Blumenthal Leads Eight Senators Urging Department of Justice & FCC To Reject Proposed T-Mobile & Sprint Merger

Senators express staunch opposition to merger that would “lead to job losses and harm workers around the country” and bring “higher monthly bills for consumers.”

Senators urge the Department of Justice & the Federal Communications Commission to reject the merger, warning that approval would “be a sharp blow to competition” and “undermine innovation.”

[WASHINGTON, DC] – Expressing their staunch opposition to the proposed merger between T-Mobile and Sprint, U.S. Senator Richard Blumenthal (D-CT) led eight colleagues today in writing to the Department of Justice’s (DOJ) Antitrust Division and the Federal Communications Commission (FCC), urging DOJ and FCC to reject the proposal. The merger is “likely to raise prices for consumers, harm workers, stifle competition, exacerbate the digital divide, and undermine innovation,” wrote the senators in letters to Assistant Attorney General Makan Delrahim and FCC Chairman Ajit Pai. In the letter to Delrahim, the senators urged DOJ to seek an injunction to block the merger. The two letters were co-signed by U.S. Senators Amy Klobuchar (D-MN), Tom Udall (D-NM), Sherrod Brown (D-OH), Kirsten Gillibrand (D-NY), Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Cory Booker (D-NJ), and Edward J. Markey (D-MA).

“For more than 30 years, our enforcers have understood that fostering robust competition in telecommunications markets is the best way to provide every American with access to high-quality, cutting-edge communications at a reasonable price.  This merger will turn the clock back, returning Americans to the dark days of heavily consolidated markets and less competition, with all of the resulting harms,” wrote the senators in both letters. “Our enforcement officials are the last line of defense preventing reconsolidation of our telecommunications markets at the expense of American consumers. We urge you to act to prevent this dangerous merger from proceeding.”

Consumer advocates, economists and small wireless carriers have warned that a T-Mobile-Sprint merger would increase market consolidation. The merger would result in just three competitors—down from four—covering the wireless market. This would be “a sharp blow to competition in the telecommunications industry,” wrote the senators, warning that as a result of the merger, “three remaining members of this exclusive club will have every incentive to shut the door on new members, happily divide the market, and collect ever-rising monthly rents from wireless subscribers with few real alternatives.”

“We are deeply concerned that the merger of Sprint and T-Mobile in particular will eliminate competition that has been shown to benefit consumers and stifle the emergence of new carriers,” the senators added.

For nearly a decade, DOJ and the FCC have acted vigorously to protect competition in the mobile market through blocking and discouraging four-to-three mergers. In 2011, DOJ acted decisively to reject AT&T’s proposed merger with T-Mobile and, according to news reports, T-Mobile and Sprint abandoned previous merger plans after conversations with federal regulators. “History has proven that those were the right decisions,” wrote the senators in both letters.

Consumers have “benefited from increased innovation and price competition” brought by a four-carrier market, as exemplified by the fierce competition of T-Mobile and Sprint. The T-Mobile-Sprint merger would undo these benefits and “likely lead to higher monthly bills for consumers” and “lead to job losses and harm workers around the country,” wrote the senators in their letter to the FCC. According to one expert study, consumers would see their monthly bills increase at least 9% for post-paid plans and 10% for pre-paid plans. The proposed merger would also lead to reduced wages and kill jobs – as many as 30,000 jobs according to the Communications Workers of America.

“If this merger is approved, the rising cost of wireless services will be borne most heavily by low-income consumers and vulnerable seniors who can least afford it. At least one study has concluded that this merger will dramatically increase consolidation in the prepaid market,” wrote the senators. “Because low-income consumers disproportionately rely on the prepaid wireless market, these communities will suffer the most, despite being the very communities that our antitrust laws should most vigorously protect.”

In their letter, the senators also called into question claims that the merger is needed to build out 5G networks. “T-Mobile’s and Sprint’s sudden claims that neither can create a competitive 5G network separately flies in the face of announcements, disclosures, and marketing to consumers and investors over the past two years,” wrote the senators.  “Not only do each of these companies have their own path forward to achieving 5G coverage, but the financial details of this deal and the technical challenges of building a 5G network suggest that the New T-Mobile is unlikely to meaningfully speed up the deployment of nationwide 5G.”

The full text of today’s letters are available here: Letter to FCC and Letter to DOJ. The text is also copied below.

February 12, 2019

The Honorable Ajit Pai

Chairman

Federal Communications Commission

445 12th Street SW

Washington, DC  20554

Dear Chairman Pai:

We write urging you to reject the proposed merger between T-Mobile and Sprint. The two companies have proposed a four-to-three merger that is likely to raise prices for consumers, harm workers, stifle competition, exacerbate the digital divide, and undermine innovation. Furthermore, we remain unconvinced that the merger would speed up the deployment of next-generation 5G networks or extend affordable coverage to all Americans. The Department of Justice and the Federal Communications Commission (FCC) have previously been very clear in discouraging these companies from merging. Blocking this proposed combination is necessary to send a strong signal that our enforcement officials are vigorously protecting Americans from harmful anticompetitive behavior.

The public FCC docket for this merger raises the alarm that the proposed transaction would increase consolidation and produce a country-club market in our critical telecommunications sector. After the merger, the three remaining members of this exclusive club will have every incentive to shut the door on new members, happily divide the market, and collect ever-rising monthly rents from wireless subscribers with few real alternatives. At least two studies demonstrate that Americans’ monthly bills will go up dramatically as a result of this merger.  Beyond price increases, the merger could kill an estimated 30,000 jobs.  At least one review has raised the concerning possibility that the merger will reduce wages for thousands more workers.  Finally, this merger may hinder efforts to bridge the digital divide facing rural communities and many lower- and middle-income Americans.

For more than 30 years, our enforcers have understood that fostering robust competition in telecommunications markets is the best way to provide every American with access to high-quality, cutting-edge communications at a reasonable price.  This merger will turn the clock back, returning Americans to the dark days of heavily consolidated markets and less competition, with all of the resulting harms. Our enforcement officials are the last line of defense preventing reconsolidation of our telecommunications markets at the expense of American consumers. We urge you to act to prevent this dangerous merger from proceeding. 

