T-Mobile and Sprint Merger Would Increase Prices, Say T-Mobile Economists

Janine Jackson: The Washington Post headline was blunt: “T-Mobile and Sprint Want to Merge. Here’s Why You Should Worry.” The lead was also direct, with the reporter’s assertion that, at the news of a possible merger between the two big wireless carriers, “A collective groan went up from industry-watchers: Ugh, this again?”

That’s because telecom companies’ urge to merge is relentless; their promises of more and better for everyone perennial, though unproven; and their public interest critics exasperated.

The Post article was, as it happens, from 2013, but it might as well have been this week. T-Mobile and Sprint still want to merge. They’re still promising benefits for all concerned, and consumer advocates are lined up to say, Ugh, this again? again.

Now, though, we have a Republican-led FCC, chaired by the cartoonishly co-opted Ajit Pai, who has just announced that the agency will approve the deal.

We’re joined now to talk about what happens next by Leo Fitzpatrick, policy counsel and C. Edwin Baker fellow at Free Press. He joins us by phone from Washington, DC. Welcome to “CounterSpin,” Leo Fitzpatrick.

Leo Fitzpatrick: Happy to be here. Thanks for having me.

Let’s leap right in with what in particular is bad, or potentially bad, about this merger between two of the country’s four biggest wireless carriers. What would it likely mean, and for whom, if T-Mobile is allowed to acquire Sprint?

I think the biggest harm that would come from this is that the merger would increase prices. And you don’t actually have to take our word for it. For instance, T-Mobile’s own economists have sent models to the FCC, saying that their prices would go up.

There’s a whole group of companies known as MVNOs, which is a Mobile Virtual Network Operator. They don’t own any of their own cell phone towers. So they go ahead and lease some space or buy wholesale from the big carriers, and then resell them to consumers.

Essentially, those resellers tend to service what’s known as the prepaid market. Those are the people that don’t sign up for contracts, they buy their minutes on cards. It’s pay-as-you-go, essentially. The folks that rely on prepaid tend to be communities of color and low-income folks. They’re the ones that can’t sign up for a two-year contract. They’re the ones that might not be able to pass a credit check that a lot of the larger carriers require.

A lot of the maverick ethos that T-Mobile has built in itself since the rejection of the 2011 merger has been to be a very innovative brand. But that’s only been as a result of competing very directly with Sprint. Within the prepaid market, they’ve been duking it out, and it’s actually led to price decreases.

One of the innovations that T-Mobile introduced was unlimited data. And very shortly thereafter, within a couple weeks, all the other national carriers, including AT&T and Verizon, followed suit. So what would happen with a merger is that the incentives that helped create this maverick brand would evaporate.

And that sounds like the market working the way we’re told that it does, you know, companies compete with one another by offering things to consumers. But the FCC and Ajit Pai and their endorsement of this T-Mobile/Sprint merger seem to be saying, “Well, yes, but any concerns about that are going to be completely offset, because they’re going to do other stuff that’s going to make that stuff OK.”

And one of the things that they’re talking about is that this new mega-company would “close the digital divide,” because they’re going to get “5G,” whatever the heck that is, they’re going to get that to “99 percent of Americans in six years,” and that all sounds very good, but I assume that we’re right to have some questions and concerns about that promise.

Well, more and more 5G is being used in a way that evokes, to me, the old Simpsons episode of the man who comes into town and utters the wonders of the monorail, where the mere utterance of an exciting opportunity somehow preempts very necessary skepticism.

I don’t want you to get me wrong. I’m a techie. The potential applications of 5G are very exciting. However, if we can get to the same place, without having to raise prices on folks who are going to be disproportionately affected, then we shouldn’t.

Essentially what these companies have done is, even before the merger was dreamt up, they had already a nationwide 5G deployment plan laid out. And now they are coming back and saying that, “Well, without this merger, we can’t do the same thing that we had been promising to our investors prior to the announcement of the merger.”

So one of the most important things that your listeners need to come away with is, a lot of the promises are not merger-specific — which is to say that, whether the merger happens or not, we’re still going to get 5G. There are still four national carriers who are very eagerly seeking out customers for 5G, and deploying the network that a lot of them have already planned out.

Of course, all these promises that are being offered by T-Mobile and Sprint, who’s going to be assessing whether they even hold up to these promises if this merger is allowed to go through? And who that would be would be the FCC, again, who I think listeners know have been failing, really, the public interest for a long time, but now seem to be almost sprinting away from it.

