Sprint, T-Mobile to FCC: Our Job Killing, Competition Eroding Megamerger Will Create Jobs & Competition

from the if-at-first-you-don't-succeed... dept

Americans tend to be oddly gullible when it comes to megamerger promises. Especially over in the telecom sector. Time after time we're told that the latest major deal will provide all manner of amazing synergies, jobs and added competition. And time after time we subsequently realize that the only people that usually benefit from these deals are investors and executives. Shortly after that, we realize that the slow consolidation and steady erosion in competition results in higher rates and even worse service, something AT&T, Comcast and Charter customers are intimately familiar with after decades of M&A mania.

And yet it's a historical lesson we refuse to learn much of anything from.

The latest megadeal du jour in the telecom space is Sprint and T-Mobile's latest attempt at a $23 billion super-union. The two companies filed their formal sales pitch with the FCC this week, and you'd be hard pressed to find anybody who thinks agency head Ajit Pai and friends won't rubber stamp the deal. The sales pitch is filled with all the usual promises, including the insistence that reducing the overall number of players in the wireless market from four to three will somehow, magically, improve wireless sector competition, a claim I've seen an awful lot of consumers actually buying into:

"New T-Mobile will have the scale and resources to take the Un-carrier movement to the next level and into new market segments. The combined company will have lower costs and the incentives to engage in aggressive pricing to expand its 4G LTE customer base as the industry continues its major transformation towards 5G. To date, T-Mobile and Sprint, individually, have not been able to materially erode Verizon and AT&T’s wireless market share or overcome their scale advantages. New T-Mobile, however, will be able to go toe-to-toe with the two larger rivals to the benefit of competition and consumers.

So the core justification for this deal is that the combined company will more easily be able to compete with AT&T and Verizon, reducing prices for everybody. But that's not how it works, especially in telecom. What really happens is when you reduce the overall number of competitors the incentive to engage in real price competition proportionally declines, resulting in less incentive to actually compete (go ask a Canadian wireless user). This reality is a major reason why both AT&T and Verizon have yet to oppose the deal. They still dominate cell tower backhaul and know this likely means less price competition at retail.

It's also why past regulators have moved to block this very deal and others like it (like AT&T's attempted acquisition of T-Mobile). And you'd be hard pressed to find a single major merger in telecom (be it by Comcast, Charter, AT&T, or CenturyLink) that hasn't made the already marginally-competitive sector worse. This mindless obsession with M&As is a major reason that this sector sees some of the worst customer satisfaction scores of any industry or agency in America (even the IRS). These companies spend so much time growing for growth's sake to please Wall Street, scaling up customer service always lags behind.

Sprint and T-Mobile are also trying to insist that the megadeal will somehow be a huge boon for job creation, another favorite claim of those lost in the throes of M&A mania:

"...the merger will create jobs on New T-Mobile’s first day and going forward. New T-Mobile will hire employees to build the new network; extend the Un-carrier customer care model to a wider subscriber base; and support customers in growing segments like in-home broadband, enterprise, and IoT. New T-Mobile’s increased investment and rapid growth—and resultant accelerated roll-out of 5G services—also will stimulate thousands of additional jobs throughout the U.S. economy.

Here too Sprint and T-Mobile ignore history and factual analysis. Megadeals almost always result in job loss, especially in telecom where countless support, retail, network operations and middle managers will quickly be found to be redundant. The claim also runs in stark contrast to predictions from Wall Street analysts, who believe the deal is likely to eliminate anywhere between 10,000 and 30,000 jobs:

"Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

"We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” (Wall Street analyst Craig Moffett said.

Each of those, he said, would mean the loss of five full time jobs, or 15,000 jobs in total. A merger also would threaten “overhead” jobs, the kind concentrated in headquarters such as Sprint’s and T-Mobile’s in the Seattle area.

And while some like to claim that Sprint will immediately collapse without such a deal (a stretch given it's owned by deep-pocketed Japanese giant SoftBank), there's a myriad of alternative options that would actually increase competition in the space. Comcast and Charter have shown repeated interest in jumping into the wireless space, and a Sprint partnership could prove to be a shortcut. Dish Networks has also routinely proclaimed interest in using its growing spectrum holdings to jump into wireless. Meanwhile, what's the point of "saving" Sprint if the end result is collectively bad for competitors and consumers alike?

It's not entirely clear why America loves to play Charlie Brown and Lucy style football when it comes to megamerger promises. Time and time again we're promised the world, and time and time again we give companies the benefit of the doubt as they promise an ocean of synergies, jobs and competition that never actually materialize. By every indication the millennials that have bought into T-Mobile's consumer friendly (except for opposing that whole net neutrality thing) branding schtick are about to learn their first real lesson on this front the hard way.

Filed Under: competition, fcc, jobs, megamerger, mergers
Companies: sprint, t-mobile