A federal judge in New York approved T-Mobile’s $26.5 billion plan to takeover Sprint on Tuesday. The decision clears the path for an upcoming merger between two of the top four national wireless carriers.
Critics say that the deal will ultimately limit competition in a market already dominated by very few players. But Aija Leiponen, professor of applied economics and an expert in the telecommunication industry, says that on the contrary the merger will increase competition, by not leaving Sprint’s assets up for grabs for the industry’s monoliths.
“The merger of Sprint and T-Mobile has been criticized for reducing competition in the industry but in fact it might have the opposite effect of actually enhancing competition.
“Sprint has been unprofitable for much of the past decade and has been working on a turnaround. It currently has about 13% market share in the wireless telecom industry. T-Mobile is performing much better, but it also has a lower market share, 16%. In contrast AT&T with 40% and Verizon with 30% of the market dominate the industry.
“If Sprint goes bankrupt, its assets will likely be sold to the other three companies, potentially enhancing the already strong dominance of the two market leaders. The creation of a third equal competitor, the combined Sprint-T-Mobile, would have about 30% of the market, too. This might actually provide a more viable alternative, and a counterweight, to Verizon and AT&T nationwide.
“The investments required for the 5G network upgrades are substantial and it is unlikely Sprint alone with its already strained balance sheet would be able to make them. However, as always with mergers, the devil is in the details and the Federal Trade Commission should take care to monitor the pricing and behavior of the combined company and also the effect on pricing of the currently dominant companies. Implicit coordination of prices is easier among three than among four companies.
“Competition is essential for consumer benefits in this highly capital-intensive industry that is prone to market power abuses and poor customer service if left unregulated.”