Stories about this on-again – off-again merger are rolling off the digital presses almost on a daily basis. As new developments emerge, such as the recent slew of suits by nearly a dozen states, one has to wonder just how this, coupled with the rest of the realities of 5G, this is going to play out in the ecosystem.
This saga, no matter how it plays out, will not likely have a direct impact on the rollout of 5G. However, the dance finale will certainly be something to behold, however it goes. For the record, I have been of the opinion that the merger will happen.
As if, the recent 5G “deployments” have not had enough disappointments. The one thing that the merger had going for it was the ability to marshal each organization’s strong suits into a really bleeding edge network. However, it is being discovered that what they’ve said they can do may be way overstated. That is why New York, and some other states, are crying foul.
Nevertheless, and all that aside, what are the real issues here. Is it a contraction of competition as the DoJ claims? I am not so sure of that. Why? Because there is no real evidence that three versus four major telecom players will change the competitive landscape all that much. While I have my opinions, as does everyone else, a recent post by an industry analyst, Kyung Mun of Mobile Experts, bring up some interesting observations. He talks about the “The Rule of Three and Four,” a business theory that hypothesizes that a competitive industry finds an equilibrium when the market shares of three competitors reach a ratio of 4:2:1. He wrote a very elegant thesis around this to make the case that the merger should happen and to explain competitive industry dynamics of why.
A year later, (a couple of weeks ago) as the T-Mo/Sprint saga drags on, he, again, wrote another elegant piece raising some very pertinent questions about why analytics sometime fail. While his missive is very well supported by analytics, I believe tried and true analytical models and algorithms, in this political environment, are not as rock solid as they once were. When you have the kind of political hip-shooting as exists in the present administration, one has to sit back and take a broader look at the ecosystem. There are peripheral factors at play in such an environment.
It appears that the DoJ, IMHO, has some political motivation behind its direction. I believe the litigating states do, as well. It is not about competition; it is about the administration’s desire to maintain the façade that it is about jobs. To wit, this is a statement made by New York’s Attorney General Letitia James. “This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent.” She goes on to say that “When it comes to corporate power, bigger isn’t always better. The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country.”
Oh really? And where does she get her facts? No one knows, precisely, what the end result of the merger will be. Will there be job losses? – of course. However, there will also be new jobs created by the merger. The loss/gain scenario exists whenever companies merge. In addition, I wonder why she did not mention what will happen to Sprint jobs if it goes out of business – will there be no job losses? If one wants to talk about job loss, look to AI. While everyone treads lightly around AI killing jobs, it is a given that will happen. A quick search of the topic will find any number of articles supporting this case.
Next, let us talk about competition. As much visibility as the two companies will be under after the merger (and the other two, as well), it really seems like political suicide to raise prices for what already exists. 5G is another story but so far, no high-value use cases are showing up. Frankly, I believe that the melding of T-Mo and Sprint will bring a stronger player to the market, actually increasing price pressure on the other two.
One point that does have merit is that one of the attorneys general investigation into the merger found that many of the claimed benefits were unverifiable and were theoretical services yet to be developed. The reference is to speed and deploy-ability. However, that metric applies to all carriers so that should be a moot point. Every carrier is promising embellished services and exaggerated performance.
I am not the only one who does not understand this team blocking by the government (remember Trumps spat with Legere and Trump calling T-Mo service terrible). I believe this is more political than economic. For that matter, so does wireless analyst Mark Lowenstein. He says he cannot see the downside to this merger. He supports his position with a number of good arguments, none of which I have room to pen here but they are easy to find.
In addition, do not forget there are other players eyeing the wireless market. Charlie Ergen’s DISH Network has spent billions of dollars amassing spectrum and it owns enough of it to build a 5G network. Plus, there is Amazon, Google and others with skin in the game.
Finally, why all this attention to wireless? There are so many other industry segments that just scream antitrust – airlines, cable, online advertising, ticketing services…the list goes on. For some reason, this has become the Oprah show of the year. I think the DoJ and suing states need to go back and reexamine their motives, and come back apolitical.