This Merger Will Lead to Dangerously High Levels of Market Concentration

If this merger is approved, it will be a sharp blow to competition in the telecommunications industry. There are currently only four nationwide, facilities-based mobile carriers: AT&T, Verizon, T-Mobile, and Sprint.  This merger could leave only three providers with over 98% of total facilities-based wireless connections, according to one estimate.  This should raise serious concerns. Antitrust regulators around the world have consistently blocked four-to-three mergers in the mobile and telecommunications industry, and those who have allowed such mergers have lived to regret it.  The competitive harms of this sort of four-to-three merger are well documented,  and American enforcers have thrown cold water on similar four-to-three mergers in other industries.

Our enforcers have been emphatic in recent years that a four-to-three merger in the telecommunications industry would be harmful. In 2011, the Department of Justice acted decisively to block AT&T’s acquisition of T-Mobile.  Only a few years later, Sprint and T-Mobile were reported to have quietly approached the Department of Justice and the FCC about the possibility of merging.  Officials at both agencies made clear that they would vigorously oppose such a merger.  History has proven that those were the right decisions. Consumers benefited from increased innovation and price competition after AT&T’s proposed acquisition of T-Mobile was rejected,  and prices again declined dramatically in the years after regulators effectively stopped Sprint and T-Mobile from merging in 2014.  T-Mobile and Sprint are once again proposing the same four-to-three merger that they were warned to abandon just a few years ago, with little change in circumstances.

A T-Mobile-Sprint merger would produce unacceptably high levels of concentration in an already consolidated wireless industry. The Herfindahl-Hirschman Index (HHI) is the most common measure of a merger’s effect on consolidation. It is widely used by economists and antitrust enforcers. Expert estimates indicate that this particular merger would lead to a 451 point increase in the HHI for a total HHI value of 3,265, well above the 2500 HHI threshold to be classified as a “highly concentrated market.”  The Horizontal Merger Guidelines issued by the Department of Justice and Federal Trade Commission state that mergers “resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed likely to enhance market power.”  This proposed transaction far exceeds this threshold.

This merger threatens to produce not only dangerous levels of market concentration, but also an unacceptable consolidation of valuable wireless spectrum. The record indicates that this merger would create a company that exceeds the Federal Communications Commission’s spectrum screen in a majority of counties around the country, or 532 cellular market areas.  While T-Mobile requested the spectrum screen be raised even before this merger was proposed, the New T-Mobile would vastly exceed its own proposed spectrum screen in most of the United States.  Rather than promote competition, this consolidation of spectrum holdings would foreclose competition in nationwide and even regional markets. The predicted increase in HHI and the spectrum screen should give any enforcer or regulator assessing this deal serious pause. 

We are deeply concerned that the merger of Sprint and T-Mobile in particular will eliminate competition that has been shown to benefit consumers and stifle the emergence of new carriers. Both T-Mobile and Sprint, as well as the parties opposing the merger, have filed submissions that indicate a high diversion ratio between the two merging parties.  This means that consumers see T-Mobile’s and Sprint’s products as closely interchangeable offerings and switch between the services easily and often. This is to be expected considering that Sprint and T-Mobile have aggressively competed against each other to attract middle- and lower-income consumers.  Allowing these two close competitors to merge will remove an important market dynamic that has driven prices down in the industry in recent years.  

In order to gloss over the absence of strong economic or legal arguments in their favor, the merging parties seek to shout down concerns over whether they will continue to compete aggressively with a single name: John Legere.  They argue that John Legere, the current CEO of T-Mobile and the future CEO of the proposed New T-Mobile, has a legacy as an innovative business leader that he will not wish to risk.  While Mr. Legere may be leading a dynamic company today, there is reason to doubt that T-Mobile will remain dynamic if it swallows its closest competitor. As a smaller player, T-Mobile has had to be innovative and aggressive on pricing to compete with bigger players like Verizon and AT&T. But if T-Mobile succeeds in acquiring Sprint, Mr. Legere will not need to run the company like an aggressive maverick player to attract customers. The New T-Mobile’s shareholders will expect Mr. Legere to take advantage of a consolidated marketplace, and they will hold him accountable if he does not. For this reason, Mr. Legere’s presence at the New T-Mobile is insufficient to guarantee it will continue to innovate and push prices lower. A charismatic CEO is not a legal commitment and does not change a company’s economic incentives. Only the discipline of a competitive marketplace can guarantee continued incentives to innovate in the consumer’s interest. 

This Merger Will Likely Cause Americans’ Monthly Bills to Jump Dramatically

Given that this merger will weaken competitive pressures that otherwise discipline price increases, it is no surprise that it is likely to lead to higher monthly bills for consumers. One study has estimated that just the unilateral effects of this merger will lead to price increases of at least 9% for postpaid plans and at least 10% for prepaid plans.  Another submission has predicted that this merger will lead to higher monthly bills for consumers.  At a time of growing inequality, we cannot afford another merger that will likely increase costs for the many, while lining the pockets of a few wealthy executives and shareholders. We urge you to challenge this merger to ensure that there is continued downward pressure on consumers’ monthly bills.

The merging parties seek to rebut the economic models that demonstrate price increases by using well-worn catchphrases and vague promises. First, they argue that the New T-Mobile will continue to act as a disruptive un-carrier because it will be incentivized to “fill up” increased capacity in its network by keeping prices low.  However, even a merger that creates a monopoly can produce increased capacity. This does not mean that the monopolist will not artificially reduce output in order to drive up price, or that it will generously offer its excess capacity to competitors.  T-Mobile is far more likely to continue to act as a disruptive un-carrier if this merger is blocked and today’s competitive market pressures remain the same. Second, the merging parties claim that the merger’s projected efficiencies will lead to savings for consumers.  However, these projected merger efficiencies – which have not been sufficiently independently verified  and which, as explained further below, may be specious – may only materialize around 2024. 

