Written By: Chase Westin Laurent
With more than two-thirds of American households accessing the internet on mobile devices, wireless service providers are constantly looking for ways to remain competitive. [1] This has created a battle between major cell phone carriers to acquire competitors when feasible. Courts have blocked some of these previous merger attempts on the grounds that they violated Section 7 of the Clayton Act and decreased competition. [2] In contrast with previous rulings, on February 10, 2020, the United States District Court for the Southern District of New York approved the merger between two of the nation’s largest wireless carriers: T-Mobile and Sprint. [3]
Section 7 of the Clayton Act deems a merger anticompetitive and unlawful when it substantially lessens competition in “any line of commerce . . . in any section of the country.” [4] A prior case found a merger anticompetitive when it led to a market share exceeding thirty percent or when using an alternate measure of market concentration, a Herfindahl-Hirschman Index (“HHI”) increase of 200 points amounting to over 2,500 points. [5] Accordingly, thirteen states and the District of Columbia were able to establish a prima facie case, with T-Mobile expected to hold 37.8 percent of the market’s subscribers and increase its national HHI by 679 points to a total of 3186 points. [6] However, Sprint’s demise as a competitor, T-Mobile’s branding as the “disruptive Un-Carrier,” and DISH’s entry into the market led the court to rule in favor of the T-Mobile-Sprint combination. [6]
As a direct competitor, Sprint’s merger with T-Mobile would on its face decrease competition. [7] But, T-Mobile and Sprint’s management team, presented evidence that Sprint’s standing as a national competitor was soon to be gone. [8] Wireless carriers are constantly challenged with not only maintaining but also improving their network quality by way of either investments or cost-cutting. [9] Sprint’s history of eleven straight years of losses until 2017 and its current $37 billion dollars in debt disabled it from funding improvements by way of investments. [10] Thus, Sprint has turned to cost-cutting, leading to increased complaints regarding network quality, while AT&T, Verizon, and T-Mobile have shifted towards innovation and 5G. [11] This left Sprint with little chance at financial success in the future as customers move towards the companies on top. [12]
In contrast, T-Mobile has seen almost a decade of successful rebranding and strategizing, which has attracted customers from its competitors. [13] Chief Executive Officer, John Legere, and his team implemented an innovative strategy: identifying and excluding features consumers disliked, such as two-year service contracts, fees for international roaming, and limits on data usage. [14] At prices lower than its competitors, T-Mobile began offering service plans without these undesirable features, greatly challenging AT&T and Verizon to similarly provide “pro-consumer packages.” [15] T-Mobile used the strategy as evidence that it seeks to further its image as the “Un-Carrier” with the merger and not to raise prices or curtail further innovation. [16]
Finally, T-Mobile argued that DISH’s entry into the market of wireless carriers, with nationwide 5G coverage expected by 2023, diminishes any effects of the 4-to-3 merger. [17] Merger Guidelines, though not binding upon the courts, require that a competitor’s entry into the market be timely, or “rapid enough to make unprofitable overall” anticompetitive practices, such as a merger. [18] The court ultimately found DISH’s entry into the market by 2023 timely when considering T-Mobile’s interest in remaining competitive during these three years by not raising prices for the sake of its brand and its consumers. [19]
As a result of the T-Mobile-Sprint merger, the “New T-Mobile” is set to compete with AT&T and Verizon. Whether consumers see the benefits of this merger in the coming years will likely depend on competitors enacting pro-consumer changes, DISH successfully entering the market, and T-Mobile continuing its successful brand strategy. Presuming these all take place, cell phone users will see increased network speeds and quality, more advanced technology, and ultimately lower prices in the near future. The merger’s approval, despite previous contentious rulings, might just work to benefit consumers and increase competition in contrast to its seemingly anticompetitive nature.
[1] Kurt Bauman, New Survey Questions Do a Better Job Capturing Mobile Use, UNITED STATES CENSUS (Aug. 8, 2018), https://www.census.gov/library/stories/2018/08/internet-access.html [https://perma.cc/DS43-DLNK].
[2] See, e.g., United States v. AT&T Inc., 541 F. Supp. 2d 2 (D.D.C. 2008); United States v. Phila. Nat’l Bank, 374 U.S. 321(1963).
[3] New York v. Deutsche Telekom AG, 2020 U.S. Dist. LEXIS 23716 (S.D.N.Y. Feb. 10, 2020).
[4] 15 U.S.C.S. § 18 (2019).
[5] Phila. Nat’l Bank, 374 U.S. at 364-66. See also Consol. Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, 260 (2d Cir. 1989).
[6] Deutsche Telekom AG, 2020 U.S. Dist. LEXIS 23716 at *16-17.
[7] Id. at *60-61.
[8] Id. at *174.
[9] Id. at *99.
[10] Id. at *101-02.
[11] Id. at *99.
[12] Id. at *102.
[13] Id. at *29.
[14] Id. at *146.
[15] Id.
[16] Id. at *172-73.
[17] Id. at *145.
[18] Federal Trade Commission, Horizontal Merger Guidelines § 9.1 (Aug. 19, 2010).
[19] Deutsche Telekom AG, 2020 U.S. Dist. LEXIS 23716, at *136.
