Regulators Face Big Questions about Sprint Merger with T-Mobile US

The new rumors of an attempted Sprint merger with T-Mobile US inevitably raise the question of what is different now, than was the case three years ago, when U.S. antitrust officials signaled opposition to the merger.

There are glimmers of possibility in the launch of mobile services by Comcast. But Comcast is yet to become a tier-one supplier, so any such changes lie in the future.

Right now, the issue is whether to allow consolidation of the market from four providers to just three. Antitrust regulators did not see that as preferable, within the last three years. It can be argued that nothing yet has changed, over the past two years, in that regard.

In fact, the U.S. Department of Justice is trying to scuttle the proposed AT&T acquisition of Time Warner, which is a vertical merger not reducing competition at all. Logically, one might infer that a horizontal merger that does reduce competition might still, as was the case in the last two years, remain off limits.

The other philosophical question is how to shape merger policy when industry boundaries are being erased, vertical mergers are likely, massive consolidation probably is coming, and when telecom markets will support fewer providers in the future.

As a rule, regulators believe (rightly) that four suppliers means more consumer benefit than a market with three suppliers. What is not so clear is the sustainability of such markets.

At least in principle, it has remained possible that some entity might decide to buy Sprint or T-Mobile US. It is a harder challenge if those two firms are merged, simply because of the increased price of any transaction.

The proposed transaction values Sprint at about $26 billion. Many firms, with the right strategy, might contemplate an acquisition of that size.

The proposed all-stock deal values Sprint at about $59 billion and the combined company at $146 billion. So any would-be acquirer of the new company would have to spend more than $146 billion to buy the merged entity.

Far fewer firms might contemplate a deal of that size, even if it vaults the buyer into the top ranks of the U.S. mobile business.

Regulators are certain to block any move by AT&T or Verizon to acquire those assets. To be sure, Verizon’s acquisition of the 40-percent share of Verizon Wireless that it did not own, from Vodafone, represented a $130 billion deal.

AT&T spent about $49 billion to buy DirecTV.

So the size of such an acquisition by AT&T or Verizon might be deemed theoretically feasible. The size of the debt load probably makes that unrealistic. But there is no possibility of regulatory approval, in any case.

So the practical question is that, even if some other entity purchased the new T-Mobile US asset (assuming that is the surviving entity’s name), market share structure does not change. Only the emergence of a fourth (probably facilities-based) contender would do that. Most likely believe neither Comcast, Charter, or Comcast and Charter working together, actually could envision an effort that large. Some tier-one app providers could afford to do so, but the value of doing so is not clear.

This is going to provide a challenging set of questions for regulators, for some time. Any Sprint merger with T-Mobile US is going to reduce competition in the mobile market, and though it is possible new facilities-based competitors will emerge, that is not a certainty.

In principle, U.S. regulators face the possibility of a permanent reduction in mobile market competition, at least in terms of national footprint, facilities-based contestants. Niche attacks will happen. But niche attacks do not necessarily increase competition in the consumer services market.

At this point, one might argue that Sprint is not sustainable. Whether four national competitors are sustainable is a separate question, in all likelihood.