Finally, the merging parties seek to ward off scrutiny of likely price increases with the old canard that the transaction will yield “substantial benefits in quality-adjusted price.”  Even if true, this is insufficient since consumers do not pay ‘quality adjusted’ mobile phone bills, nor do they earn ‘quality-adjusted’ paychecks. If this merger is approved, Americans living paycheck to paycheck will see a costly increase in their monthly bill.

In a last-ditch effort to mask this underlying reality, T-Mobile entered a new letter into the FCC docket committing to maintain legacy rate plans for three years if the merger is approved.  T-Mobile heavily caveats this commitment with fine print that permits the company to raise prices if plans with “more data are made available.”  This vague commitment would seemingly permit T-Mobile to raise prices if there is even the most minimal change in performance or technology. Even if this commitment were turned into a formal merger condition, it would remain so vague as to be unenforceable. Moreover, a three year rate lock is an inadequate short-term solution to the long-term structural problem that the merger will create. Only competitive market pressures can keep rates down over the long run, not temporary rate caps. The bottom line is that no such commitments would be necessary if the Department of Justice blocks this merger and allows the market to continue disciplining consumer costs.

This Merger Is Bad For Workers

In addition to raising concerns that this merger threatens to stifle competition and raise prices, experts have made it clear that it will lead to job losses and harm workers around the country. The Communications Workers of America has estimated that this merger will result in store closures and consolidation that could kill as many as 30,000 jobs, including those at retail locations.  For example, there are Metro PCS (a T-Mobile brand) and Boost Mobile (Sprint) stores within walking distance from each other on Park Street in Hartford, Connecticut, and this pattern repeats itself in many cities and towns across the country. We are particularly concerned about the fate of employees at stores like these, who could be rendered redundant by the merger. While we are aware that the Department of Justice has not traditionally considered job losses as a factor weighing against a merger under the antitrust laws, other regulators such as the FCC have done so under its public interest analysis.  Given rising levels of inequality, our country cannot afford another merger that will increase market power for a few while leading to job losses for many thousands of others.

Beyond job losses, studies have raised the specter that this merger could lead to increased labor market concentration and reduced wages for thousands of retail workers selling electronics, including wireless equipment and services. In response to a question from Senator Blumenthal, Federal Trade Commission Chairman Joseph Simon has previously set out a framework for analyzing the effects of consolidation in the labor market.   Some economic policy experts have applied Chairman Simons’s framework for analyzing labor market consolidation effects to this merger.  Although economists are still developing tools for predicting the labor market effects of a merger, the analysis contains some troubling findings.  For example, it concludes that this merger will increase concentration levels in the labor market for retail laborers selling electronics.  As a result, this analysis suggests that the New T-Mobile will likely be able to use its monopsony power to reduce these workers’ wages by an average of $500-$3,200 a year.  In light of these disturbing findings, we strongly urge you to consider whether this merger should be rejected on the basis of its impact on labor market competition.

This Merger Will Harm Low-Income Consumers

If this merger is approved, the rising cost of wireless services will be borne most heavily by low-income consumers and vulnerable seniors who can least afford it. At least one study has concluded that this merger will dramatically increase consolidation in the prepaid market.  If this proposed merger is approved, the new T-Mobile would directly control an estimated 43% of prepaid wireless connections.  As noted above, this could lead prices to rise by at least 10%.  Because low-income consumers disproportionately rely on the prepaid wireless market, these communities will suffer the most, despite being the very communities that our antitrust laws should most vigorously protect. The Department of Justice and FCC should take any threats to the prepaid market as a discrete and serious challenge to vulnerable Americans.

The merging parties do not rebut these claims head-on, instead arguing that the prepaid and postpaid markets should not be analyzed separately.  They know all too well that these plans are not interchangeable. Prepaid plans routinely provide fewer features than comparable postpaid plans.  Consumers on prepaid plans are commonly those who do not have sufficient credit or are otherwise unable to qualify for a postpaid plan.  As such, consumers who use prepaid plans often cannot get or cannot afford a postpaid plan. 

Another way this merger will harm low-income consumers is by undermining the wholesale market that mobile virtual network operators (MVNOs) depend upon. MVNOs often provide affordable and tailored offerings to communities that are not served by the dominant facilities-based mobile network operators, bringing connectivity to many vulnerable Americans.  Several MVNOs have focused their branding and customer acquisition to reach those who qualify for Lifeline assistance.  By contrast, facilities-based operators are generally less willing to engage Lifeline customers.  For example, T-Mobile has historically been antagonistic toward Lifeline, stating that it was not a “valuable or sustainable product for our base” and threatening to pull out of the program.  If the MVNO market is undermined, the Lifeline program and low income consumers will suffer.

That is precisely the risk here. The proposed merger would permit the New T-Mobile to steadily ratchet up wholesale prices on MVNOs and block them out of the market. Sprint and T-Mobile are key competitors against each other in the wholesale market.  This merger would dramatically increase concentration in the MVNO industry, with estimates concluding that the New T-Mobile would be the host for at least 60% of all wholesale subscribers.  Carriers will not sell wholesale access to competitors unless there is a compelling financial or operational reason. If this merger is approved, the New T-Mobile will not only have a dominant market share, but it will also be free of the competitive pressures from Sprint. As a result, the New T-Mobile will have less reason to provide affordable access to MVNOs that resell their services. Research shows that the merger will likely lead to an increase in wholesale prices to MVNOs. 

Already, there is evidence to suggest that T-Mobile intends to use the market position it will gain in order to put the squeeze on the wholesale market. For example, Altice and other MVNOs have reported that T-Mobile is signaling it will only renegotiate Sprint’s existing contracts with MVNOs and other wholesale partners after the merger.  T-Mobile has committed to honoring the contract terms for the lifetime of current contracts.  However, this is cold comfort to MVNOs given that once the existing contracts expire, the New T-Mobile will be in the driver’s seat when it comes to setting the terms of their relationship. If the New T-Mobile raises wholesale prices or pushes MVNOs out of the market altogether by refusing them access at any price, it is low-income consumers that will suffer the most.

