New Thinking on Mobile Market Structure?

Very few regulators or would-be competitors most places in the world would consider  a facilities-based approach to fixed line telecom services workable in the present market. Simply, revenue upside is too limited and investment burdens too high to support two or more facilities-based fixed network providers.

There are a few exceptions, especially small countries, city states or North America, where cable TV networks were transformed from one-way video broadcast networks into full duplex communications networks.

In the mobile area, most regulators have preferred four providers to three contestants. That thesis will soon be tested in the U.S. and possibly a few other markets as antitrust and telecom regulators have to make a decision about whether to allow the merger of Sprint and T-Mobile US.

The larger policy environment is challenging for Sprint and T-Mobile US in that regard. Some argue the present administration is going to more merger friendly than that last. Then there is the Department of Justice opposition to the vertical merger of AT&T and Time Warner, which many observers found surprising, as such vertical mergers have not tended to raise antitrust issues.

The present administration also has blocked other deals, including the purchase of Qualcomm by Broadcom; the DraftKings and FanDuel proposed merger; and blocking Otto Bock Healthcare from acquiring rival Freedom Innovations.

Also, antitrust opposition to a merger between AT&T and T-Mobile US in 2011, and Sprint and T-Mobile US in 2014, was very strong and evident, to the extent that those proposed mergers were scuttled.

Beyond that, there is growing talk of antitrust in the application provider space, with many believing Google, Facebook or Amazon have grown too large.

Tough new issues will have to be resolved, if the antitrust sentiment turns into antitrust action. Among the more-thorny issues is that it almost cannot be demonstrated that their has been consumer harm, since Google and Facebook offer their services and apps at no cost.

So proponents of regulation and antitrust will have to find some new, lawful argument about the magnitude of harm. Up to this point, the arguments center around potential harm to would-be competitors, not consumers.

Still, as many properly note, antitrust authority approval of the Sprint merger with T-Mobile US would trigger other mergers in the U.S. market, between other access and content providers.

There might be other repercussions. French regulators have opposed consolidation of the French mobile market from four providers to just three, but there are some signs authorities are willing to reconsider, in light of 5G investment costs. That is the argument of the day, it appears.

T-Mobile US and Sprint argue they should be allowed to merge to speed up and increase investment in 5G. However popular that argument might be, studies conducted of European mobile mergers have not found that investment increased.

Still, among the larger questions is the maximum feasible amount of facilities-based competition that can happen in telecom service provider markets. In most countries, the answer is that only one physical network seems sustainable. In a few, two fixed networks have worked, but that is rare.

In mobile markets, multiple facilities have been the rule, but the issue remains: what pattern is sustainable? Most observers would agree a monopoly provider is not optimal. But how many other firms can sustain themselves? Two? Three? Or four?

Approval of a Sprint merger with T-Mobile US would undoubtedly trigger some amount of new thinking on market structure.