Why are Sprint Wireless and T-Mobile Funding their own Competition?

A lot of big-ticket mergers have taken place in the United States recently. However, one such merger which has the potential to change the telecom industry is being blocked by regulators in the United States. T-Mobile and Sprint Wireless, which are the third and the fourth largest wireless companies in the United States, have been trying to merge for quite some time now. Both these companies are of the opinion that in order to provide 5G services, they will have to update their network significantly. They believe that, individually, neither of them will be able to compete with AT&T and Verizon once 5G becomes a reality. Hence, they want to merge into one company. This merger will supposedly save close to $5 billion every year. This money can then be used to upgrade networks which will help be more competitive.

Regulatory hurdles have not allowed T-Mobile and Sprint to merge until now. Both companies are insisting on the merger. Hence, they have got incredibly creative in order to achieve their goals. In this article, we will share more details about the proposed T-Mobile and Sprint Wireless merger as well as the creative attempts being made by both companies to ensure that this merger goes through despite severe regulatory opposition.

Why the Merger is not Being Allowed?

T-Mobile and Sprint Wireless have disclosed their decision to merge into one single entity in April 2019. However, up until August 2019, they have not been able to do so because of several regulatory hurdles, some of which have been listed below.

  • Anti-Trust Laws: The telecom market in the United States is highly concentrated. There are four major companies viz. AT&T, Verizon, T-Mobile, and Sprint, which own more than 90% of the telecom market. As a result, consumers already do not have too much choice. If the T-Mobile and Sprint merger is allowed to go through, then, the choice will be reduced further, and the monopolistic behaviour of these companies will be encouraged further. The anti-trust laws of America do not allow a merger which will result in an entire market being controlled only by three firms.
  • Price Signalling: The regulators do not believe that Sprint and T-Mobile will indulge in outright collusion with the other service providers. This is because such a collusion is anyways illegal even today. The regulators believe that price signaling mechanism may be used. This means that for instance, AT&T may decide to raise prices. However, other companies will not try to undercut the competition. Instead, they will also raise their own prices. Hence, a price increase by AT&T will be a signal for the entire industry to raise prices.

Many lawmakers from the Democratic Party are against this merger. They have been trying tooth and nail to delay the hearings of this merger. Also, more than 16 states, including Oregon and District of Columbia, have openly opposed this merger.

The Innovative Solution

Sprint and T-Mobile have come up with an incredibly innovative solution to circumvent the regulatory hurdles. The basic objection to the merger is that, after the merger, only three firms will be left in the market.

Sprint and T-Mobile realized that Dish, the famous satellite TV Company also has a lot of spare spectrum. This is because the satellite TV business is facing the onslaught from online streaming services and hence is in a state of decline.

Sprint and T-Mobile figured out that Dish could use the additional spectrum it has to enter the telecom business. As a result, both the wireless behemoths are arguing that they will help Dish set up its telecom business. In this manner, there will still be four telecom companies after the merger viz. AT&T, Verizon, T-Mobile, and Dish! This is the first time that companies are acting up against their own economic interests and helping set up their own competitor. In fact, Sprint has agreed to even sell its prepaid wireless business under the brand names Sprint, Boost and Virgin for a consideration of $5 billion. Sprint will also provide Dish with access to its network for a period of seven years!

Creating a new competitor just to be able to merge with another company is quite an unconventional move! Critics are of the opinion that Dish will not be a real competitor. It is just being used by Sprint and T-Mobile to circumvent the laws. Both the companies know that they are unlikely to lose any market share to Dish. Therefore, they don’t mind creating a new competitor as long as they get to merge their resources and compete with the big boys i.e., AT&T and Verizon.

It is a known fact that Dish will not be able to be a true competitor. This is because the future telecom business is going to be built on 5G networks. 5G networks use a different kind of antenna which help data travels fast between short distances. Hence the entire network will have to rebuilt to provide a truly 5G experience. Dish does not have the money to upgrade its network and hence may not be able to compete in the high margin segment of the telecom industry.

Hence, it would be fair to say that Sprint and T-Mobile have left no stone unturned to merge their businesses. Only time will tell whether all this creativity by both these firms will pay off in the long run.

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