Both Sprint and T-Mobile Maintain Standalone Paths to Nationwide 5G

Starting with their video announcing the proposed merger, T-Mobile and Sprint have pitched the New T-Mobile as “the ONLY company with the capacity to quickly create a broad and deep nationwide 5G network.”  To buttress their pitch, both have disparaged their own current standalone futures, claiming that alone neither have an adequate path forward to 5G.  The history of wireless mergers shows this is a common tactic: when AT&T attempted to acquire T-Mobile in 2011, the latter was portrayed as a failing firm with “no clear path” to LTE.  Today, by some accounts, T-Mobile boasts better LTE coverage than AT&T – a testament to the decision to reject that acquisition.  Federal officials should not be blinded by the glittery promise of nationwide 5G. Not only do each of these companies have their own path forward to achieving 5G coverage, but the financial details of this deal and the technical challenges of building a 5G network suggest that the New T-Mobile is unlikely to meaningfully speed up the deployment of nationwide 5G.

T-Mobile’s and Sprint’s sudden claims that neither can create a competitive 5G network separately flies in the face of announcements, disclosures, and marketing to consumers and investors over the past two years. The merging parties’ own statements indicate that they were planning to deploy 5G long before this merger application was submitted. For example, T-Mobile publicly promised to build nationwide 5G in January  and February  of 2018, as well as in May,  July,  and December  of 2017. Sprint has similarly touted its ability to build out a 5G network in at least three quarterly earnings calls or statements prior to this merger.   Sprint has gone on to announce a handset to be released this summer that will use low-band and mid-band spectrum for mobile 5G, specifically, Sprint’s 2.5 GHz, 1.9 GHz, and 800 MHz spectrum.  On their own, Sprint and T-Mobile are taking steps to provide customers with 5G.

T-Mobile has tried to distance itself from its past promises of a nationwide 5G network by conjuring the new promise of a “broad and deep” 5G network.  T-Mobile argues, in effect, that while it repeatedly promised nationwide 5G in the past, what it meant to say was that T-Mobile would only be able to offer fast 5G in the cities and slow 5G in rural communities.  This ignores the inconvenient fact that in May 2017 T-Mobile specifically promised customers a “5G network that offers BOTH breadth and depth nationwide.”  In other words, T-Mobile’s 5G promises are nothing new – and are not merger specific. 

The engineering and financial plans underlying the deal also make clear that this merger will not speed up the build-out of nationwide 5G. First, the parties argue that this merger is necessary because increased usage and demand will lead to wireless congestion, limiting the actual performance of their standalone 5G networks.  Such claims seem to assume that the companies do not continue to add spectrum to their network or engage in other actions to increase efficiency. At least one party privy to confidential information has concluded that, on their own, “each company will be able to provide full 5G without experiencing almost any congestion at all.”  This suggests that potential congestion is not a barrier to either Sprint or T-Mobile achieving quality 5G as standalone companies.

Second, the merging parties’ claims that they do not have sufficient spectrum to provide quality 5G cannot justify this merger. If Sprint or T-Mobile need new spectrum to improve 5G coverage or provide fixed wireless broadband, they could simply acquire more on their own. In fact, that is precisely what is already happening. The FCC has prioritized making available new mid-band and millimeter wave spectrum to support 5G,  and both T-Mobile and Sprint have sought to participate in the FCC’s recent auctions.  Even if the parties do not succeed in these auctions, other options remain available. Both operators could build partnerships with, or purchase spectrum holdings from, other companies. Sprint has successfully pursued this strategy with other carriers in the past.  Additionally, the FCC has set aside unlicensed spectrum that has been successfully used by mobile carriers, including T-Mobile, to improve performance. 

Third, the parties’ claims that this merger will unleash new financing to speed up the deployment of nationwide 5G are dubious. The parties claim that the merger will enable them to invest roughly $40 billion in building out a nationwide 5G network by 2021, or within three years of the merger being approved.  However, the two companies had previously promised to spend a combined amount of around $10 billion in capital expenditure in 2018 alone.  Assuming these spending levels continue, the two companies will have spent around $40 billion through 2021 even absent the merger. The merging parties counter that, while overall capital outlays may increase only slightly as a result of the merger, these capital outlays will be spread over a much smaller network since T-Mobile will be decommissioning many of Sprint’s towers.  This argument minimizes potentially significant costs associated with decommissioning so many Sprint towers, transferring Sprint radios, and renegotiating lease agreements.  In other words, this deal may not unleash much in the way of new financing to achieve nationwide 5G coverage, and the little financing it does free up may be spent on the network integration costs created by the merger itself.

Finally, the merging parties suggest that Sprint is a failing firm without saying so outright.  The Horizontal Merger Guidelines establish a strict three part test that a firm must meet in order to show it is failing.  The parties do not attempt to meet this test directly, instead simply detailing Sprint’s business challenges.  The merging parties’ reticence to try to satisfy the Merger Guidelines’ stringent standards indicates that they lack confidence in the claim that Sprint cannot survive alone. In the third quarter of 2018, Sprint enjoyed its twelfth consecutive quarter of positive operating income, its highest fiscal third quarter adjusted EBITDA in over a decade, and its sixth consecutive quarter of net additions in the postpaid market.  Although Sprint experienced a negative net income during the third quarter of 2018,  it had previously enjoyed three consecutive quarters of positive net income.  If this merger is rejected, Sprint appears positioned to continue as a vigorous and viable competitor in the market.

