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Experts Say the DOJ Justification for T-Mobile/Sprint Merger Approval Is a Joke

The DOJ’s proposed plan to protect competition will do nothing of the sort, industry watchers say.

by Karl Bode
Jul 26 2019, 5:17pm

John Legere, chief executive officer of T-Mobile US Inc., looks at his smartphone while waiting to begin a House Judiciary Subcommittee hearing in Washington, D.C. Image: Andrew Harrer/Bloomberg via Getty Images

The Department of Justice has approved T-Mobile’s controversial $26 billion merger with Sprint. And while the agency proposed a number of remedies it says will mitigate the competition and job-eroding impact of the deal, experts say the fixes will do nothing of the sort.

From the beginning, the biggest issue with T-Mobile’s planned $26 billion merger with Sprint was the fact that it would reduce the number of major U.S. carriers from four to three. Historically, (say in Canada or Ireland) such consolidation results in two things: much higher prices, and a significant culling of jobs as redundant positions are eliminated.

As a result, AT&T’s attempt to buy T-Mobile in 2011 was blocked by regulators. A 2014 merger attempt by T-Mobile and Sprint was blocked for the same reason. But after T-Mobile engaged in a full court lobbying press (including ramping up patronage of the President’s DC hotels), the company is now hopeful that the third time’s the charm.

The DOJ says it will impose requirements offsetting the competitive harm of the deal. More specifically, the DOJ says that T-Mobile and Sprint will need to offload Sprint’s Boost Mobile and some spectrum to Dish Network, who’ll then attempt to build a new, viable fourth competitor from these scraps to offset the elimination of Sprint from the market.

“Today’s settlement will provide Dish with the assets and transitional services required to become a facilities-based mobile network operator that can provide a full range of mobile wireless services nationwide,” DOJ Assistant Attorney General Makan Delrahim said of the deal.

But experts consulted by Motherboard say the proposal isn’t likely to work, and the end result of the merger will still very likely be higher prices and worse service for all.

For one thing, Dish has been promising to build a wireless network for the better part of the last decade with little to show for it. The company has routinely been accused of “spectrum squatting,” or buying spectrum it doesn’t use in a bid to turn around and sell it later when it’s more valuable. Even T-Mobile made this complaint when Dish initially criticized the merger.

Much of the spectrum Dish has acquired comes with conditions requiring that it build out a wireless network within certain time constraints. But there’s been little real penalty in instances where the company has ignored those requirements and deadlines, experts say.

“They already have more spectrum than they know what to do with,” Wall Street telecom analyst Craig Moffett told Motherboard. “If the government wants Dish to build a network, they could start by simply enforcing the buildout requirements to which Dish is already subject.”

Gigi Sohn, a former FCC lawyer and telecom expert, said the merger should have been blocked outright, and was extremely skeptical of the DOJ’s proposed fix for the controversial deal.

“It certainly won’t lead to a viable fourth competitor any time soon, if ever,” Sohn told Motherboard in an email.

Sohn suggested that the government’s proposal was largely theatrical in nature. Boost Mobile only currently has just 8.8 million subscribers, a far cry from the 158 million and 156 million subscribers of AT&T and Verizon, respectively. Building a viable fourth competitor requires far more than just a small prepaid company and some spectrum, Sohn argued.

“A new mobile wireless entrant that starts with zero postpaid subscribers and that must rely on its much bigger rival, the new T-Mobile, just to operate is not a competitor,” Sohn said. “It's a mobile Frankenstein.”

For Dish to evolve into a major wireless player will require some very hands on support from an Ajit Pai FCC that has been little more than a rubber stamp for industry. Yet Pai will now be tasked with not only punishing Dish if it misses deployment deadlines, but preventing AT&T and Verizon (who benefit from reduced competition) from undermining the effort at every turn.

The Rural Wireless Association, a group representing smaller mobile carriers, was equally unimpressed by the DOJ’s proposal.

"The conditions imposed on New T-Mobile by the consent decree are drastically insufficient to protect against the clear harms this market-consolidating merger would bring," the RWA said, adding that the deal would ultimately prove to be a “disaster for American consumers."

Consumer groups like Public Knowledge also blasted the proposal, noting that historically, mobile carriers cobbled together out of bits don’t tend to survive in a market dominated by industry giants like AT&T and Verizon. The group noted that a far simpler solution would be to block the deal outright, forcing Sprint to find a suitor outside of the merger process.

“Sprint is a significantly stronger competitor today than a new fourth competitor could be for the foreseeable future,” the groups said. The struggles that Dish and other would-be new entrants have consistently faced underscore that even with the best of intentions and a full commitment to deploy and compete, nothing is certain. Consumers will face considerable harm if the marketplace does not develop as the DOJ envisions.”

While the DOJ and FCC have now signed off on the merger, the deal still faces some major obstacles. Most notably, a coalition of nearly a dozen states have sued to stop the deal, saying it will inevitably harm consumers. The opening arguments in that case begin in October.

“The state AGs who sued to block the merger shouldn’t be fooled by this weak attempt to maintain competition in the mobile wireless market,” Sohn said.