Thursday, December 13, 2018

T-Mobile-Sprint Merger Would Benefit Resellers and Hybrid Services

In the Free State Foundation’s comments submitted to the FCC regarding the proposed merger between T-Mobile and Sprint, FSF rebutted claims that the potential merger would harm resellers, or mobile virtual network operators (MVNOs). FSF scholars showed that a combined T-Mobile and Sprint would accelerate 5G deployment, giving MVNOs a third nationwide option for 5G access in addition to Verizon and AT&T. Tracfone, the nation’s largest MVNO, made similar sentiments in its comments, stating that a merged T-Mobile and Sprint would increase mobile broadband access in rural areas, where competition from a third provider is lacking.
In their comments, FSF scholars examined T-Mobile and Sprint’s spectrum holdings, capital investments, and financial obligations and determined that the two companies, alone, would not be able to compete with Verizon and AT&T with regard to timely deployment of 5G networks:  
It appears unlikely that T-Mobile and Sprint separately would have the capital resources necessary to invest in and timely deploy nationwide 5G networks that could compete effectively with AT&T and Verizon. Furthermore, build-out and operation of a next-generation mobile wireless network involves significant costs in migrating subscribers onto the new network and closing down older-generation networks. Such migration would be particularly challenging to T-Mobile and Sprint separately given their relatively smaller pool of financial and spectrum resources.
In other words, the T-Mobile-Sprint merger would accelerate small cell deployment and increase the likelihood of consumer access to three or more nationwide 5G providers. But MVNOs, which purchase network capacity from mobile network operators (MNOs), like Verizon and AT&T, and resell the service rather than building out their own facilities, also would benefit from having access to an additional nationwide 5G network.
FSF’s comments said the following:
Based on observations that T-Mobile and Sprint are the largest wholesalers of mobile wireless network capacity to mobile virtual network operators (MVNOs) – or “resellers” – it has been claimed that the reduction of one wholesaler could raise wholesale prices for MVNOs and therefore harm consumers by causing their retail subscribers’ prices to rise. However, given the competitive conditions of the wireless market identified above – including the new T-Mobile’s likely enhanced ability to compete with wireless market leaders AT&T and Verizon – it is quite unlikely that wholesale prices would significantly increase post-merger. A rigorous economic analysis should be required to demonstrate that significant and non-transient price increases are likely to occur before the Commission should credit such an argument as a possible merger related concern. And even assuming such a demonstration were made, it is unlikely that concern would outweigh the 5G and other potential benefits of the proposed merger.
In September 2018, Tracfone, the largest MVNO in the U.S. with 22 million customers, announced that it supports the T-Mobile-Sprint merger for this exact reason. In comments submitted to the FCC, Tracfone said:
While today’s wholesale market for MVNOs is generally competitive, the existing four nationwide MNO’s from which TracFone can purchase network capacity are not equivalent alternatives in all markets. In rural areas, T-Mobile and Sprint historically have not offered sufficient coverage and/or speeds in these geographic pockets of the United States.
With the merger of T-Mobile and Sprint, and the resulting more rapid deployment of a nationwide 5G network with broader coverage, greater capacity, higher throughput and lower latency, the wholesale market place will be more competitive with three full service competitors, rather than two. The increase in competition should have the greatest effect in rural areas. The resulting excess capacity would be available for MVNOs in these areas as a third option that has not been available in the current marketplace.
Moreover, in a recent Perspectives from FSF Scholars, Randolph May and I discussed how cable providers are now offering mobile services as hybrid mobile network operators (HMNOs) that use a combination of their own facilities and leased networks. (Comcast’s “Xfinity Mobile” is one example.) Cable providers, too, would benefit from more options for nationwide 5G networks when offering their hybrid mobile services.
As HMNOs and MVNOs continue to use a facilitates-based MNO to deliver their own mobile services, the T-Mobile-Sprint merger would provide cable providers and MVNOs with a third option for a 5G network in addition to Verizon and AT&T.