Sprint, T-Mobile Execs Bullshit Congress On The Benefits Of Merger Mania

from the less-competition-means-more-competition dept

Sprint and T-Mobile last week went before Congress to literally argue that fewer competitors in the wireless space will magically result in... more competition in the wireless space. The two companies are trying to gain regulatory approval for their latest $23 billion merger attempt, the second time in four years this particular deal has been attempted.

The companies' previous merger attempt was blocked in 2014 after regulators noted that removing one of just four major carriers would result in a proportionally-lower incentive to actually compete on price, something that's really not debatable if you've paid attention to telecom and broadband industry history. That's especially true in Canada, where consolidation to just three players has resulted in some of the highest mobile data prices in the developed world. AT&T's attempt to acquire T-Mobile in 2011 was blocked for the same reason, a move that many forget resulted in T-mobile being more competitive than ever.

But while speaking before a Senate Judiciary subcommittee investigating the deal, T-Mobile and Sprint executives told Congress a decidedly different story. One in which the rules of competition, and mathematics, no longer apparently apply:

"This consolidation will lead to lower prices,” T-Mobile CEO John Legere told hearing attendees. "This is actually moving from two to three,” Legere claimed, insisting that joining forces with Sprint will make a more “viable competitor” for AT&T and Verizon.

But history has repeatedly shown in telecom that claims of competitive "synergies" never actually materialize. A major reason most ISPs are so hated is because they've spent decades prioritizing growth for growth's sake over anything else, and, more often than not, fail to scale things like customer service and support proportionally because that kind of growth erodes revenues. As a result you get an endless string of telecom mergers that, like Charter's recent acquisition of Time Warner Cable, simply result in higher prices and worse service than ever before.

Sprint and T-Mobile's central thesis in selling the merger (this time around) is that Sprint can't possibly survive without merging with T-Mobile. In fact, one of Sprint's recent filings with the FCC (pdf) comically tries to go out of its way to argue just how terrible the company currently is, in stark contrast to everything the company had been saying the last few years:

"Sprint’s standalone future will not be one that allows it to be an effective competitor to Verizon and AT&T on a nationwide basis. And though Sprint’s massive cost reductions have stabilized the company’s finances and yielded positive free cash flow for the first time in many years, the company achieved that result only by shrinking the company and reducing network investment to historically low levels."

But while Sprint does have a heavy debt load (which is not uncommon in the merger-obsessed telecom sector) and has struggled to find a real brand identity (which says more about leadership than finances), the threat of its imminent demise is being amplified for strategic effect. The company's balance sheet has been improving, with the company routinely propped up by deep-pocketed Japanese owner Softbank. Meanwhile there are numerous potential partners interested in the wireless industry that could have provided a meaningful partnership (Dish, Charter, Comcast) that wouldn't have reduced competition.

Of course claiming "fewer competitors improves competition and lowers prices" isn't the only falsehood being perpetuated by the company. They're also promising that the merger will be a boon for job creation, despite numerous Wall Street analyst estimates that the deal could eliminate up to 30,000 jobs as redundant positions (especially in retail and middle management) are inevitably eliminated.

For some reason, like Charlie Brown and his damn football, America doesn't seem to ever really learn any lessons from its love affair with mindless merger mania and our love of growth for growth's sake. These deals almost always exclusively only benefit shareholders and executives, a lesson we apparently love to ignore time and time again.

Filed Under: competition, congress, consolidation, john legere, mergers, synergies
Companies: sprint, t-mobile

T-Mobile CEO Hallucinates Competitors In Bid To Sell Competition-Killing Sprint Merger

from the learning-from-history dept

Time and time and time again, U.S. telecom companies have promised us that better customer service, lower prices, and more competition is only possible if the latest industry mega merger is approved. But time and time again those promises not only don't materialize, but the deals wind up making an already broken market worse. As a result, the telecom sector sees historically awful customer service, higher prices, and all manner of additional problems ranging from broadband coverage gaps to net neutrality and privacy violations (both symptoms of limited competition).

