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3 Ways the Sprint/T-Mobile Merger Could Still Succeed

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The Sprint/T-Mobile merger is on the rocks “as currently structured,” the Wall Street Journal reports.

OpinionsMuch as both Sprint and T-Mobile are vigorously denying it, I think the leaks reported by the Journal are real. For more than a decade now, Department of Justice lawyers have thrown thumbs-downs at any merger that would create fewer than four nationwide wireless carriers. Sprint and T-Mobile may have thought a Republican administration would change things, but that gamble may not be paying off.

One thing that isn’t helping is how much Sprint is contradicting itself. Its whole narrative right now is that it would fail without the merger, which is not what it told investors shortly before pursuing the merger. When it wasn’t merging, Sprint said it was finally growing its user base. Now, it says those numbers were “incomplete.” The only real difference here is that Sprint is now trying to get a merger approved.

I’m having a very hard time believing anything either Sprint or T-Mobile are saying right now. They’re just too thirsty.

So how does everyone get what they want? I’m not going to go further into my own opposition to this merger; let’s talk rather about how to get it through. In my mind, the key issue is competition: the DOJ just doesn’t buy that three giant wireless carriers would vigorously compete on price. So injecting competition into the market would be the lever to pull.

1. Give Things to U.S. Cellular or Rural Carriers

Divesting spectrum or markets to AT&T or Verizon wouldn’t help the “three giants” marketplace. But divesting to smaller carriers that have a potential to compete might. U.S. Cellular, the fifth-largest carrier, covers many rural areas and could use a boost.

The down side here is that U.S. Cellular, typically, has been a very conservative business; it doesn’t tend to make moves that shake up or disrupt the market. Smaller rural carriers like Cellcom or C Spire could also benefit from divestitures, and they tend to be more aggressive with service plans. Each one covers significantly less land and people than U.S. Cellular does, but if the DOJ’s main concern is about prices and job loss in rural areas, those smaller carriers could become key.

2. Or Give Them to the Cable Companies

Hold your nose if you like. Right now, cable companies Comcast and Spectrum run their own virtual carriers, but they’re dependent on Verizon for their networks. Creating some sort of entity where the major independent cable companies, together, could act as a fourth facilities-based carrier—if they want to—could crack the competition code here. Of course, that’s only if they want to take on the burden.

3. Mandate Wholesale Rates

One of the major reasons we have lower mobile phone rates than Canada is that we have a vigorous market of small, virtual carriers called MVNOs. Those are companies like Google Fi and Republic Wireless, which don’t own their own base stations but innovate nonetheless.

That market is largely driven by Sprint and T-Mobile selling wholesale capacity, and the MVNOs are concerned that SprinTmobile will ratchet up those rates. Mandating affordable wholesale rates to keep MVNOs blooming could help fix competitive issues. SprinTmobile would complain it’s being held to a standard AT&T and Verizon aren’t, but there have been other examples of similar merger conditions, such as when Comcast/NBC was forced to regulate the rates it charged other cable systems for seven years after its merger.

Sprint and T-Mobile are right about one major thing: a combined carrier, with significantly more spectrum, would be able to build a better network more quickly. The Department of Justice is probably trying to balance that out with the fact that cellular markets with three, potentially equally sized competitors, tend to get really sleepy when it comes to price competition and plan innovation.

Sprint and T-Mobile are going to have to offer more than “we’re great, and we’ll be bigger” to overcome those doubts.

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