This Merger Offers Little to Rural Consumers

While both Sprint and T-Mobile have independently committed to building out 5G networks, the merging parties have sought to paper over these previous commitments with vague assurances that the New T-Mobile would provide additional coverage and wireless broadband to rural America. We view these assurances with deep skepticism. When Senator Klobuchar asked John Legere how the New T-Mobile would bring 5G service to rural America – where current mobile giants Verizon and AT&T struggle to provide adequate connectivity – he spoke about new investments that would allow the combined company to drive improvements in rural service. But looking at what these companies have done, rather than what their leaders have said, it becomes clear that neither party has found it attractive to invest substantially in building out their presence in rural communities. And Sprint’s assets will not change this cold, financial calculus for T-Mobile. Neither 5G nor the New T-Mobile will be a logistical and financial panacea that solves decades of shortcomings on rural coverage. While 5G will likely provide at least incremental technical improvements to all mobile customers, the merger itself will provide minimal added improvements to rural communities. Rather, rural America’s best hope for mobile broadband is to preserve a competitive mobile market.

Mobile carriers and others have set high expectations about how 5G will change our economy and society. 5G establishes a set of standards that enable new radio technologies, use of new spectrum bands, and wider channels of spectrum in mobile networks.  In order to achieve one of the loftiest promises of 5G – a world where wireless competes with cable companies over home broadband – mobile carriers likely will be required to use millimeter wave spectrum, add fiber backhaul, and install servers closer in the network to consumers.  These engineering developments will most directly benefit urban communities. The millimeter wave spectrum used within high-performance 5G is limited to a range of less than a mile and requires direct line of sight.  Such buildouts likely would only happen in dense areas, as the infrastructure costs would be economically prohibitive for rural and even suburban markets.  In fact, T-Mobile has previously stated that it does not believe it is feasible to “go after 5G millimeter wave deployment in rural America.”  Simply put, a mobile provider is unlikely to install expensive infrastructure to serve only a handful of customers. Bridging the digital divide will require a significant investment in building out mid-band and millimeter wave networks to reach sparsely populated areas – a commitment T-Mobile has not credibly made, and an even more distant possibility if the merger harms regional carriers willing to serve those communities. 

Neither Sprint nor T-Mobile as standalone companies have demonstrated a strong track record of catering to rural America. As the Rural Broadband Association describes, T-Mobile has neglected to use spectrum it holds in rural areas for years, holding back coverage.  T-Mobile’s public interest statement provides few new commitments that would show a significant change in attitude or indicate the merger would contribute meaningfully to expanded rural coverage. Providing service in rural America requires low-band spectrum that can travel longer distances with the trade-off of less capacity.  Sprint does not hold this spectrum, and the merging parties acknowledge that there would be no change in low-band coverage.  The mid-band spectrum that Sprint does hold travels less distance, requiring the aggressive build out of more cell sites to extend coverage.  In effect, mid-band does little to cover rural Americans, and T-Mobile acknowledges that it is “better suited to suburban and urban areas.”  If Sprint could not economically justify building out thousands more cell sites to blanket small tracts of sparsely-populated areas with mid-band spectrum, then the equation will not change with the New T-Mobile.

Expanding rural coverage is also not solely a matter of having the right spectrum and adding new radios to existing cell sites. Mobile networks require backhaul access for cell sites to connect the customer to the phone network and the internet.  While under slower access technologies, such as 3G, mobile providers could rely on satellite or microwave connections, LTE and 5G require low latency and high-throughput connections, mainly fiber connectivity.  Neither T-Mobile nor Sprint have their own national fiber network.   They are reliant on others for fiber or otherwise must use slower connectivity.  This creates a potential bottleneck in the link between the cell site and the mobile network. Having a 5G phone will not mean anything if the cell tower doesn’t have a fast connection to the internet.  While both companies have made standalone investments in improving their backhaul in preparation for 5G, the Rural Wireless Association has documented T-Mobile’s continued reliance on slower satellite connections for many of its rural cell sites.  The acquisition of Sprint would not provide T-Mobile with the fiber assets required to support high-performance connections for rural cell sites.  As a result, the New T-Mobile is unlikely to extend high-performance 5G coverage to rural markets.

This Merger Could Have A Significant Negative Impact on Rural Access

This merger is likely to harm rural consumers by undermining the regional wireless carriers that are the backbone of rural communities. Regional carriers are dependent on arrangements with nationwide carriers to allow their customers to roam outside the areas where those operators maintain their own spectrum and infrastructure.  The Rural Wireless Association has argued that Sprint is the only national carrier that provides “anything approximating commercially reasonable roaming rates, terms, and conditions to rural carriers.”  Sprint works closely with rural carriers because it is reliant on mid-band spectrum for its network, and this spectrum has limited propagation characteristics.  In order to avoid building out expensive cell sites to extend its own coverage in less urban areas, Sprint must pursue attractive roaming relationships with regional carriers to broaden its coverage.  Sprint and regional carriers have a mutually-beneficial relationship: Sprint provides the carriers a national network, and the carriers provide broad coverage in their markets to Sprint customers. Both Sprint and regional carriers’ customers benefit from better coverage and more competition where it would not otherwise exist.

The New T-Mobile is unlikely to continue to provide mutually-beneficial roaming agreements with regional carriers because, like T-Mobile today, it has little incentive to do so. T-Mobile has significant low-band 600 MHz holdings, which means it is much less reliant on rural carriers to provide broad coverage.  As a result, regional carriers have reported that T-Mobile has a history of making it difficult, if not impossible, for T-Mobile customers to roam on rural carriers’ networks.  According to these reports, T-Mobile tends to charge “astronomical” rates for rural carriers’ customers to roam on its network, only allows one-sided arrangements, or otherwise declines to establish roaming agreement with rural carriers.  While T-Mobile has stated that it will honor Sprint’s current contracts with roaming partners, it has not made enforceable commitments regarding the terms of those contracts when they come up for renewal.  Absent a national network for customers to roam onto, or faced with rising roaming prices, the regional carriers that provide needed coverage and competition could fail.

