The terrible T-Mobile / Sprint merger must be canceled
Donald Trump Antitrust The division was not particularly qualified for the market design. In February 2020, he convinced a judge to pass T-Mobile / Sprint merger, under the belief – a prayer indeed – that the merged company could be forced to give life to a budding rival, Dish, and that the rival would invest billions in its own network. It was like trading a first-round draft pick in the draft for an aging companion with an incurable knee injury.
Never mind, that experiment of using a reseller as a “fixer” for a wireless merger that reduced four competitors to three had failed. in Germany, revealing the essential role of a fourth facilities-based supplier in preserving competitive results. Ignore the fact that the merged company would have a strong incentive to undermine the behavioral cure. And ignore the long history of failed behavioral remedies in horizontal mergers documented by an antitrust fixture. Basically, forget about any relevant antitrust experience you accumulate.
What looked simply dangerous in foresight turned out to be downright stupid in retrospect: The behavioral remedy devised by the Department of Justice to compensate for the loss of competition resulting from the T-Mobile / Sprint merger turns out to be a failure. And wireless prices – perhaps by chance – are on the rise for the first time in more than a decade (except for a slight increase in 2016). If this craft was devised by a general manager of a basketball team, they would be fired.
In July 2019, the DOJ filed a complaint which explained the prejudices associated with the merger. He acknowledged that US consumers of wireless services “have benefited from the competition that T-Mobile and Sprint have brought to the mobile wireless industry,” including the introduction of unlimited data plans for retail customers. in 2016, and concluded that “if the merger was allowed to continue, this competition would be lost.
To address these obvious prejudices, the parties agreed to structural and behavioral changes. Dish paid $ 1.4 billion for Boost and other Sprint prepaid assets. Behavioral Cure envisioned T-Mobile leasing network access from Dish for seven years, while Dish built its own network. The settlement also required T-Mobile and Sprint to provide certain “bridging services” to Dish for up to three years, including billing, customer service and the purchase of SIM cards. If Dish’s own network does not serve 70% of the country by 2023, it will face penalties of up to $ 2.2 billion.
In an investor call this week, Dish chairman Charlie Ergen, recognized that T-Mobile was not playing well. T-Mobile is shutting down its old wireless network that supports Dish’s Boost customers. The majority of Dish customers use T-Mobile’s 3G CDMA service, which means Dish will lose those customers unless, among other things, they get a new device or SIM card. Dish has revealed that this change will cause a significant disruption to its service and increase its churn rate. Ergen described T-Mobile’s decision to shut down the CDMA network as “anti-competitive”.
Where could those departing Dish customers fall to? By turning off that lifeline for Dish, T-Mobile can bring Boost customers back to T-Mobile, which should put upward pressure on the price T-Mobile charges for prepaid plans. Dish has already lost 363,000 subscribers in the fourth quarter of 2020 (and another 212,000 in the previous quarter), suggesting that the remedy was failing in more subtle ways before T-Mobile’s blatantly “anti-competitive” act.
The DOJ’s cure also naively assumed that Dish himself would perform well. The idea was that Dish would develop and extend Boost, and not just reduce and reap cash flow when subscribers returned to the three facility-based carriers. Yet Moffett Nathanson analysts Noted, “Dish appears to be focused on generating short-term cash by cutting costs and reducing subscriber acquisition while attracting success with its subscriber base – the same approach for its pay television business.” During the trial, Ergen said he would develop Boost and did not need T-Mobile’s old 3G network. Relying on this and other testimony from business leaders, the trial judge essentially rejected the presumption of competitive prejudice.