Over the last several weeks, rumors have run rampant that Sprint is planning to submit a $19 billion bid to buy T-Mobile in the first half of 2014. Sprint, recently bought by the Japanese conglomerate Softbank, is looking to gain a stronger foothold in its efforts to compete with Verizon and AT&T and views the purchase of T-Mobile as the best way to do that. While the idea of buying out the competition is appealing to investors, who have seen the stock price of Sprint and T-Mobile skyrocket because of the merger rumors, it does not bode well for consumers.
In the face of stiff competition from Verizon and AT&T, who combined have nearly double the customers and better coverage than that of Sprint and T-Mobile, according to TechHive, the idea of a merger between the latter might seem like logical way for them to compete while at the same time creating a stronger third carrier. But the fact of the matter is that while it may look good in theory, this merge would actually decrease competition by limiting consumer choice and raising prices on wireless plans.
In 2011 the Federal Communications Commission, led by Julius Genachowski (who has since left the FCC), blocked a proposed merger between AT&T and T-Mobile, citing concerns that wireless industry was on the cusp of becoming a duopoly. Genachowski was quoted by Bloomberg L.P. as saying, “Look at the market now. If you look at T-Mobile and Sprint, instead of moving down, they’re moving up.” This statement has proven to be prophetic, as in the two years since, particularly T-Mobile has increased both profits and its customer base, according to GeekWire.
If AT&T had been allowed to merge with T-Mobile, the most likely scenario would have been Verizon making a move to buy out Sprint. The result would have been a cellular industry with two wireless titans that have a history of colluding on pricing. In 2009 Verizon and AT&T were accused of conspiring with each other to raise the price of sending texts to 20 cents per message, which represented a 100 percent increase from 2005. When Verizon ditched its unlimited data in favor of a tiered data system that effectively raised prices yet again on its customers, AT&T almost immediately followed suit. In comparison, Sprint and T-Mobile have kept their prices relatively low and have offered unlimited data as a counterbalance to their two larger competitors.
While Sprint would argue that their proposed merger with T-Mobile would create a stronger third player in the wireless industry the truth of the matter is that Sprint has been slowly but surely raising their prices and hasn’t given any firm guarantees they will continue to offer unlimited data in the future. Meanwhile T-Mobile has been flourishing under John Legere, their dynamic new CEO, who has aggressively led a charge to revolutionize the wireless industry by ditching contracts, offering yearly upgrades, and recently offering to pay termination fees for customers wanting to leave their current carrier for T-Mobile.
It’s these types of innovations on both pricing and offerings that make any industry competitive. The most likely reason Sprint wants to buy out T-Mobile is so they won’t have to compete with their pricing and unlimited data offerings. If Sprint is allowed to merge with T-Mobile the result will be higher prices and less choice. The wireless industry could become as stagnant as the satellite television and home internet industries, where prices are high and customer satisfaction is low. Here’s hoping the FCC will do all consumers a favor and hang up on a Sprint/T-Mobile merger before the wireless industry gets the last laugh.