The Negative Consequences of Merging of T-Mobile and Sprint on the Wireless Industry
by Alex Perman
The agreement for the merging of wireless industry goliaths T-Mobile and Sprint is set to be approved by federal regulators later this year. The $26.5 billion deal would make the resulting company the second largest carrier in the world, right behind Verizon, who currently has more than 116 million customers.
While there are benefits to the deal, such as allowing for more competition with AT&T and Verizon, there would also be a downside in the form of another company being eliminated from the market. This may put the industry in danger of becoming too monopolized. According to an article from the Washington Post, “Merging the two large companies may not sit well with some policymakers, who say U.S. businesses have grown too concentrated in recent years.”
The two companies have attempted to merge before, but were prevented from doing so by antitrust regulators who saw the deal as a way to condense the wireless market, leading to fewer choices for consumers and resulting in higher prices. With the Trump Administration in place, the companies are arguing for an approval for the deal to help them expedite and create a more efficient 5G network. The two companies state that the wireless business is rapidly evolving, allowing room for new competitors to enter and thus allowing for prices to stay low. According to Marcelo Claure, Sprint’s chief executive, the deal allows Sprint to offer the best products at lower prices.
While there would certainly be advantages for both the company and the wireless industry, the deal could potentially hurt customers in a market already devoid of competition. The combination of T-Mobile and Sprint would result in over 100 million customers and push them ahead of AT&T to become the world’s second largest wireless carrier. In a New York Times article, Amy Klobuchar, a senator from Minnesota, said, “increased consolidation could undermine benefits to consumers.” Another danger could be the potential lack of innovation from T-Mobile, which would result under fewer cellular providers. T-Mobile has said they will cut prices and also promised to eliminate hidden fees and taxes. “Those policies helped T-Mobile add nearly 40 million customers over the last five years, with 5 million new customers added last year alone.” These kinds of innovations were key in raising the company’s customer loyalty, as well as attracting new consumers. This also caused the overall price of basic wireless plans to stay consistent or fall even further, which came from the other companies having to follow in T-Mobile’s footsteps.
Although the deal is still being evaluating, the merge could have negative consequences to the wireless market as well as set a precedent for monopolizing technological industries like cable. With new 5G technology on the horizon, the merger could be unhealthy for customers because of potential higher prices and fewer choices. T-Mobile and Sprint argue that other competitors, such as Comcast, still offer options to people. However, with only 577,000 customers, it is difficult to view Comcast as a serious competitor. Reducing the number of main competitors in the market from four to just three would be unheard of from a historical point of view.
Investing in new 5G technology could become quite difficult for the new company because Sprint has racked up about $32 billion in debt and T-Mobile is generating far less revenue than its competitors. Combining the two companies could result in $6 billion in savings. The companies will have to prove to their customers that a united company will allow benefits that outweigh the potential disastrous outcome on their phone bills and the rest of the wireless market.