U.S. Regulator’s Finding Could Aid T-Mobile–Sprint Merger

U.S. Regulator’s Finding Could Aid T-Mobile–Sprint Merger

The Federal Communications Commission (FCC), the U.S. regulatory agency, voted to approve a report that stated that there is “effective competition” in the U.S. mobile market for the first time since 2009, according to a news report. The finding is a strong indication that the FCC will be favorable to the proposed merger between the third and fourth ranking mobile operators in the U.S., T-Mobile and Sprint, which are said to be close to an agreement.

The commissioners, however, were not unanimous in their opinion; the vote was 3–2. The agency’s chairman, Ajit Pai, was in favor, stating, “Most reasonable people see a fiercely competitive marketplace. This is strong, incontrovertible evidence.” On the other hand, one of the Commissioners, Jessica Rosenworcel, said, “While this report celebrates the presence of four nationwide wireless providers, let’s be mindful that a transaction may soon be announced that seeks to combine two of these four. For my part, any transaction before us will require someone to explain how consumers will benefit, how prices will not rise, and how innovation will not dissipate in the face of so much more industry concentration.”

And the other dissenting voice came from Commissioner Mignon Clyburn, who stated that the report at hand “takes a decidedly myopic view of the ecosystem, and instead focuses only on ‘competition in the provision of mobile wireless services.’ This is like a doctor looking at one organ and pronouncing a patient fit as a fiddle.”

Tarifica’s Take

While it is outside the scope of these remarks to assess the rights and wrongs of the competition report that came before the FCC, we can cite the FCC itself to state that the four major U.S. operators control 98.8 percent of the market. The current number of operators represents a significant reduction from the seven that divided the market between them 10 years ago, so the question of what the market would be like if it were consolidated to three is obviously a pressing one.

In finding the mobile landscape to be more than adequately competitive, one of the facts that the report and the approving commissioners stressed is that prices have gone down over the past six years, despite the investment of $200 billion made by the operators in their networks.

However, one could argue that one of the major reasons for the downward trend in prices has been the massive disruptive “Un-carrier” strategy pursued by T-Mobile, which is firmly based on undercutting the competition on price. If the merger were to go ahead, would the resulting third operator continue to pursue such a strategy, in order to vanquish AT&T and Verizon? Or would it become more complacent? Presumably, with T-Mobile the senior partner in the deal, the new entity’s goals would be more those of T-Mobile than of Sprint, as currently constituted.

In any case, whether a merger would be good or bad for the U.S. mobile market, the FCC’s stance on competition makes it seem likely that it will give its blessing to the union. That represents a turnaround since 2014, the last time T-Mobile and Sprint announced merger talks. At that time, the Obama-era FCC and Justice department said that they would not give the green light to a merger and the deal was dropped.