Top executives from Sprint and T-Mobile, alongside economists, technologists and consumer advocates, testified Wednesday afternoon for the Senate Judiciary Committee’s Antitrust Subcommittee. The hearing was an effort by the subcommittee to dig into the issues created by the proposed merger between Sprint and T-Mobile—a transaction that promises to combine the nation’s third and fourth largest wireless operators and to reduce the total number of nationwide U.S. wireless carriers from four to three.
The hearing lasted just over two hours and started off with opening statements from the following witnesses called to the hearing:
- T-Mobile CEO John Legere (who wore a suit coat inscribed with T-Mobile’s magenta logo and, not surprisingly, argued in favor of the merger)
- Marcelo Claure, Sprint executive chairman (who also argued in favor of the merger)
- Asha Keddy, VP of technology for Intel (who spoke very little and offered only some general comments about 5G)
- Gene Kimmelman, president and CEO of Public Knowledge (who spoke mostly against the merger, arguing that it likely would reduce competition)
- Roslyn Layton, visiting scholar at the American Enterprise Institute (who generally spoke in favor of the merger, albeit through somewhat disjointed but detailed statements about market developments and dynamics)
- George Slover, senior policy counsel of Consumers Union (who generally argued against the merger)
After the opening statements, Sen. Mike Lee (R-Utah) and Sen. Amy Klobuchar (D-Minn.) took turns firing questions at the speakers. Sen. Richard Blumenthal (D-Conn.) briefly stopped by the meeting to ask a question about jobs.
Here are some of the key topics covered during the event:
Both Legere and Claure have made 5G a key element in their merger proposal. Sprint and T-Mobile will build a massive 5G network if they are allowed to merge, and that action, according to Legere, could push AT&T and Verizon to invest an additional $20 billion of combined spending into their own 5G buildouts in response.
However, Sen. Klobuchar pointed out that both Sprint and T-Mobile already announced fairly aggressive 5G buildout plans prior to their April merger announcement. So why do they need to merge?
Claure countered that Sprint will need to spend up to $25 billion to build out a standalone 5G network, and even then, the network won’t cover large geographic areas of the United States.
“At most this merger is a shortcut,” argued Consumers Union’s Slover, explaining that a Sprint/T-Mobile merger would simply allow the companies to build out a 5G network faster than they could on their own.
Interestingly, Claure also said that “China will lead in 5G if merger is not approved, and innovation will go there,” but none of the senators sought to follow up on that issue.
Shrinking the market from 4 to 3
A major theme during the hearing was whether the U.S. wireless industry should shrink down from four nationwide wireless players to three. Claure and Legere, not surprisingly, argued that their merger would result in increased competition in wireless and lower prices for consumers, because it would create a new player that could compete on the same scale as heavyweights AT&T and Verizon.
“This is actually moving from two [competitors] to three,” Legere said, arguing that AT&T and Verizon only change their business practices when they are forced to by competition. “This is creating a viable competitor.”
But other speakers took the same basic facts and argued the opposite: Public Knowledge’s Kimmelman said that market data generally shows that prices for consumers fall faster when there are more players in the market. “There’s no magic number here” in terms of the number of providers necessary for a healthy market, he said, adding though that “you’re more likely” to get better prices with four providers than three.
Noted Sen. Klobuchar of the merger: “I just can’t help but think it will result in higher prices in some way.”
Added Slover: “It is foolhardy to let go of the heated competition we currently have.”
And Sen. Lee asked whether anything in the wireless market had changed following the Department of Justice’s rejection of AT&T’s attempt to purchase T-Mobile in 2011, on fears it would reduce competition. Claure responded that the Sprint/T-Mobile merger would combine the nation’s third and fourth players, rather than a make a leading player bigger.
“Jobs will go up,” Legere stated, echoing the companies’ initial statement that their merger would create more jobs than the two individual companies would.
But on questioning from Blumenthal, Legere offered more details into how exactly the “New T-Mobile” would arrive at that result. Specifically, he said the combined company would bring Sprint’s customer care operations back to the United States from overseas, resulting in the hiring of 7,700 new employees.
But at the same time, he said “there’ll be a rationalization of jobs in the first year,” meaning that the combined company would eliminate redundant jobs, including those in retail. On retail specifically, Legere said that New T-Mobile would eliminate 3,200 full-time retail jobs and 8,000 indirect and direct retail jobs, but would compensate for that by hiring over 10,000 employees to tackle the in-home broadband market and 12,000 to deploy new services in rural areas.
Sprint and T-Mobile’s prepaid efforts have grown into a sticking point in the merger, largely thanks to Peter Adderton, the founder and former CEO of Boost Mobile USA, who has taken a public stance against the merger of Sprint and T-Mobile. 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.
Legere noted as much when the prepaid topic came up, adding, “We have not suggested any change, per se, in the MetroPCS, Boost and Virgin brands,” if the merger is approved.
Nonetheless, the senators and consumer advocates worried that a merger between Sprint and T-Mobile would create fewer prepaid options, thus potentially affecting the low-income Americans who might sign up for such services.
But Legere and Claure counted that the prepaid market is increasingly mirroring the postpaid market, such that prices and phone options between the two sectors are largely similar. “We are treating the prepaid customers pretty much the same as the postpaid customer,” Claure said.
Legere added that, following T-Mobile’s purchase of MetroPCS, the company invested further into the prepaid sector.
The Senate’s hearing on the topic was one of the market’s best opportunities to publicly evaluate the pros and cons of the deal. Based on my viewing of the hearing, I didn’t see one side take a leading position, nor was I able to discern which direction Sen. Lee or Sen. Blumenthal were leaning (Sen. Klobuchar appeared to be against the merger). Moreover, I’m not sure how those results will affect the merger review process at the FCC or the Department of Justice.