John Feehery: Speaking Engagements

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T-Mobile Sprint Merger Is Common Sense Clarified

Posted on August 1, 2018
All truth, in the long run, is only common sense clarified.

That’s what Thomas Huxley said, the British scientist known as Darwin’s bulldog, chiefly because of his dogged defense of evolution.

I was thinking about Huxley when reading Andrew Ross-Sorkin’s column about the T-mobile/Sprint merger.

Here is what the New York Times columnist wrote about the merger:  “Poring through hundreds of pages of documents submitted to the government by the companies and transcripts of testimony in front of Congress makes it clear that going from four competitors to three — AT&T, Verizon and a combined T-Mobile-Sprint — wouldn’t pose the problems that so many fear. Every textbook would say that fewer competitors results in high prices. But if the Sprint-T-Mobile deal was given the green light, it would almost empirically create, at least in the short term, more competition for AT&T and Verizon, not less. The entire premise of the deal is that by merging, the two weakest companies in the sector would be able to build out a meaningful a 5G network, possibly even more quickly than AT&T and Verizon.”

To me, Sorkin’s comments are common-sense clarified.

The telecommunications industry will not survive or thrive with two huge empires dividing up the spoils while two smaller fiefdoms struggle to stay afloat.

It will evolve and evolve quicky, though, if a truly competitive third party, one that promises to be disruptive and to bet huge on the future, is allowed to enter the marketplace.

Huxley was agnostic on the whole idea of biological natural selection in the evolutionary process.  He wasn’t didn’t have enough facts to wholeheartedly support Darwin’s views on the subject.

And I am not saying that if Thomas Huxley were alive today, he would wholeheartedly support the T-Mobile/Sprint merger.

But industry is all about survival of the fittest.

A healthy marketplace is the best thing that can happen to consumers, who want enough choices to be able to shop for the best value at the best price.

Neither Verizon nor AT&T are putting all of their chips on the 5G bet.  AT&T is moving to become more of a content company with its acquisition of Time Warner.  Verizon is betting on social media with its acquisition of Yahoo.

Only the T-Mobile/Sprint merger is primarily about 5G.  And only that merger will bring the competition necessary to bring more 5G to both urban and rural America.

That’s not to say that neither AT&T and Verizon are making investments in the 5G.  They are.  But making investments because you need to survive fierce competition is far different than making investments because it seems like a nice thing to do.

Here is what Sorkin says about the nature of competition in this marketplace:

“In truth, today’s wireless market is bifurcated between the haves and the have-nots. It’s almost as if the telecommunication market were two markets. AT&T and Verizon serve the wealthier and business customers, and T-Mobile and Sprint serve more price-conscious consumers.

T-Mobile in particular has long been described as a “maverick” — that’s a classic antitrust term for companies that are viewed as holding down prices in an industry, the way Southwest Airlines has long done. The worry has long been that the combined company would raise prices. But as logical as that sounds, it’s likely to do the opposite.

Robert Bork, President Ronald Reagan’s Supreme Court nominee in 1987, wrote a seminal book, “The Antitrust Paradox,” which argued that it was possible for a market to go from four rivals to three and see economic competition go up.

Of course, it is possible that a price war could end with the three companies deciding to “rationalize” their pricing just the way the large airlines have. That is not a trivial issue. But many industries with three strong players — especially an industry that requires significant capital costs — turn out more competitive.”

Most people I talk to on the Hill think the T-Mobile-Sprint merger is the right approach to spurring the right investment in the future.  You could say that it is common sense clarified.

Disclosure note:  I do represent Sprint as a registered federal lobbyist.  This post was not sponsored, and the opinions expressed here are my own.