T-Mobile and Sprint Hallucinate Competitors in a Post-Merger Dreamscape

By Karl Bode, Feb 20, 2019 | Original Techdirt article here.

Both Sprint and T-Mobile have been pushing a large number of bogus claims justifying their competition and job-eroding megamerger.

  1. That the deal will create jobs (false).

  2. That the deal is necessary to deploy fifth-gen (5G) wireless (false).

  3. That reducing the number of major wireless competitors from four to three will somehow create more competition (false, just ask Canadians or the Irish how that works out in practice).

On that last front, the two companies have been trying to claim that because cable industry giants Comcast and Charter (Spectrum) have been flirting with wireless connectivity, that this constitutes enough additional competition to keep the sector healthy in the wake of such massive consolidation. In one T-Mobile deal-related announcement, company CEO John Legere was exceptionally creative in an effort to hallucinate up some additional competition:

This isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market. And in 5G, we’ll go from 0 to 1. Only the New T-Mobile will have the capacity to deliver real, nationwide 5G. We’re confident that, once regulators see the compelling benefits, they’ll agree this is the right move at the right time for consumers and the country.

Here's the thing. If you spend a few minutes looking at the factual reality under the hood, you'll find that's not actually true.

For example, longtime Wall Street telecom analyst Jeff Kagan circulated a research note with investors last week (hat tip, Stop The Cap) indirectly acknowledging that neither Comcast nor Charter is likely to become a serious competitor in the wireless space. The real goal is just to nudge their existing triple play (fixed line broadband, TV, and digital phone) customers into an additional sticky bundle that includes a wireless offering. These companies don't even market these services to users unless they're already paying for cable TV, broadband, and phone.

More simply, they want existing customers to bundle wireless because people are generally lazy and won't bother switching to alternatives (read: keep those users locked in and with cable), but they're not really interested in marketing the offering to other users and building a massive nationwide wireless footprint:

Kagan said:

"The goal of XFINITY Mobile [from Comcast] is to offer their customers another service and to create a sticky bundle. It’s not to lead the wireless wars. It’s not to increase their market share for traditional reasons. It is simply to create a sticky bundle to stabilize and grow their customer base.

Customers who use one service find it easy to switch away to a competitor. However, when they use multiple services and get a discount for the bundle, they become sticky and generally stay put. And the more services a customer uses, the larger the discount, the stickier they get and the less likely they are to wander.”

This is all generally been reflected in Comcast's wireless products, which many analysts note have a decidedly half-assed aspect to them. Both Comcast and Charter's offerings are heavily WiFi driven, but use the Verizon wireless network for cellular backup. Given these cable giants' investors don't want to pay to build a nationwide cellular network, and neither company really wants to upset their partnership with Verizon, there's little real incentive here to more broadly compete in the wireless space, undermining Legere's claims that the two companies will help mitigate much of the negative competitive impact of the deal.

A lot of the lawmakers (on both sides of the aisle) have bought into Sprint and T-Mobile's post-merger competition claims not really understanding this, as they should. If you've spent more than four minutes studying U.S. telecom merger history, there's just no real debate that this kind of consolidation usually only benefits sector executives and investors. U.S. consumers, who already pay some of the highest prices in wireless in the developed world, will almost certainly pay higher rates than ever as competition is reduced proportionally. If that sounds good to you, by all means applaud yet more sector consolidation.