ever since the federal government broke up Ma Bell back in the 1980s. In December 2011, the Department of Justice and Federal Communications Commission decided it had gone far enough, blocking AT&T's bid to acquire T-Mobile, which it said would essentially create a duopoly with more incentive to collude than compete (Sprint itself vigorously agreed).


How consolidated the wireless industry would've gotten if AT&T had gobbled up T-Mobile (the top four firm market share exists regardless). (Free Press)

And since then, T-Mobile has proven incredibly valuable for the market, offering a blitz of new plans that upend expectations for what we ought to accept from a phone company. Antitrust win!

But a merger between the two smallest players is different from one between a market leader and an underdog, right? That's what Sprint's been arguing for a few months, at least: Buying T-Mobile would give it 53 million subscribers, still a distant third to AT&T's 72 million and Verizon's 95 million, but a platform for more meaningful competition. Also, crucially, it would acquire more of the wireless spectrum that's needed to robust provide coverage over large geographic areas:


The red stuff's more valuable than the blue. (FCC)

The FCC has already agreed with that idea, at least in principle, by allowing T-Mobile and Sprint to bulk up with their respective purchases of even smaller carriers, MetroPCS and Clearwire (though their target markets were complementary rather than competitive). And really: Have the last ten years of consolidation really been that bad for consumers? The price of talking on your cell phone has steadily decreased, according to the FCC's Mobile Wireless Competition report:


And even though you've been doing a lot more text messaging and emailing on your phone, the average person isn't paying much more for their wireless services:


Meanwhile, while the companies enjoy healthy profit margins, it's not like they've been increasing over the years:


Profit margins for AT&T, Verizon, Sprint, and T-Mobile have been more or less flat for two decades. (Ycharts)

[UPDATE: Free Press' Matt Wood points out that those margins are for the companies overall -- AT&T and Verizon's wireless divisions are much more lucrative, and getting more so as customers switch over to data-hungry smartphones.]

So what's the problem here, really? Well, there are a few more factors to consider.

One: Public Knowledge senior staff attorney John Bergmayer thinks prices should be coming down a lot faster, considering the typical pace of technological progress. "Compare the wireless industry to other technology markets," he says. "People pay less in real terms for computers that are thousands of times more powerful." That's true: We pay a lot less per CPU and unit of RAM than we used to, and perhaps wireless data would be the same way if the market leaders had to fend off an insurgent.

Two: There's more to monopolistic behavior than pricing. As Columbia Law professor Tim Wu points out, consumers had been conditioned to expect inconveniences like early termination fees, overage charges, and locked phones for years, until T-Mobile came along and ditched a lot of them. If Sprint bought T-Mobile, it's not at all clear its mavericky ethos would survive the clash of corporate cultures; a strengthened third-place competitor might just play the same game as the two majors.

Three, as PCMag points out: In any scenario, this will be a long and arduous process, both because of government approvals and the challenge of merging technological platforms and sprawling infrastructure. The companies could lose a lot of momentum in that time, instead of focusing on their own strategies for growth.

And four: Well, four is kind of a magic number. A market with four viable, national companies is generally considered diverse and competitive enough to ensure consumers don't get screwed -- Canada, which has only three real players, is trying to bring in another for that reason.

"Even four nationwide competitors may not be enough for truly effective competition that results in better service and lower prices for all of us," Free Press policy director Matt Wood wrote in an email. "But DOJ concluded that having four at minimum was important, and we'd agree. The rumored Sprint/T-Mobile deal might be a less disastrous tie-up than AT&T/T-Mobile would have been — because AT&T was and is so dominant already — but it would still be a loss for wireless consumers."

It's easy to understand why Sprint -- and its new Japanese ownership -- would want to consolidate the bottom end of the market. It's not so clear that it would be a win for everybody else.

Lydia DePillis is a reporter focusing on labor, business, and housing. She previously worked at The New Republic and the Washington City Paper. She's from Seattle.
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