Thursday, February 6, 2014

We Should Know in a Few Weeks if Sprint Really is Going to Launch a Takeover Bid for T-Mobile US

SoftBank and Sprint reportedly will have to decide over the next few weeks whether to launch a bid to acquire T-Mobile US.

The argument essentially has to be that the U.S. market is becoming a duopoly, a condition that historically has resulted in high prices and low innovation in the U.S. mobile market, and that only a stronger number three provider (Sprint fortified by T-Mobile US) can check the growing market power of Verizon Wireless and AT&T Mobility.

U.S. regulators and antitrust officials likely already have signaled to Sprint a continuing belief that the U.S. mobile market already is too concentrated. Indeed, Sprint itself argued against the AT&T acquisition of T-Mobile US, on the grounds that competition would be harmed if the number of national providers dropped from four to three, the step it now might propose.

“Removing T-Mobile from the market would substantially reduce the likelihood of market disruption by a maverick,” Sprint said in a 2011 filing asking the FCC to block AT&T’s proposed purchase of T-Mobile. “T-Mobile, as one of only four national carriers, provides a critical constraint on AT&T’s consumer retail prices.”

Son and Hesse argued a combined entity will be a “super maverick” in the mold of T-Mobile US. On the other hand, regulators also might view a resurgent T-Mobile US as evidence that competition is increasing.

T-Mobile US has reversed a nearly decade-long slide in subscribers, and in 2013 had the second-highest net subscriber gains in the U.S industry, adding 2.1 net new customers over the last three quarters, compared to net additions of 4.1 million at Verizon Wireless and 1.8 million at AT&T Mobility, Bloomberg notes.

Arguments can be made, either way, that competition will be most effectively promoted if four carriers remain in the market, or if Sprint and T-Mobile US combine. The former argument will rely on empirical evidence of what T-Mobile US is doing; the latter on economies of scale that might be needed if a larger Sprint plus T-Mobile US wants to disrupt industry prices and packaging more than at present.

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