Senators on the Judiciary Committee vetting the Sprint/T-Mobile deal Wednesday (June 27) pulled no punches as they probed whether reducing the number of major wireless carriers from four to three would create a stronger competitor to the top two incumbents, or bank their fire for innovation and disruption.
T-Mobile John Legere said it was definitely the former, consumer groups suggested the latter.
Testifying before the committee's Antitrust Subcommittee were T-Mobile CEO John Legere; Marcelo Claure, Sprint executive chairman; Asha Keddy, VP of technology for Intel; Gene Kimmelman, president and CEO of Public Knowledge; Roslyn Layton, visiting scholar at the American Enterprise Institute; and George Slover, senior policy counsel of Consumer's Union.
Related: FCC Names Sprint/T-Mobile Merger Review Lead
Legere said customers will continue to drive its business plan to fix a broken and arrogant industry. He said the deal will "supercharge" the uncarrier.
He said the deal will mean more competition and jobs. It also means the U.S. will win the race to 5G, which is a big Trump Administration talking point, and get broadband to rural areas.
Legere said when the combined company innovates or lower prices, AT&T and Verizon will have to do so. He also pointed to the new competition to the business services.
He also said he would take on cable operators in the in-home broadband market for Comcast and Cox and others, a market he says is notoriously uncompetitive.
Claure said Sprint has lost over $25 billion in recent years, though the company has been turning around due to cost cutting. As a standalone company, he said, Sprint lacks the resources to compete with AT&T and Verizon.
Sprint Needs $25B for 5G
Sprint will need to spend $25 billion to roll out 5G, and at that at limited coverage, and would likely have to raise prices to consumers.
Claure said the stars are aligned to allow the combined company to align its spectrum and networks to be a leader in 5G. "We need T-Mobile, and T-Mobile needs us."
He also said the companies will invest over $40 billion in the 5G net over the next three years, and create new jobs "from day one." He also said they will get customers by lowering prices to consumers, forcing the competition to lower their prices.
Intel's Keddy was there to provide perspective on the importance of leading in 5G in driving innovation in everything from e-health to automotive to agriculture, with Intel firmly ensconced inside that revolution. She talked about providing 4K wirelessly at the recent U.S. Open golf tournament. She also put in a plug for the need for Congress to free up more spectrum for 5G.
Sen. Amy Klobuchar (D-Minn.), ranking member of the subcommittee, pointed out that in another life she represented MCI trying to get into the long-distance market, where at a hearing she compared Alexander Graham Bell's Aha! moment, "Come here Watson, I need you," to MCI's "I'll be damned, it actually works."
But she pointed out that antitrust -- breaking up AT&T -- was crucial to MCI taking on the incumbents.
Four Railroads on a Monopoly Board
Klobuchar pointed out that even if it remained at four big wireless companies, that was the same number of monopoly railroads on a Monopoly board. She said her concerns included that four competitors are not very many, that maverick behavior from the companies had helped lower prices.
She said, the first questions is whether a combined company will work as hard to be an "uncarrier" and what its effect on innovation would be. She also said she understood the upside of creating a powerful driver of 5G, as the companies have claimed they are in a unique position to provide.
Kimmelman, speaking for Public Knowledge, said the CEOs present had presented an image of a highly competitive maverick approach, but pointed out that MCI was bought by Verizon.
He said the merger is about law enforcement and Justice enforcing antitrust law, not about promises. Mergers can often change companies incentives" notwithstanding what the CEOs said. He said combining the companies would increase concentration and create an incentive to raise prices, or at least leave them higher than the market would set.
Kimmelman said 5G is important, but the question is whether the combination yields the investment or benefits, or raises prices to consumers. He said he was confident that Justice is likely to find that there are options for the market that will preserve the current four players.
Layton said that what matters in a competitive market is rivalry. The four to three argument dates from a flannel suit world, she said, while the current CEO is a maverick in magenta (Legere was wearing a purple T-Mobile tee shirt). She said empircal evidence of effects, rather than bright line rules, is the current approach to mergers.
She disagrees that the competitive world of today is based on Justice's denial of the AT&T-T-Mobile merger a decade ago.
There is no penalty for antitrust authorities when they get it wrong, she said, and they have it wrong when they assume that the merger will raise prices. She said China is ready to "eat our lunch," and suggested that allowing free enterprise power like the proposed merger is a way to try to keep that lunch intact.
5G Claims Need Testing
Slover from Consumers Union said the concentration levels of the merger are all in the "red zone." He said the faster, farther 5G network claim needs testing, but said they don't need to combine to build that network. He called the merger, at most, a short cut.
Slover said the whole premise of merger enforcement is it is better for consumers if companies "build it" rather than "buy it," with two companies racing to build competing networks and having to compete for customers. He said the focus should not be on the latest shiny object, but the enduring benefits of competition. He said they should not let go of the "bird in hand" competition, in hopes new competition will "fly in the window." He said that competition will, instead, evaporate.
Legere pointed out that combined company would still be much smaller than AT&T and Verizon, which have more than two thirds of wireless subs.
Sen. Mike Lee (R-Utah), chair of the subcommittee, asked how their combined capabilities would make it more likely they would compete by lowering prices, rather than raising them. Layton said that the companies have a high incentive to grab market share from the incumbents via pricing.
Kimmelman said he did not agree that the two combined will have new capability that wasn't there before, calling it one plus one equals three addition.
Legere said that given the physics, one plus one actually equals six and that combining capacity does dramatically increase supply and will lower price.
Staying on math, Legere said the deal was not about reducing four to three, but increasing the market competitors from two -- the powerful incumbents -- to three, forcing them to respond in a way they have not had to to either T-Mobile or Sprint.
Legere said T-Mobile has promised to honor Sprint's lower pricing, and has a track record after its purchase of MetroPCS.
Klobuchar asked why the two companies couldn't just set prices just below the incumbents if they didn't have to compete with each other. Claure said they will have to lower prices -- and offer great services--to gain market share, which they will be able to do with the new, combined, capacity.
Kimmelman said moving to 5G has enormous costs and that some people won't want the "Concord" of wireless and may just want to fly. He said four companies might be better able to provide a mix and match of options for different segments of customers.
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