Cross-examination of T-Mobile testimony ordered by CPUC, as DISH’s competitive credibility challenged

by Steve Blum • , , , ,

Perry mason cross exam

T-Mobile and, perhaps, Sprint and DISH executives will be cross-examined next week, as the California Public Utilities Commission’s review of the T-Mobile/Sprint merger continues. Karl Bemesderfer, the administrative law judge managing the case, ruled yesterday that an evidentiary hearing next week is necessary, with the exact topics likely determined later today.

A key question raised by opponents of the deal is whether the federal anti-trust settlement that calls for T-Mobile to spin off spectrum, facilities, customers and employees to DISH will create an effective fourth competitor in California’s mobile marketplace. The answer depends on whether DISH can and will fulfil its end of the bargain and build out a 5G network that can provide competitive pressure on the combined T-Mobile/Sprint company, as well as AT&T and Verizon.

Lee Selwyn, an economist hired by the CPUC’s public advocates office, which opposes the merger, said in testimony filed last week that DISH can’t…

Throughout this proceeding, the Joint Applicants have repeatedly claimed that neither Sprint nor T-Mobile, each standing alone, possesses the resources necessary to construct a robust nationwide 5G wireless network, yet DISH is and will be far smaller than either of these two stand-alone companies…

A larger scale of operations enables the service provider to spread its fixed costs over successively larger numbers of customers, thereby achieving successively lower average costs and, as a result, increasing the firm’s competitiveness overall. DISH’s scale of operations will necessarily be far smaller than either that of pre-merger Sprint or T-Mobile, making it all the more difficult for this newly-minted fourth wireless [mobile network operator] to compete with the three substantially larger incumbents. Sprint is a far stronger competitor in a four-firm market than DISH can possibly become…

This is by no means to suggest that DISH’s late entry into this well-established market cannot be profitable for DISH. DISH has some 12-million DBS and streaming TV subscribers, and may be able to leverage those relationships into a profitable business…But DISH’s ability to profitably address a small fraction (less than 3%) of the national wireless services market offers no assurance that its presence will work to discipline its larger rivals to any significant degree.

DISH CEO Charlie Ergen has a long history of economically rational behavior. It’s how he grew a small store in Tennessee into a media distribution giant worth billions of dollars. So far, DISH’s legal team has resisted offering any hard details about future plans. Next week’s hearing is an opportunity to fix that problem.