Everybody's favorite villain, Comcast, is a direct result of mindless M&A mania where upgrades, customer service, and genuine innovation took a repeated back seat to growth for growth's sake. So is AT&T, who we've allowed to slowly but surely re-assemble itself in the wake of Ma Bell's 1982 breakup. And despite history being very fucking clear on the negative impact of telecom consolidation, here we are again bearing witness to the same, age old idiotic "synergy" claims as T-Mobile tries to sell the press and public on its planned $26 billion acquisition of Sprint.

As we noted previously this deal simply isn't necessary. Those pushing this merger like to pretend that Sprint was on the brink of collapse and simply couldn't survive without this merger. And while Sprint does have a heavy debt load and has been arguably incompetent on the branding and PR front, the company just announced what it's calling the "best financial results in company history."

There were numerous partnership and funding options that wouldn't have involved killing one of just four major competitors, and eliminating jobs for anywhere between 10,000 and 30,000 human beings. Eliminating one-fourth of the industry's major competitors simply reduces the incentive to genuinely compete on price. It's simply not debatable ( industry-funded think tanks are already busy trying to muddy the logic waters, though you'll note that even here the farmed enthusiasm is a bit more tepid than normal).

Trying to sell the deal, T-Mobile CEO John Legere spent much of this week trying to insist that reducing competitors somehow increases competition. To do so, the company tried to claim in an announcement that the public shouldn't worry, because somehow the combined Sprint T-Mobile would still have "7 to 8" big competitors to keep them in line:

"This isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market. And in 5G, we’ll go from 0 to 1. Only the New T-Mobile will have the capacity to deliver real, nationwide 5G,” added Legere. “We’re confident that, once regulators see the compelling benefits, they’ll agree this is the right move at the right time for consumers and the country."

That is, for lack of a more technical term, bullshit. Both companies are on record stating they don't need a merger to deploy 5G. And while there certainly are a number of scattered regional players and wireless MVNOs that offer tepid competition in several areas, they're far too small to apply any real downward pricing pressure on giants like AT&T, Verizon and SprinT-Mobile. AT&T and Verizon enjoy a monopoly over the business data service market that feeds tower backhaul, and AT&T, Verizon and T-Mobile collectively dominate the nation's limited spectrum holdings, the spectrum auction process, and all but own many state and federal regulators and lawmakers.

And while Comcast and Charter are both considering getting into the wireless sector, those WiFi-centric efforts lean heavily on Verizon Wireless' network, and none of the companies involved in those relationships want to encourage a real price war. It's also worth remembering that Legere spent most of last year mocking those efforts as "irrelevant" and destined for failure:

"Comcast’s Xfinity Mobile is “very irrelevant, and I assume that [Charter’s soon-to-launch mobile service] will be irrelevant squared,” Legere said. “The furthest thing from my mind is any concern about the impact of cable."

Now, with a mega merger to sell, Legere is nimbly pivoting on a dime to claim these "irrelevant" competitors will somehow keep the combined T-Mobile and Sprint on its best behavior. That's not how any of this works. As sectors consolidate and competition wanes the remaining companies always do their best to avoid genuine price competition, which is why the United States (and Canada) see some of the highest prices for mobile data in the developed world (OECD data). That we have to keep having this conversation is puerile and insulting.

Curiously, there's some rumblings out of the DOJ that Trump antitrust officials don't see as many problems with this merger as they do AT&T's $86 billion merger with Time Warner, which they're suing to block in court (and losing, by most accounts):

DOJ officials who believe that eliminating competitors somehow creates competition should probably go back and take a closer look at the DOJ's arguments when it blocked AT&T from acquiring T-Mobile back in 2011. The central tenet of their argument was that a reduction of genuine, large competitors by a fourth would dramatically harm consumers, and that logic remains historically justified. Blocking that deal encouraged T-Mobile to compete more intensely. And while price competition in wireless still tends to be somewhat theatrical in nature, T-Mobile went on to dramatically impact the industry for the better, helping drive the elimination of things like long-term contracts and annoying early termination fees, and encouraging a return to unlimited data.

