Boost founder angles for divestitures from Sprint/T-Mobile merger

A merger between Sprint and T-Mobile would reduce the number of LTE networks in the United States. (Mosaik)

Peter Adderton, the founder and former CEO of Boost Mobile USA, is taking a public stance against the merger of Sprint and T-Mobile. But part of his efforts are centered on pushing regulators to require that the combined Sprint and T-Mobile divest their prepaid businesses, so that he can potentially step in and take control of those operations.

“It’s my baby, so I would love to take control of it,” Adderton said of the prepaid operations of Sprint’s Boost, which he said should be merged with T-Mobile’s MetroPCS prepaid operations and be divested from Sprint and T-Mobile as a condition of their transaction. “But that’s not the driver here.”

Instead, Adderton said that his main goal is to ensure that the U.S. wireless marketplace remains competitive, and that U.S. prepaid and MVNO providers can continue supplying inexpensive services to Americans who can’t afford postpaid wireless services from the likes of AT&T and Verizon.

Adderton launched his public campaign around the issue this week with a press release and interviews with media outlets including USA Today and Bloomberg. He said his next step will be to approach members of Congress to urge them to hold hearings about the merger’s effects on the U.S. wireless marketplace.

“I just don’t think that that the story around 5G and jobs is the real story,” Adderton said, pointing to the arguments that Sprint and T-Mobile executives have used in support of the merger. Sprint’s Marcelo Claure and T-Mobile’s John Legere have said that the merger will result in the creation of additional jobs, and would position the United States to better take the lead in the global race to 5G.

The “real story,” Adderton explained, will be the merger’s effect on the prepaid and MVNO market. “If this merger is approved without the divesture of Boost Mobile and/or MetroPCS, the new combined entity will hold a 40% market share in the prepaid segment—which I would argue has the effect of being a monopoly or extreme dominance in the category,” stated Adderton in his release. “This level of market domination virtually always leads to rising prices, more onerous terms and conditions and lower service quality, and young and credit-challenged prepaid subscribers simply can’t afford that.”

And for MVNOs, Adderton said that “given that Sprint and T-Mobile are a dominant force in prepaid, they will have significant incentive to restrict network access to competing MVNOs. What’s more, if the merger goes through without formal wholesale pricing protections in place and we end up with only three carrier networks instead of four, it’s only logical to assume the new T-Mobile entity will raise wholesale rates to these MVNO competitors. This creates a pricing ceiling under which the remaining two networks can also raise rates. If that happens, MVNOs, who already run on extremely tight margins, have little or no opportunity to make a profit, and we can expect many of them to close their doors.”

Adderton, who founded Boost in Australia in 2000 and still operates a Boost wireless business there from his home in California, said he can speak out on the MVNO topic because he’s not working with either company. “I have nothing to lose,” he said. “I’m the only one who can really come out.”

Sprint obtained the Boost and Virgin brands for its prepaid efforts, while T-Mobile purchased MetroPCS’ network and prepaid operations for its own prepaid efforts.

Indeed, Adderton said that the proposed merger of Sprint and T-Mobile highlights the fact that “the wholesale MVNO market is not strong.” He said he’s going to urge regulators to step in to preserve competition in the space by requiring wireless carriers to offer wholesale MVNO services at fixed prices, and to support eSIM technology. Adderton pointed out that such regulations have already been imposed on wireline telecommunications providers, because they are required to allow other service providers to connect to their networks at reasonable prices, and that consumers can easily switch among service providers.

Adderton’s inclusion of eSIM technology is noteworthy considering the U.S. Department of Justice is reportedly conducting an antitrust investigation into some of the nation's largest wireless carriers for potentially colluding to prevent broad adoption of the technology, which would allow customers to more easily switch carriers.

“I think it’s time for the FCC and DOJ to regulate the MVNO market,” Adderton said. “This is the chance to get in and fix the market.”

Analysts have acknowledged that the Sprint/T-Mobile merger could face significant opposition from regulators. “The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be competitive, an HHI of 1,500 to 2,500 to be moderately concentrated, and an HHI of 2,500 or greater to be highly concentrated,” wrote Cheenu Seshadri at Three Horizon Advisors in a recent report on the Sprint/T-Mobile merger. “Using a methodology and market definition like the FCC, the merger of T Mobile-Sprint will result in a HHI increase of over 400 points for the mobile wireless market to approximately 3,250. This would lead the department to conclude enhanced market power for participants and will most likely result in a challenge.”