Home / News & Analysis / Don’t Let the Sprint/T-Mobile Zombie Merger Rise Again

Don’t Let the Sprint/T-Mobile Zombie Merger Rise Again

Profiteers gotta profit. According to CNBC, T-Mobile and Sprint are once again considering a merger. The combined company would be run by T-Mobile CEO John Legere, but Sprint's majority owner, Softbank, would have a major interest.

OpinionsThis is a horrible idea. It would lead to higher prices, worse service, and massive job cuts. CNBC says flat out that the merger talks are "pushed by the prospect of billions of dollars in cost synergies that a merger would bring," which means firing lots of people.

Softbank chief Masayoshi Son has floated this lead balloon twice before in 2013, but it was under the Obama administration, which looked very sternly on any attempt to reduce nationwide wireless carrier competition in the US. There's a new sheriff in town, though, and that means new rules.

The Merger Morass

In the short term, wireless mergers of equals tend to be disastrous for users.

The problem in this case isn't merging T-Mobile's and Sprint's incompatible 2G networks. That was a concern in 2011 and 2013, but GSM and CDMA are both on their way out at this point in the US. The two companies both use the 4G LTE standard, and will use the 5G NR standard in the future; they'd just turn off Sprint's old CDMA network.

The problem is the years worth of institutional navel-gazing that happens in a merger like this. The two companies overlap almost entirely, and the merger's savings and profits will come from eliminating that overlap. Energies will get turned inwards, away from building and competing, more towards things like sending pink slips, reconciling billing systems, and paying off real-estate leases.

Redundant jobs at T-Mobile and Sprint would be the first to go, but think of all of those retail locations, as well—thousands upon thousands of stores and mall kiosks. Some would be converted to the new T-Mobile, but many would simply shut down.

The AT&T/Cingular merger is instructive here. While it went through in 2004, it took three more years to sort out the branding and integrate the networks, and for a lot of that time, customer service was awful. Both T-Mobile and Sprint have been dynamic, vibrant competitors in the past few years; expect a merged company to be more focused on its own drama than on serving its public. At the very least, it will be more conservative, less radical, and less "un-carrier."

Killing the Counter-Arguments

Merger-pumpers will probably tend to go with two counter-arguments: that Sprint is "going to die anyway," or that new entrants will pop up to ensure competition.

Sprint has been gaining subscribers and improving network performance for most of the past two years. Sprint's major problem is a crushing $33 billion debt load, mostly incurred because of a series of earlier bad decisions, including a difficult 2004 merger with Nextel and a bet on the failed WiMax 4G technology. But that doesn't mean Sprint is a non-viable business. The company has been operationally profitable for several recent quarters—it's all that service on the debt which makes it lose money. There have got to be solutions for that debt load that don't involve collapsing the business.

I still believe what I wrote in a column the last time Son tried this strategem: "The idea that a wireless carrier with more customers than the entire population of Poland is doomed, is ridiculous. Especially if it's run by a shark like Masayoshi Son. Just look at T-Mobile a few years ago: hopeless, right? Then John Legere and Neville Ray's inspired leadership turned it into a carrier people want to join. Mergers are the lazy way to grow. Let's see if Son's Softbank has the stomach for the real work."

As for the new entrants, providing wireless service takes so much base infrastructure that it becomes extremely difficult for a new competitor to crop up. Even as we go from 4G to 5G, we're seeing the new networks being offered by the same big players, as they're the only ones that can afford to build national networks. The wireless world in Canada shows a great cautionary lesson there.

The Canadian Conundrum

Our Fastest Mobile Networks Canada study this year showed, once again, what can happen when you only have three national carriers. While Canada's carriers are fast and provide excellent coverage, prices there haven't budged in years. And, unlimited data? Forget about it.

But look across Canada, and you see where there's a fourth strong local player, the three big carriers often lower their prices and become more competitive. In Quebec, Manitoba, and Saskatchewan—where there are fourth carriers that offer comprehensive province-wide coverage—rates are considerably lower than in other provinces.

Canada also shows that it's very difficult to start up a brand-new carrier, because of the huge investment needed to set up a new network. They've been trying to nurture a fourth national carrier since 2008, with several attempts (Mobilicity, Public Mobile, WIND) failing until a large cable company, Shaw, took over the former WIND Mobile last year and turned it into Freedom Mobile. Even now, Freedom will need continued major investment to be competitive, as our study showed.

It Could Happen Anyway

If Sprint and T-Mobile actually do propose a merger, there's going to be a massive public backlash, to be sure. The FCC comments system will be flooded with people who don't want to lose one of their wireless options, and who don't want prices going up.

Related

It could happen anyway. President Trump's FCC and DOJ, and thus the man himself, will ultimately make the decision. And Son has been buttering up Trump since the day he won, meeting with then President-elect and pledging to invest "$50 billion" and create 50,000 jobs. It turns out that "pledge" was just a remix of an earlier announcement from before the 2016 election.

This merger would result in higher prices and tens of thousands of lost working-class, American jobs. Is that making America great again? We don't think so.

Read more

Check Also

Twitter will give political candidates a special badge during US midterm elections

Ahead of 2018 U.S. midterm elections, Twitter is taking a visible step to combat the spread of misinformation on its famously chaotic platform. In a blog post this week, the company explained how it would be adding “election labels” to the profiles of candidates running for political office. “Twitter has become the first place voters go to seek accurate information, resources, and breaking news from journalists, political candidates, and elected officials,” the company wrote in its announcement. “We understand the significance of this responsibility and our teams are building new ways for people who use Twitter to identify original sources and authentic information.” These labels feature a small government building icon and text identifying the position a candidate is running for and the state or district where the race is taking place. The label information included in the profile will also appear elsewhere on Twitter, even when tweets are embedded off-site. The labels will start popping up after May 30 and will apply to candidates in state governor races as well as those campaigning for a seat in the Senate or the House of Representatives. Twitter will partner with nonpartisan political nonprofit Ballotpedia to create the candidate labels. In a statement announcing its partnership, Ballotpedia explains how that process will work: Ballotpedia covers all candidates in every upcoming election occurring within the 100 most-populated cities in the U.S., plus all federal and statewide elections, including ballot measures. After each state primary, Ballotpedia will provide Twitter with information on gubernatorial and Congressional candidates who will appear on the November ballot. After receiving consent from each candidate, Twitter will apply the labels to each candidate profile. The decision to create a dedicated process to verify political profiles is a step in the right direction for Twitter. With major social platforms still in upheaval over revelations around foreign misinformation campaigns during the 2016 U.S. presidential election, Twitter and Facebook need to take decisive action now if they intend to inoculate their users against a repeat threat in 2018.

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer: Trading in bitcoins or other digital currencies carries a high level of risk and can result in the total loss of the invested capital. theonlinetech.org does not provide investment advice, but only reflects its own opinion. Please ensure that if you trade or invest in bitcoins or other digital currencies (for example, investing in cloud mining services) you fully understand the risks involved! Please also note that some external links are affiliate links.