While T-Mobile talks up covering rural consumers, its past tells another story altogether. First, in April 2018, T-Mobile agreed to a $40 million settlement after admitting that that it misled consumers by pretending that calls to rural areas were unanswered, when in fact the company and its partners failed to place the calls in the first place.  Rather than connect rural consumers, it inserted false ringtones and failed to correct problems that prevented the delivery of “hundreds of millions of calls each year” to rural areas, including potentially calls for medical emergencies.  Second, T-Mobile has been accused of filing inaccurate information about its current coverage in rural areas with the FCC in the Mobility Fund Phase II (MF-II) process.  Lastly, T-Mobile’s merger plans include an abrupt shut down of Sprint’s CDMA (3G) network, the previous access technology that is still used by older phones and smaller carriers.  Turning off CDMA without transitioning those phones and partners could disproportionately cut off rural communities, fixed-income customers, and elderly consumers.  If approved, this merger would leave rural consumers at the mercy of T-Mobile – a company with a questionable record when it comes to reaching Americans outside cities and suburbs. 

Conclusion

The best way to achieve the goal of high-quality, affordable, nationwide 5G is through competitive markets. This merger moves us further away from the sort of competition we need to accomplish this aim. It will lead to excessive consolidation and undermine innovation. It will raise prices, particularly on low-income consumers and seniors. This merger offers little in return for these likely tangible harms. It will not speed up the deployment of 5G, nor will it achieve meaningful nationwide coverage for rural Americans. Finally, it will kill jobs and may reduce wages.

Twice in our recent past, our antitrust officials have been asked to approve a merger or acquisition similar to this one. Twice, our antitrust officials have rejected it. Twice, Americans have benefited from that decision. Once again, this third time, we must put our foot down. The potential harms are clear. Please reject this merger.

Thank you for your consideration.

February 12, 2019

Makan Delrahim

Assistant Attorney General

U.S. Department of Justice

950 Pennsylvania Avenue, NW

Washington, DC  20530-0001

Dear Assistant Attorney General Delrahim:

We write urging you to reject the proposed merger between T-Mobile and Sprint and to seek an injunction to block this transaction. The two companies have proposed a four-to-three merger that is likely to raise prices for consumers, harm workers, stifle competition, exacerbate the digital divide, and undermine innovation. Furthermore, we remain unconvinced that the merger would speed up the deployment of next-generation 5G networks or extend affordable coverage to all Americans. The Department of Justice and the Federal Communications Commission (FCC) have previously been very clear in discouraging these companies from merging. Blocking this proposed combination is necessary to send a strong signal that our enforcement officials are vigorously protecting Americans from harmful anticompetitive behavior.

The public FCC docket for this merger raises the alarm that the proposed transaction would increase consolidation and produce a country-club market in our critical telecommunications sector. After the merger, the three remaining members of this exclusive club will have every incentive to shut the door on new members, happily divide the market, and collect ever-rising monthly rents from wireless subscribers with few real alternatives. At least two studies demonstrate that Americans’ monthly bills will go up dramatically as a result of this merger.  Beyond price increases, at least one review has raised the concerning possibility that the merger will reduce wages for thousands more workers.  Finally, this merger may hinder efforts to bridge the digital divide facing rural communities and many lower- and middle-income Americans.

For more than 30 years, our enforcers have understood that fostering robust competition in telecommunications markets is the best way to provide every American with access to high-quality, cutting-edge communications at a reasonable price.  This merger will turn the clock back, returning Americans to the dark days of heavily consolidated markets and less competition, with all of the resulting harms. Our enforcement officials are the last line of defense preventing reconsolidation of our telecommunications markets at the expense of American consumers. We urge you to act to prevent this dangerous merger from proceeding. 

This Merger Will Lead to Dangerously High Levels of Market Concentration

If this merger is approved, it will be a sharp blow to competition in the telecommunications industry. There are currently only four nationwide, facilities-based mobile carriers: AT&T, Verizon, T-Mobile, and Sprint.  This merger could leave only three providers with over 98% of total facilities-based wireless connections, according to one estimate.  This should raise serious concerns. Antitrust regulators around the world have consistently blocked four-to-three mergers in the mobile and telecommunications industry,  and those who have allowed such mergers have lived to regret it.  The competitive harms of this sort of four-to-three merger are well documented,  and American enforcers have thrown cold water on similar four-to-three mergers in other industries.

Our enforcers have been emphatic in recent years that a four-to-three merger in the telecommunications industry would be harmful. In 2011, the Department of Justice acted decisively to block AT&T’s acquisition of T-Mobile.  Only a few years later, Sprint and T-Mobile were reported to have quietly approached the Department of Justice and the FCC about the possibility of merging.  Officials at both agencies made clear that they would vigorously oppose such a merger.  History has proven that those were the right decisions. Consumers benefited from increased innovation and price competition after AT&T’s proposed acquisition of T-Mobile was rejected,  and prices again declined dramatically in the years after regulators effectively stopped Sprint and T-Mobile from merging in 2014.  T-Mobile and Sprint are once again proposing the same four-to-three merger that they were warned to abandon just a few years ago, with little change in circumstances.

A T-Mobile-Sprint merger would produce unacceptably high levels of concentration in an already consolidated wireless industry. The Herfindahl-Hirschman Index (HHI) is the most common measure of a merger’s effect on consolidation. It is widely used by economists and antitrust enforcers. Expert estimates indicate that this particular merger would lead to a 451 point increase in the HHI for a total HHI value of 3,265, well above the 2500 HHI threshold to be classified as a “highly concentrated market.”  The Horizontal Merger Guidelines issued by the Department of Justice and Federal Trade Commission state that mergers “resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed likely to enhance market power.”  This proposed transaction far exceeds this threshold.

This merger threatens to produce not only dangerous levels of market concentration, but also an unacceptable consolidation of valuable wireless spectrum. The record indicates that this merger would create a company that exceeds the Federal Communications Commission’s spectrum screen in a majority of counties around the country, or 532 cellular market areas.  While T-Mobile requested the spectrum screen be raised even before this merger was proposed, the New T-Mobile would vastly exceed its own proposed spectrum screen in most of the United States.  Rather than promote competition, this consolidation of spectrum holdings would foreclose competition in nationwide and even regional markets. The predicted increase in HHI and the spectrum screen should give any enforcer or regulator assessing this deal serious pause. 

