If the rumors are right, a merger of T-Mobile and Sprint has already been agreed in principle, and we should see an announcement by the end of October. What happens then is anyone’s bet, but according to one columnist from Seeking Alpha, consumers shouldn’t be worried, because merging two of America’s four wireless carriers together isn’t really a big deal, and could even be beneficial for consumers down the line.
Unfortunately, that’s not true. While a merger might not instantly wreak havoc and see prices shoot up for 200%, there’s a lot of very valid reasons for anyone who pays a cellphone bill to want T-Mobile and Sprint to remain separate.
Seeking Alpha‘s argument is one of two parts: firstly, that consumers don’t have to worry, because even if a merger makes the telecom market less competitive, it will still be better than it was 10 years ago; and secondly, a merged T-Mobile-Sprint would be in a better position for 5G, and more able to compete. Let’s start with the first argument. In a nutshell, Seeking Alpha says “we believe that the US wireless industry structure is the most competitive ever today. Moreover, we believe it would remain more competitive than in the 2007 – 2012 period of declining wireless prices even if the number of competitors went from four to three as a result of a merger between T-Mobile and Sprint.”
The analysis is likely correct that the wireless industry today is the most competitive it’s ever been. But that’s like saying gonorrhea is the best STD: it’s nothing to shout about. As the article goes to pains to explain, the wireless industry was an awful oligopoly until a few years ago. Wireless companies only just started competing, and the results have been instant, and fantastic for consumers. Competition is thriving, and there’s more choice of plans at a lower pricepoint than ever before.
As we’ve explained before, merging Sprint and T-Mobile would have a significant effect on the wireless landscape. Unlike what Seeking Alpha suggests, the wireless landscape resulting from a merger would be very different to what it was in 2011. The three remaining wireless companies, in the case of a merger, would have nearly equal networks and numbers of customers. There would be zero incentive for networks to compete for customers against each other, as any competition would have to come from reduced pricing, and the game theory says that networks would quickly realize that the profit-maximising solution is to offer similar plans at similarly high prices, and reap the profits. Just look at Canada.
What about the second plank of the argument, that a combined Sprint-T-Mobile would have the potential to be a big player in the cordcutting industry, as it would have the resources to distribute content without any existing ties to the pay TV industry to protect?
The problem here is that in an ideal situation, content distribution shouldn’t have anything to do with internet service providers. Seeking Alpha is suggesting that since T-Mobile/Sprint would own the “distribution network” for content to millions of customers, it would be in a good place to push alternatives to cable TV, like Netflix. But under the rules of net neutrality, internet service providers shouldn’t have anything to do with pushing different types of content on consumers.
The other problem is that creating a viable alternative to cable TV has failed when it’s been attempted by companies much bigger that T-Mobile or Sprint. Apple, for example, has been working on original content and (if you believe the rumors) a streaming TV service for years. If Apple, with its $275 billion war chest and lauded industry connections, can’t put together a compelling alternative to cable, then there’s no reason to believe that T-Mobile/Sprint will either.