Sprint, T-Mobile Execs Bullshit Congress On The Benefits Of Merger Mania

from the less-competition-means-more-competition dept

Sprint and T-Mobile last week went before Congress to literally argue that fewer competitors in the wireless space will magically result in… more competition in the wireless space. The two companies are trying to gain regulatory approval for their latest $23 billion merger attempt, the second time in four years this particular deal has been attempted.

The companies’ previous merger attempt was blocked in 2014 after regulators noted that removing one of just four major carriers would result in a proportionally-lower incentive to actually compete on price, something that’s really not debatable if you’ve paid attention to telecom and broadband industry history. That’s especially true in Canada, where consolidation to just three players has resulted in some of the highest mobile data prices in the developed world. AT&T’s attempt to acquire T-Mobile in 2011 was blocked for the same reason, a move that many forget resulted in T-mobile being more competitive than ever.

But while speaking before a Senate Judiciary subcommittee investigating the deal, T-Mobile and Sprint executives told Congress a decidedly different story. One in which the rules of competition, and mathematics, no longer apparently apply:

“This consolidation will lead to lower prices,” T-Mobile CEO John Legere told hearing attendees. “This is actually moving from two to three,” Legere claimed, insisting that joining forces with Sprint will make a more “viable competitor” for AT&T and Verizon.

But history has repeatedly shown in telecom that claims of competitive “synergies” never actually materialize. A major reason most ISPs are so hated is because they’ve spent decades prioritizing growth for growth’s sake over anything else, and, more often than not, fail to scale things like customer service and support proportionally because that kind of growth erodes revenues. As a result you get an endless string of telecom mergers that, like Charter’s recent acquisition of Time Warner Cable, simply result in higher prices and worse service than ever before.

Sprint and T-Mobile’s central thesis in selling the merger (this time around) is that Sprint can’t possibly survive without merging with T-Mobile. In fact, one of Sprint’s recent filings with the FCC (pdf) comically tries to go out of its way to argue just how terrible the company currently is, in stark contrast to everything the company had been saying the last few years:

“Sprint’s standalone future will not be one that allows it to be an effective competitor to Verizon and AT&T on a nationwide basis. And though Sprint’s massive cost reductions have stabilized the company’s finances and yielded positive free cash flow for the first time in many years, the company achieved that result only by shrinking the company and reducing network investment to historically low levels.”

But while Sprint does have a heavy debt load (which is not uncommon in the merger-obsessed telecom sector) and has struggled to find a real brand identity (which says more about leadership than finances), the threat of its imminent demise is being amplified for strategic effect. The company’s balance sheet has been improving, with the company routinely propped up by deep-pocketed Japanese owner Softbank. Meanwhile there are numerous potential partners interested in the wireless industry that could have provided a meaningful partnership (Dish, Charter, Comcast) that wouldn’t have reduced competition.

Of course claiming “fewer competitors improves competition and lowers prices” isn’t the only falsehood being perpetuated by the company. They’re also promising that the merger will be a boon for job creation, despite numerous Wall Street analyst estimates that the deal could eliminate up to 30,000 jobs as redundant positions (especially in retail and middle management) are inevitably eliminated.

For some reason, like Charlie Brown and his damn football, America doesn’t seem to ever really learn any lessons from its love affair with mindless merger mania and our love of growth for growth’s sake. These deals almost always exclusively only benefit shareholders and executives, a lesson we apparently love to ignore time and time again.

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Companies: sprint, t-mobile

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Comments on “Sprint, T-Mobile Execs Bullshit Congress On The Benefits Of Merger Mania”

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23 Comments
Davidsays:

I don't buy your "redundant job" argument.

They’re also promising that the merger will be a boon for job creation, despite numerous Wall Street analyst estimates that the deal could eliminate up to 30,000 jobs as redundant positions (especially in retail and middle management) are inevitably eliminated.

You don’t have 30000 "redundant positions" magically out of work while retaining the same total customership and personnel structured to serve its needs. Positions can only become redundant when their occupants are idling to a significant degree. With as few players in the market as now, that just doesn’t happen in a sensible setup.

The only way there will be significantly fewer jobs is by significantly lowering the quality of customer service done by humans. And that is not an option in situations with relevant competition which is exactly what the mergers are going to fix.

Yes, there will be cost savings due to elimited jobs but those jobs would not have been "redundant" but rather part of providing basic customer service quality standards.

The lack of competition has a double advantage: customers will have nowhere else to go, and the telcom workers will have nowhere else to go. Because of course job quality and satisfaction will also tank given a huge work overload and desperate and irate customers.