We are deeply concerned that the merger of Sprint and T-Mobile in particular will eliminate competition that has been shown to benefit consumers and stifle the emergence of new carriers. Both T-Mobile and Sprint, as well as the parties opposing the merger, have filed submissions that indicate a high diversion ratio between the two merging parties.  This means that consumers see T-Mobile’s and Sprint’s products as closely interchangeable offerings and switch between the services easily and often. This is to be expected considering that Sprint and T-Mobile have aggressively competed against each other to attract middle- and lower-income consumers.  Allowing these two close competitors to merge will remove an important market dynamic that has driven prices down in the industry in recent years.  

In order to gloss over the absence of strong economic or legal arguments in their favor, the merging parties seek to shout down concerns over whether they will continue to compete aggressively with a single name: John Legere.  They argue that John Legere, the current CEO of T-Mobile and the future CEO of the proposed New T-Mobile, has a legacy as an innovative business leader that he will not wish to risk.  While Mr. Legere may be leading a dynamic company today, there is reason to doubt that T-Mobile will remain dynamic if it swallows its closest competitor. As a smaller player, T-Mobile has had to be innovative and aggressive on pricing to compete with bigger players like Verizon and AT&T. But if T-Mobile succeeds in acquiring Sprint, Mr. Legere will not need to run the company like an aggressive maverick player to attract customers. The New T-Mobile’s shareholders will expect Mr. Legere to take advantage of a consolidated marketplace, and they will hold him accountable if he does not. For this reason, Mr. Legere’s presence at the New T-Mobile is insufficient to guarantee it will continue to innovate and push prices lower. A charismatic CEO is not a legal commitment and does not change a company’s economic incentives. Only the discipline of a competitive marketplace can guarantee continued incentives to innovate in the consumer’s interest. 

This Merger Will Likely Cause Americans’ Monthly Bills to Jump Dramatically

Given that this merger will weaken competitive pressures that otherwise discipline price increases, it is no surprise that it is likely to lead to higher monthly bills for consumers. One study has estimated that just the unilateral effects of this merger will lead to price increases of at least 9% for postpaid plans and at least 10% for prepaid plans.  Another submission has predicted that this merger will lead to higher monthly bills for consumers.  At a time of growing inequality, we cannot afford another merger that will likely increase costs for the many, while lining the pockets of a few wealthy executives and shareholders. We urge you to challenge this merger to ensure that there is continued downward pressure on consumers’ monthly bills.

The merging parties seek to rebut the economic models that demonstrate price increases by using well-worn catchphrases and vague promises. First, they argue that the New T-Mobile will continue to act as a disruptive un-carrier because it will be incentivized to “fill up” increased capacity in its network by keeping prices low.  However, even a merger that creates a monopoly can produce increased capacity. This does not mean that the monopolist will not artificially reduce output in order to drive up price, or that it will generously offer its excess capacity to competitors.  T-Mobile is far more likely to continue to act as a disruptive un-carrier if this merger is blocked and today’s competitive market pressures remain the same. Second, the merging parties claim that the merger’s projected efficiencies will lead to savings for consumers.  However, these projected merger efficiencies – which have not been sufficiently independently verified  and which, as explained further below, may be specious – may only materialize around 2024. 

Finally, the merging parties seek to ward off scrutiny of likely price increases with the old canard that the transaction will yield “substantial benefits in quality-adjusted price.”  Even if true, this is insufficient since consumers do not pay ‘quality adjusted’ mobile phone bills, nor do they earn ‘quality-adjusted’ paychecks. If this merger is approved, Americans living paycheck to paycheck will see a costly increase in their monthly bill.

In a last-ditch effort to mask this underlying reality, T-Mobile entered a new letter into the FCC docket committing to maintain legacy rate plans for three years if the merger is approved.  T-Mobile heavily caveats this commitment with fine print that permits the company to raise prices if plans with “more data are made available.”  This vague commitment would seemingly permit T-Mobile to raise prices if there is even the most minimal change in performance or technology. Even if this commitment were turned into a formal merger condition, it would remain so vague as to be unenforceable. Moreover, a three year rate lock is an inadequate short-term solution to the long-term structural problem that the merger will create. Only competitive market pressures can keep rates down over the long run, not temporary rate caps. The bottom line is that no such commitments would be necessary if the Department of Justice blocks this merger and allows the market to continue disciplining consumer costs.

This Merger Is Bad For Workers

Studies have raised the specter that this merger could lead to increased labor market concentration and reduced wages for thousands of retail workers selling electronics, including wireless equipment and services. In response to a question from Senator Blumenthal, Federal Trade Commission Chairman Joseph Simon has previously set out a framework for analyzing the effects of consolidation in the labor market.   Some economic policy experts have applied Chairman Simons’s framework for analyzing labor market consolidation effects to this merger.  Although economists are still developing tools for predicting the labor market effects of a merger, the analysis contains some troubling findings.  For example, it concludes that this merger will increase concentration levels in the labor market for retail laborers selling electronics.  As a result, this analysis suggests that the New T-Mobile will likely be able to use its monopsony power to reduce these workers’ wages by an average of $500-$3,200 a year.  In light of these disturbing findings, we strongly urge you to consider whether this merger should be rejected on the basis of its impact on labor market competition.

This Merger Will Harm Low-Income Consumers

If this merger is approved, the rising cost of wireless services will be borne most heavily by low-income consumers and vulnerable seniors who can least afford it. At least one study has concluded that this merger will dramatically increase consolidation in the prepaid market.  If this proposed merger is approved, the new T-Mobile would directly control an estimated 43% of prepaid wireless connections.  As noted above, this could lead prices to rise by at least 10%.  Because low-income consumers disproportionately rely on the prepaid wireless market, these communities will suffer the most, despite being the very communities that our antitrust laws should most vigorously protect. The Department of Justice and FCC should take any threats to the prepaid market as a discrete and serious challenge to vulnerable Americans.

