Feb 13, 2019 8:23 PM

The T-Mobile-Sprint Merger Is Scrambling Telecom Politics

Democrats have often opposed telecom mergers, but some prominent Democrats support T-Mobile's proposed acquisition of Sprint.

Representative Anna Eshoo (D-California) has sparred with the telecommunications industry over issues like net neutrality and privacy over the years. Wednesday, however, she came out swinging in support of T-Mobile and Sprint.

Eshoo spoke at a hearing of the House Energy and Commerce Committee on T-Mobile’s proposed $26.5 billion acquisition of Sprint, announced in April 2018. If approved, the deal would reduce the number of major carriers in the US from four to three. But Eshoo argued that that's the wrong way to look at it.

"This is hardly a competitive, dynamic market that we have," she said, noting that AT&T and Verizon together control two-thirds of the market for mobile service and have done so for many years. "For all intents and purposes we have a duopoly in the country. Americans pay some of the highest prices for mobile wireless service in the developed world." Eshoo argued that allowing T-Mobile and Sprint to merge would enable the combined company to compete more aggressively with AT&T and Verizon.

The proposed T-Mobile–Sprint deal is scrambling the politics of telecom mergers, which Democrats traditionally have viewed more skeptically. In 2011, the Obama Justice Department sued to block AT&T's proposed acquisition of T-Mobile, and the Democrat-led Federal Communications Commission effectively nixed a previous merger attempt by T-Mobile and Sprint in 2014. This time around, the carriers are getting more sympathy from Democrats. Last month, six other Democrats joined Eshoo and six Republicans in a letter to the FCC and the Justice Department supporting the merger, arguing the combined company would be able to deploy the next generation of wireless services, known as 5G, more quickly than the two companies could independently. T-Mobile hired former FCC commissioner Mignon Clyburn, a Democrat and staunch defender of net neutrality, to advise the company on the merger. "I’m advising T-Mobile and Sprint as it seeks to accelerate the creation of an inclusive nationwide 5G network on how to best build a bridge across the digital divide," Clyburn told Politico this month.

Critics of the deal don't buy those arguments. Phillip Berenbroick, of the advocacy group Public Knowledge, pointed out that some of the claims the two carriers now make about 5G echo those made by AT&T and T-Mobile about 4G in 2011. When AT&T first announced its agreement to buy the smaller carrier, it claimed T-Mobile did "not have a clear path to delivering" 4G. Ultimately, T-Mobile built a 4G network that rivals networks from the big two in speed and reach, according to OpenSignal; it also turned profitable. The US led the world in 4G adoption, according a report commissioned by the wireless industry group CTIA last year.

Since the AT&T deal died in 2011, T-Mobile has simplified its pricing, done away with annual contracts, and rushed past Sprint to become the nation’s third-largest carrier, forcing other carriers to adjust their own pricing and contracts along the way. It's a rare bright spot for competition in the telecommunications industry, which has grown ever more consolidated. Over the years, the seven "Baby Bells" created by the breakup of the original AT&T in 1982 have recombined into three companies: AT&T, CenturyLink, and Verizon. Other parts of the telecommunications industry have consolidated as well, with Sprint buying Nextel in 2004, Verizon buying MCI in 2006 and XO in 2016, and CenturyLink buying Level 3 in 2016.

Rather than try to reverse or halt this consolidation, Eshoo argues, the best way to preserve competition is to allow even more consolidation, otherwise smaller companies will be crushed by the giants. Groups that represent carriers smaller than Sprint or T-Mobile disagree. Carri Bennet of the Rural Wireless Association said Sprint is the only major carrier that offers rural carriers affordable roaming rates. "According to our members, T-Mobile's roaming rates are 20 times higher than Sprint's," she said. She also claimed T-Mobile refuses to enter into agreements that would enable T-Mobile customers to roam on rural networks, and pointed to an FCC investigation last year that found that T-Mobile had failed to connect many calls to rural networks and played fake ringtones to cover up the failure, leading customers to believe that a call had gone through unanswered. "We believe T-Mobile's destructive behavior will continue, perhaps even more aggressively, once its rival, Sprint, is eliminated," she said.

T-Mobile CEO John Legere promised multiple times during Wednesday’s hearing that the combined companies would lower prices if the deal is approved. But the industry group Incompas, which Sprint cofounded in 1981, came out against the deal in a statement Tuesday ahead of the hearing, pointing out that even if T-Mobile didn't raise prices for its consumers, it might raise wholesale prices for resellers. "T-Mobile and Sprint have been important soldiers in these battles for more competition,” Incompas CEO Chip Pickering said. “While I understand their desire to wed, I believe consumers want them to keep playing the field." Shortly after the statement, Sprint announced that it was leaving Incompas.

Even if critics of the deal can persuade the House to oppose the deal, there's little Congress can do. The merger's fate is in the hands of the Justice Department and the FCC. Attorney general nominee William Barr has a long history of favoring telecom consolidation, and the FCC's Republican majority has generally sided with the industry.

But that’s still no guarantee for the merger. In a surprise move last year, the FCC shot down Sinclair Broadcasting's proposed acquisition of the Tribune Company, which would have combined two of the nation’s largest TV station owners. And Justice Department antitrust chief Makan Delrahim tried to block AT&T's acquisition of Time Warner.

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