As Canadians can attest, there's simply no good reason for letting an already marginally-competitive sector consolidate any further. Combining Sprint and T-Mobile won't create a stronger, more viable competitor for AT&T and Verizon, it will create an environment where the remaining carriers have less incentive to compete on price than ever before. Despite decades of evidence on this front, when it comes to mindless M&As we seem intent on ignoring the lessons of history.

Filed Under: broadband, competition, john legere, merger, mobile
Companies: sprint, t-mobile

T-Mobile Not So Subtly Hints That It Wants To Disrupt The Cable TV Industry

from the a-swift-kick-in-the-pants dept

While T-Mobile isn't without its faults (like its opposition to net neutrality, or the time its CEO mocked the EFF), there's little doubt that T-Mobile has been a good thing for the wireless industry. The company has managed to drag the industry kicking and screaming in an overall positive direction, including the elimination of the carrier-subsidized handset model, the elimination of annoying hidden fees, and the recent return to more popular unlimited data options. And its brash CEO John Legere, while sometimes teetering into absurd caricature, has at least managed to bring a sense of industry to a traditionally droll telecom sector.

And while T-Mobile had been mocking AT&T and Verizon's forays into video as "distractions," the company this week strongly hinted that it may bring a little bit of disruption to a sector that needs it most. Both Legere and T-Mobile COO Mike Sievert made numerous comments during their earnings call this week making it pretty obvious they wanted to test the market's reaction to the idea of some kind of T-Mobile video service:

"Talk about a poster child for an industry that has really kind of ignored customers and ignored customer cares and gouged at every corner,” Legere said of the pay-TV market during T-Mobile’s earnings call Tuesday. “Clearly, I salivate when I think about the possibilities of changing some of those (video) industries. And frankly, I’m fascinated with how little AT&T has done since they spent the mother lode buying DirecTV, and pretty much have let it sit on the side, and still be an old, crappy linear TV that they bundle weakly with their unlimited offer, so maybe more to come."

Subtle. Legere didn't get into specifics about how T-Mobile would enter the sector, but one possibility remains some kind of M&A with Dish Network, which has plenty of TV assets and a long-harbored desire to jump into the wireless sector (Dish has been not-so-quietly hoarding wireless spectrum for a long while). Like Legere, Sievert also spent more than a little time making fun of the cable sector, which continues to sport some of the lowest customer satisfaction ratings in any industry in America:

"The data on this is really clear. The cable industry is statistically one of the most unloved industries in the history of the consumer economy. So, obviously, it’s ripe for innovation in this area,” T-Mobile COO Mike Sievert said on the call. “I’ll tell you one thing, in 2017 we will reach the point where people have more screen time on mobile devices than on any other kind of screen, that’s really something incredible when it comes to watching their video. So we’ll see how this convergence unfolds, but in it we’re where the industry is going, not where it’s coming from, and we’ve got a brand that really resonates with people and possibly could resonate in an industry that’s even more maligned than we found ours four years ago when we got here."

A Dish M&A is one of the more palatable consolidation possibilities facing the telecom sector under what's expected to be a dramatically more M&A-friendly Trump administration. T-Mobile is also a rumored acquisition target for Comcast or Charter Communications, neither of which would be likely to continue T-Mobile's foray into price competition or disruption. Similarly, a Sprint acquisition of T-Mobile would reduce the number of overall wireless carriers in the space, reducing competition and potentially putting T-Mobile's disruptive run to an ignominious end.

Filed Under: cable tv, competiton, disruption, john legere, tv
Companies: t-mobile