There has been no shortage of opinions about the proposed merger of T-Mobile and Sprint. Just about the only person who hasn’t said something is President Trump.
As deafening as the president’s uncharacteristic silence has been on a deal that would reshape the telecommunications and media landscape, everyone else seems to be saying the same thing: The deal should be blocked.
But those who cited the conventional wisdom this time may be wrong, including me.
When the deal was announced in April, the knee-jerk reaction — my own included — was to question whether the deal would reduce competition and should be rejected. That also seemed to be the first impulse of many others, with a bevy of opinion pieces questioning the deal.
In The New York Times alone, there was an opinion piece, “Letting Sprint and T-Mobile Merge Is a Terrible Idea,” and an editorial, “The Implausible Promises of a T-Mobile-Sprint Merger.” “Block the Call,” The Economist wrote. Randall Stephenson, the chief executive of AT&T as it undertakes its own sector-shaking merger with Time Warner, said at a news conference that T-Mobile and Sprint would have a “tough hill to climb.”
Investors, too, have been unconvinced the deal will go through, recalling that the government blocked AT&T’s acquisition of T-Mobile on the grounds that it would have reduced the number of competitors. And even as recently as two years ago, officials at the Federal Communications Commission knocked a combination of T-Mobile and Sprint.
But there’s a compelling alternative theory.
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.
If T-Mobile and Sprint built out that network, the only way to make the math of the deal work would be to steal customers from AT&T and Verizon. The combined company would need to take millions of customers away from the big players. The only way to do that: lower prices. That’s especially true now that companies like AT&T, thanks to its new Time Warner holdings, will be able to offer customers extra perks that customers of T-Mobile and Sprint won’t be able to get.
John Legere, T-Mobile’s chief executive, was questioned about pricing during congressional testimony in late June. He explained that he would “have every incentive from an economic and business perspective to lower prices to attract new customers and drive customer usage to fill its greatly increased and less expensive capacity.”
Perhaps the more persuasive comment came from Sprint’s chief executive, Marcelo Claure, who pointed out that little had changed for the better since his predecessor, Dan Hesse, testified before Congress seven years ago and voiced concerns about the proposed merger of T-Mobile and AT&T.
At the time, Mr. Claure told Congress, AT&T and Verizon controlled two-thirds of the market — the same share they control today.
“And they have increasingly found ways to use their scale to cement their advantages rather than to compete vigorously with others in the marketplace,” he said. He punctuated his point by saying the market caps of AT&T and Verizon are each twice the size of a combined T-Mobile-Sprint.
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.
Antitrust concerns aren’t the only hurdle, either. There is another that could be just as daunting: the Committee on Foreign Investment in the United States. Because T-Mobile is controlled by its German parent, Deutsche Telekom, and Sprint is controlled by Japan’s SoftBank, it is possible that the committee could claim that a merger poses a threat to national security. Lawmakers have raised security questions about the merger, citing connections between SoftBank and the Chinese device maker Huawei, which has been called a national security threat.
The committee has usually not blocked such deals, but the steel and aluminum tariffs demonstrate that the Trump administration has no qualms about invoking national security to intervene in the world of business.
And there is still the matter of the voice we haven’t heard.
Mr. Trump has never been shy about publicly opining on headline-grabbing mergers. He was a vocal critic of AT&T’s tie-up with Time Warner, he was a fan of Disney’s acquisition of most of 21st Century Fox’s assets, and he recently had harsh words for the government’s blocking of Sinclair Broadcasting’s deal to buy Tribune Media. (“Disgraceful!” he wrote on Twitter.)
So the president’s silence on this one has led to hushed questions among a cadre of executives, bankers, lawyers and lobbyists who have blanketed Washington this summer trying to turn the ear of regulators and policymakers: What does he actually think? And, despite the White House’s repeated insistence that Mr. Trump has no involvement in approving such deals, is he exerting any influence behind the scenes?
We will not know the president’s position until he tells us. But perhaps the most important voice we’ve heard from so far has come from the head of the Justice Department’s antitrust division, Makan Delrahim. He was asked directly in June about how many telecom companies there should be to have a competitive industry.
His answer? “I don’t think there’s any magical number that I’m smart enough to glean.”
Absent a telling tweet from the president, that is as close as we’ve heard to a position from the government. And in this case, it sounds like the right answer.
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