The merging parties do not rebut these claims head-on, instead arguing that the prepaid and postpaid markets should not be analyzed separately.  They know all too well that these plans are not interchangeable. Prepaid plans routinely provide fewer features than comparable postpaid plans.  Consumers on prepaid plans are commonly those who do not have sufficient credit or are otherwise unable to qualify for a postpaid plan.  As such, consumers who use prepaid plans often cannot get or cannot afford a postpaid plan. 

Another way this merger will harm low-income consumers is by undermining the wholesale market that mobile virtual network operators (MVNOs) depend upon. MVNOs often provide affordable and tailored offerings to communities that are not served by the dominant facilities-based mobile network operators, bringing connectivity to many vulnerable Americans.  Several MVNOs have focused their branding and customer acquisition to reach those who qualify for Lifeline assistance.  By contrast, facilities-based operators are generally less willing to engage Lifeline customers.  For example, T-Mobile has historically been antagonistic toward Lifeline, stating that it was not a “valuable or sustainable product for our base” and threatening to pull out of the program.  If the MVNO market is undermined, the Lifeline program and low income consumers will suffer.

That is precisely the risk here. The proposed merger would permit the New T-Mobile to steadily ratchet up wholesale prices on MVNOs and block them out of the market. Sprint and T-Mobile are key competitors against each other in the wholesale market.  This merger would dramatically increase concentration in the MVNO industry, with estimates concluding that the New T-Mobile would be the host for at least 60% of all wholesale subscribers.  Carriers will not sell wholesale access to competitors unless there is a compelling financial or operational reason. If this merger is approved, the New T-Mobile will not only have a dominant market share, but it will also be free of the competitive pressures from Sprint. As a result, the New T-Mobile will have less reason to provide affordable access to MVNOs that resell their services. Research shows that the merger will likely lead to an increase in wholesale prices to MVNOs. 

Already, there is evidence to suggest that T-Mobile intends to use the market position it will gain in order to put the squeeze on the wholesale market. For example, Altice and other MVNOs have reported that T-Mobile is signaling it will only renegotiate Sprint’s existing contracts with MVNOs and other wholesale partners after the merger.  T-Mobile has committed to honoring the contract terms for the lifetime of current contracts.  However, this is cold comfort to MVNOs given that once the existing contracts expire, the New T-Mobile will be in the driver’s seat when it comes to setting the terms of their relationship. If the New T-Mobile raises wholesale prices or pushes MVNOs out of the market altogether by refusing them access at any price, it is low-income consumers that will suffer the most.

Both Sprint and T-Mobile Maintain Standalone Paths to Nationwide 5G

Starting with their video announcing the proposed merger, T-Mobile and Sprint have pitched the New T-Mobile as “the ONLY company with the capacity to quickly create a broad and deep nationwide 5G network.”  To buttress their pitch, both have disparaged their own current standalone futures, claiming that alone neither have an adequate path forward to 5G.  The history of wireless mergers shows this is a common tactic: when AT&T attempted to acquire T-Mobile in 2011, the latter was portrayed as a failing firm with “no clear path” to LTE.  Today, by some accounts, T-Mobile boasts better LTE coverage than AT&T – a testament to the decision to reject that acquisition.  Federal officials should not be blinded by the glittery promise of nationwide 5G. Not only do each of these companies have their own path forward to achieving 5G coverage, but the financial details of this deal and the technical challenges of building a 5G network suggest that the New T-Mobile is unlikely to meaningfully speed up the deployment of nationwide 5G.

T-Mobile’s and Sprint’s sudden claims that neither can create a competitive 5G network separately flies in the face of announcements, disclosures, and marketing to consumers and investors over the past two years. The merging parties’ own statements indicate that they were planning to deploy 5G long before this merger application was submitted. For example, T-Mobile publicly promised to build nationwide 5G in January  and February  of 2018, as well as in May,  July,  and December  of 2017. Sprint has similarly touted its ability to build out a 5G network in at least three quarterly earnings calls or statements prior to this merger.   Sprint has gone on to announce a handset to be released this summer that will use low-band and mid-band spectrum for mobile 5G, specifically, Sprint’s 2.5 GHz, 1.9 GHz, and 800 MHz spectrum.  On their own, Sprint and T-Mobile are taking steps to provide customers with 5G.

T-Mobile has tried to distance itself from its past promises of a nationwide 5G network by conjuring the new promise of a “broad and deep” 5G network.  T-Mobile argues, in effect, that while it repeatedly promised nationwide 5G in the past, what it meant to say was that T-Mobile would only be able to offer fast 5G in the cities and slow 5G in rural communities.  This ignores the inconvenient fact that in May 2017 T-Mobile specifically promised customers a “5G network that offers BOTH breadth and depth nationwide.”  In other words, T-Mobile’s 5G promises are nothing new – and are not merger specific. 

The engineering and financial plans underlying the deal also make clear that this merger will not speed up the build-out of nationwide 5G. First, the parties argue that this merger is necessary because increased usage and demand will lead to wireless congestion, limiting the actual performance of their standalone 5G networks.  Such claims seem to assume that the companies do not continue to add spectrum to their network or engage in other actions to increase efficiency. At least one party privy to confidential information has concluded that, on their own, “each company will be able to provide full 5G without experiencing almost any congestion at all.”  This suggests that potential congestion is not a barrier to either Sprint or T-Mobile achieving quality 5G as standalone companies.

Second, the merging parties’ claims that they do not have sufficient spectrum to provide quality 5G cannot justify this merger. If Sprint or T-Mobile need new spectrum to improve 5G coverage or provide fixed wireless broadband, they could simply acquire more on their own. In fact, that is precisely what is already happening. The FCC has prioritized making available new mid-band and millimeter wave spectrum to support 5G,  and both T-Mobile and Sprint have sought to participate in the FCC’s recent auctions.  Even if the parties do not succeed in these auctions, other options remain available. Both operators could build partnerships with, or purchase spectrum holdings from, other companies. Sprint has successfully pursued this strategy with other carriers in the past.  Additionally, the FCC has set aside unlicensed spectrum that has been s