And I think if we look at the FCC’s actions with regard to Puerto Rico, post-hurricanes, which I know that Free Press has been working on, I think that that’s relevant, really, if we’re going to be talking about getting an understanding of the FCC’s priorities, and who they feel accountable to, and whether they are really going to hold carriers to their promises. What’s happening in Puerto Rico has some some relevance there; I wonder if you could tell listeners briefly what’s happening with that?

Sure. On September 20, 2017, Hurricane Maria struck the island. And what followed was, by many measures, a disaster that was quite on par with what happened in Louisiana after Hurricane Katrina.

What we’ve been trying to focus in on is, the FCC never actually followed up and conducted an independent investigation, or had the intellectual curiosity to examine this crisis that affected 3.5 million people. There was only one AM station broadcasting on the entire island 24 hours after the storm; we had first responders who had difficulty reaching out to each other. And the fact that the FCC never actually conducted an investigation is shocking to us. And I think this ties into Pai’s very ideological approach, that deregulation and the free market will be the thing that fixes everything, and that consumers will be better off when the FCC does as little as possible.

One of the things that the FCC did do after Hurricane Maria was allocate funds that would go directly to the carriers. We welcomed this investment in helping to rebuild, but they actually didn’t request, or put into place, any accountability measures. The money was supposed to accelerate the recovery and to build more resilient networks. But they didn’t come back to the carriers with accountability measures, they didn’t actually have any methods to measure — how do you know you’re accelerating the recovery if you’re not actually keeping track of it?

A lot of the work that is occurring is happening behind closed doors. And this actually hearkens back to the merger, because this past Monday, Chairman Pai came out with a statement in support of the merger.

What we’re slowly finding out is that it seems that the staff at the DoJ came up with a recommendation against the merger. And after they had made that determination, the FCC met with T-Mobile and Sprint, and came up with additional conditions, in a way to, at least apparently, preempt the announcement coming out of the Department of Justice.

And just to give you some background, telecom mergers typically need approval from both the FCC and the Department of Justice. A lot of times, they have different calculuses. The FCC reviews the mergers under what’s known as a public interest standard, and the DoJ follows more of a competition-based, will-this-increase-prices analysis.

But a lot of times they work together in unison to come up with these decisions. Typically, the Department of Justice is the one that comes out and approves the merger first, and then the FCC follows suit. So the fact that the FCC came out before the DoJ is just something that a lot of my peers have not ever seen before.

I was going to ask what happens now, does it go to the DoJ? It sounds like, as with many things under this administration, things are happening that we’re not quite prepared to calculate for. But just process-wise, the DoJ still has to officially approve this merger between T-Mobile and Sprint?

Essentially the DoJ’s role is more allowing, whether they are going to come in and actively challenge the merger or not. So the FCC goes ahead and votes and comes out with an order saying, “Yes, we approve of this merger”; the DoJ can just sit back and do nothing and the merger goes through. But otherwise, they would come in, depending on whether they listened to the recommendation from the staff, and also assuming that they consider the new conditions that were introduced.

Again, I would just like to point out that this is truly unusual, in the sense that it’s moving the goalposts pretty close to the 11th hour. We might see some action in the next month or two. But we probably know only as much as your listeners do, from reading these reports and this sort of infighting of leaks from both FCC and DoJ, that’s just, again, unprecedented.

It is a weird place to be in. And I’ll just say, finally, is there a place for the public? How would we even direct our energy at this point? I mean, once an agency like the FCC fakes a cyberattack to avoid acknowledging public comments, and they then, as you’re now describing, kind of step in front of the DoJ in order to say, “Yes, we would like to pre-approve this merger.” It doesn’t seem like they care, frankly, about public input on the question. But we care about it. What should folks do with their concerns?

Well, one thing that Free Press has done is, we’ve asked our members to go ahead and call the Department of Justice to voice their concerns about the merger, and perhaps in support of the staff recommendation not to approve the merger. But also, there are a couple of state attorney generals that have been examining the issue, particularly in New York and California, and if you live in those states, contacting those Departments of Justice there and voicing the potential harms that would come from this merger might be helpful at this point.

All right, then. We’ll keep following the issue. We’ve been speaking with Leo Fitzpatrick; he is policy counsel and C. Edwin Baker fellow at the group Free Press. You can find their work on T-Mobile/Sprint, on the FCC and Puerto Rico, and on a range of other issues at FreePress.net. Leo Fitzpatrick, thank you very much for joining us this week on “CounterSpin.”

Thank you.