T-Mobile’s takeover of Sprint challenged in California

by Steve Blum • , , , ,

T-Mobile’s plan to buy its smaller competitor, Sprint, faces formal opposition in California. The California Public Utilities Commission’s office of ratepayer advocates and a pair of consumer advocacy groups filed formal protests to the merger, claiming, among other things, that it runs afoul of anti-trust principles and would result in a significantly less competitive mobile telecoms market.

The deal has to be approved by the CPUC, but the scope of that review is limited. So far. T-Mobile needs the CPUC’s okay to take over Sprint’s relatively small wireline business, and to put its name on Sprint’s California wireless registration. The former poses broad questions for a tiny aspect of the merger; the latter involves a narrow look at the larger business.

The protestors want the CPUC to combine it all into a single case and make it a comprehensive enquiry that considers the total impact of reducing the number of mobile broadband companies in California from four to three.

As the joint filing by the Utility Reform Netowrk and the Greenlining Institute put it…

The Wireless Application makes the rather bold claim that the elimination of Sprint as a competitor will nevertheless promote competition. However, when discussing the combined company’s position as a competitor, Applicants focus on the combined company’s ability to compete with “premium” brands like Verizon and AT&T, as well as cable companies’ voice and data plans. The Wireless Application is silent as to the combined company’s plans to target more value conscious customers. Joint Consumers are concerned that the proposed transaction would eliminate Sprint and T-Mobile as companies with affordable service offerings and reasonably priced equipment, and, instead, create a “third AT&T/Verizon” that lacks the incentive to serve lower-income or low-margin customers. In fact, the Federal Trade Commission and Department of Justices’ Horizontal Merger Guidelines expressly acknowledge that a combined company may have the incentive to eliminate lower cost offerings in order to drive customers to more expensive (and more profitable) offerings.

It is bold indeed to say that reducing the number of competitors makes a market more competitive. Maybe it’s possible to prove that it’s true. I doubt it, but the CPUC should give T-Mobile and Sprint a fair shot at making that case. If they can’t do it with hard evidence – as opposed to the rhetoric they’ve relied on so far – then the CPUC should block the merger.