T-Mobile Proves That Mergers Can Benefit Consumers
Summary
That should give pause to today’s overzealous antitrust enforcers.
The government has become increasingly suspicious of major mergers over the past decade, under both political parties. The Justice Department under Donald Trump sued to prevent AT&T from buying Time Warner. The Federal Trade Commission under President Biden is continuing a case the Trump administration initiated against Meta, parent of Facebook, to force the firm to cough up Instagram and WhatsApp, which it swallowed during the Obama years. In January JetBlue Airways’ plans to merge with Spirit Airlines and Amazon’s plans to acquire iRobot were deterred under regulatory pressure.
In April 2020, however, T-Mobile and Sprint managed to sneak past regulators, merging to reduce the number of major U.S. mobile networks from four to three.
T-Mobile built its brand by playing the maverick. It jabbed at Verizon and AT&T—each about twice its size—with price discounts and no-contract offers. T-Mobile’s model was so unconventional that it even branded itself the “un-carrier." The company rose from the nation’s fourth-most-popular cellular network in 2013 to third place in 2016. T-Mobile’s then-CEO, John Legere, mocked Verizon and AT&T as “Dumb and Dumber."
Because of this growth, T-Mobile was rapidly running out of capacity, and regulators were slow to allocate more bandwidth. Fortunately for T-Mobile, the laggard Sprint was rapidly shedding market share, while controlling a large underemployed cache of radio spectrum. In April 2018, Sprint agreed to sell its subscriber network of nearly 55 million to T-Mobile for $26.5 billion.
T-Mobile said its acquisition would bolster its network and speed its upgrade to 5G. The Justice Department and Federal Communications Commission approved the merger with modest conditions, and a federal judge approved the deal on Feb. 11, 2020, prompting Sprint stock to soar more than 70%. Two months later, Sprint folded into T-Mobile.
T-Mobile’s takeover of Sprint was controversial among analysts. “If this merger is not anticompetitive," Eleanor Fox, a trade regulation and antitrust law professor at New York University, told reporters in 2020, “it is hard to know what is." Yale economist and antitrust scholar Fiona Scott Morton delivered her verdict on the deal in a co-authored 2021 article: “The era of aggressive price competition in wireless is over." The authors predicted that the wireless industry, whittled down to a big three, would “nestle into a cozy triopoly."
The prediction proved wrong. Average monthly mobile subscription fees dropped sharply. In the three years before the merger, according to government price data, mobile charges declined in real terms by about 8%. In the three years following the merger, the real price decline has been nearly 12%.
These trends were even more impressive given dramatically improving network performance. Before the merger, the top four U.S. carriers delivered data download speeds averaging about 26 megabits per second, nearly all via 3G or 4G. By early 2023, with 5G deployments spreading, Verizon and AT&T data flowed 24% to 39% faster, while T-Mobile was more than three times as fast as before. T-Mobile’s high-speed coverage had also expanded; half of its connections were via 5G by January 2023, against just 10% to 20% for its rivals.
T-Mobile’s aggressive deployment of the Sprint spectrum rights it had purchased paid dividends in enhanced services for customers. It was also a boon for shareholders. As T-Mobile pulled market share from its rivals, its stock soared. Between 2018 and 2023, T-Mobile shares outperformed the S&P 500 Index by 50%.
Further evidence that the merger of T-Mobile and Sprint was pro-competitive was seen with Verizon and AT&T share prices. From 2018 to 2023, Verizon and AT&T stock prices declined sharply, losing more than a third of their real value. The postmerger marketplace was a great victory for T-Mobile but a blow for its rivals. The cozy-cartel thesis collapsed.
The merger succeeded, but not because the Justice Department set the right parameters. Its conditions forced T-Mobile and Sprint to spin off certain assets to Dish Network, the satellite-television operator, enabling a new “fourth network" to replace Sprint. Yet Dish simply continued Sprint’s nosedive, losing subscribers with an uncompelling product. The firm currently hovers near bankruptcy, according to analysts.
The government’s policy failure makes the merger’s victory even more fascinating. The actual results of this market experiment have brought new vitality to the race to 5G. Those in both parties who are quick to try to squash potentially efficient mergers might want to pause and consider the T-Mobile-Sprint success story.
Mr. Hazlett is a professor of economics at Clemson University.
