“Revolutionary opportunities” or higher prices, poorer service and less rural coverage from T-Mobile’s takeover of Sprint?

29 April 2019 by Steve Blum
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Maduro inaguration

California is either heading for a proletarian broadband paradise or an economic meltdown of Venezuelan proportions. Following months of testimony, document dumps and stupid lawyer tricks, on Friday the companies and their opponents laid out arguments for why the California Public Utilities Commission should or shouldn’t approve the deal.

In two separate filings, T-Mobile (and technically Sprint, but it’s T-Mobile that’s running the show) mostly reiterated the same points and pleadings they’ve been pushing since the beginning: the CPUC is sticking its nose where it doesn’t belong and the merger will benefit everyone – Californian consumers, rural communities, low income and disadvantaged people, job seekers, employees hoping to keep their jobs, and the list goes on.

Over the course of a couple hundred pages, T-Mobile repeated claims made in earlier filings and testimony about how the new, combined company would lower prices, increase speeds, widen coverage and add jobs. Much of it is argumentative, and none of it comes with an enforceable pledge to make good on those promises.

Instead, T-Mobile mostly relies on a hyperbolic salad of marketing superlatives: revolutionary opportunities, incredibly successful, especially striking, fundamentally transform, world-renowned experts, unique pioneering. Much of it involves claimed benefits, such as Internet of things support and low income lifeline services, that are, or should be, course of business for any mobile carrier, merged or not.

The primary opponent to the deal is the CPUC’s public advocates office (PAO). It concludes that the merger is not in the public interest and “will lead to higher prices, reduced capital expenditures in California, stifled innovation, poorer service quality, reduced rural coverage, elimination of low-income plans…and deteriorated consumer privacy”.

The PAO’s sharpest points comes from an economist, Lee Selwyn, it hired to review the merger and, particularly, some of T-Mobile’s microeconomic claims. He makes two important points.

First, contrary to the fragile and convoluted case offered by T-Mobile’s world renowned experts, fundamental anti-trust analysis supports the otherwise obvious conclusion that reducing the mobile telecoms market from four carriers to three means less competition and, ultimately, higher costs and fewer benefits to consumers. His well supported observation that T-Mobile and Sprint mostly compete against each other, rather than against AT&T and Verizon, indicates that the damage done to the market will be that much greater.

Second, even if the especially striking coverage and revolutionary opportunities that T-Mobile promises materialise, the benefits will be limited to densely populated urban areas. Using T-Mobile’s own figures, Selwyn adeptly and quantitatively dismantles visions of a 5G mobile renaissance in rural communities, concluding…

[T-Mobile’s and Sprint’s] claims that the merger will bring coverage to rural areas – and their attempt to buttress such claims with maps that purport to display projected coverage areas at the county level – cannot be squared with the projected capital investments that a merged New T-Mobile anticipates making in each California county through 2024…Rural areas are not served because they are costly to serve, and this fundamental economic reality is not materially changed by the merger. The maps and coverage area projections advanced by T-Mobile in its rebuttal testimony are not credible and should be afforded no weight by the Commission.

Another problem with T-Mobile’s merger case, which gets less attention from opponents than it deserves, is the disconnect between its broadband capacity and speed promises, and the frequencies it plans to use. T-Mobile has less “millimeter wave” spectrum than AT&T and Verizon, which, as it admits in its own filing, will be “largely limited to densely populated urban areas”. Millimeter wave bands – 30 GHz or so and above – are what make many 5G improvements possible.

Everyone involved has two weeks to file rebuttals. In the meantime, some side skirmishes need to be resolved, including a demand by the Communications Workers of America, which opposes the deal, to delete information about contract negotiations from the record, as well as objections to the $35 million payoff to the California Emerging Technology Fund’s (CETF), which led it to switch sides and “enthusiastically and wholeheartedly support” the merger. CETF did not submit arguments for or against it on Friday.

“Opening briefs” regarding T-Mobile’s acquisition of Sprint, filed with the CPUC by 26 April 2019:

T-Mobile and Sprint (aka Joint Applicants)

CPUC Public Advocates Office

Communications Workers of America
DISH Network

Collected documents from the CPUC’s review of the proposed merger of Sprint and T-Mobile are here.