Betasays:

Re: I don't buy your "redundant job" argument.

I beg to differ.

Large, old companies tend to acquire parasitic managers, people whose only real skill is self-promotion and political intrigue, and who don’t do any good to anyone but themselves (and perhaps each other). They accumulate in middle management because at the top they can’t hide from the stockholders, and at the bottom they can’t blame failures on subordinates. They are very hard to fire — since being hard to fire is something they work hard at — and maybe mergers and bankruptcy are the only ways to get rid of a lot of them at once.

I don’t know whether this is the case in Sprint and/or T-Mobile, and I don’t expect customer service to improve after a merger, but I think it’s a mistake to assume that these two giants are now shining examples of efficiency and sensible management.

Anonymoussays:

Re: I don't buy your "redundant job" argument.

One, he uses ‘up to’ 30,000 for a reason, in previous articles he noted several different estimates, ranging from 10,000 to 30,000. If nothing else, almost every T mobile and sprint store competes, and you would likely get a significant reduction in number of stores. And that doesn’t account for secondary job losses in the supply chain. This number doesn’t come out of thin air.

In fact the 10,000 job loss number agrees with you that corporate positions will see lower attrition than assumed in the 30,000 job loss number.

But in the end, no analyst thinks we will see job growth from such a merger.

Michaelsays:

Re: I don't buy your "redundant job" argument.

That number came from a number of analysts and was primarily around not having redundant retail locations.

In nearly every shopping mall in the US, there is a T-Mobile and a Sprint store. One of those will close due to the merger. Store closing cascades – for every 20 employee, you can lose a manager, for every 20 managers, you can lose an HR rep and a regional manager, etc.

Anonymoussays:

so, the 2 questions that come to mind are, why hasn’t Congress learned anything from what has happened with the repeal of net neutrality, ie, how the FCC now cant stop the increase in pricing that has happened almost immediately, certainly from a ‘change of business model’ is concerned and which members of Congress have been stupid enough to go for this bullshit? are they the same ones who are being ‘bribed’ by these pumping money into their election campaigns or are there others believing the same bullshit lies?

Anonymoussays:

This stale re-re-re-(x100)-hash is what you go with for morning piece?

Weird editorial choice. You could go to Drudge and randomly stab your finger at the screen and be guaranteed to find more interesting and relevant topic.

Why do I even read here? — Heh, heh! It’s BECAUSE of pieces like this! I can’t help but HOOT and feel superior. Thanks, Techdirt.

Garysays:

Re: This morning troll

I guess it it makes you feel superior we can’t argue with that.
However, Mike has a site and you don’t, so sniping like that doesn’t actually make you better in any measurable way.

Perhaps if you linked to your content, we could see how your skills of curation, editing and design measure up?

Anonymous Anonymous Cowardsays:

Re: since mega-mergers benefit investors...

The best time is when the stocks are at a low value, which would have been a long time ago when each company was close to their inception.

That concept, long term investing, is not how much of Wall Street works these days. Computer generated investing makes trades on very small changes and reacts swiftly to changes in quarterly profits, rather than thinking long term. The reduction in competition is good for the next couple of quarters, but not good for customers in the long run. How that will affect stock price in the long run is unknown because it is not the only factor in stock price.

This is a problem, for the rest of us.

Anonymous Anonymous Cowardsays:

Re: Waiting for it

Well, it appears in hindsight, the ‘Bell’ break up was only a temporary fix. Either we need for those that make these decisions to understand markets (and the effect on consumers) better and not allow these types of consolidations in the future, or we need a different fix.

Or maybe those making the decisions understand the markets perfectly well, but are working in the interests of the wrong groups. Wall Street rather than consumers. Not sure how a new round of breakups will fix that.

James Burkhardtsays:

Re: Waiting for it

It was largely for appearances, it did little to solve the underlying issues, and created a bunch of regional monopolies for a national one. Competition didn’t really happen until Title II instituted Local loop unbundling. Its why I continue to question breaking up google – how would you do that and what would it accomplish? If you break up the wireless carriers, you only create regional monopolies, you don’t solve competition issues.

Troy A. Wilson Sr.says:

But the real consumer question is...

Will this give me better service coverage and lower cell phone bills than my current Sprint plan and will it keep me from being forced to move over to AT&T or Verizon just get better coverage? I hate AT&T and Verizon with a passion and have been a Sprint or T-Mobile customer for over 10 years.

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