The antitrust division’s rationale is that the deal would decrease the number of major wireless carriers from four to three. But my colleague Jessica Melugin argues that without the merger, the number of carriers might actually be two: “T-Mobile and Sprint will [need to] be able to combine their resources [in order to] stay competitive with Verizon and AT&T, and hopefully help the mobile communications industry in the United States win the race to build the first 5G network.” Together, they might survive. Apart, both might go under.
On the other hand, the rule of thumb is that 90 percent of mergers are failures, remember. This could well be the next AOL-Time Warner. Nobody knows how Sprint-T-Mobile would turn out, including the Justice Department, as well as the companies themselves. But unlike antitrust regulators, Sprint and T-Mobile have skin in the game, and thus a stronger incentive to make the right decision.
Then there is the rent-seeking angle. As my colleague Wayne Crews notes: “It’s also important to note that invoking antitrust laws in this case is de facto corporate welfare for Verizon and AT&T. It means they can stand pat rather than reacting to dynamic changes to the marketplace.”
Third, there is the uncertainty angle. There are no set criteria for what makes a merger legal or illegal. Regulators decide at their own discretion—and politics are often involved, as with President Trump’s recent unsuccessful attempt to block the AT&T-Time Warner merger (Time Warner owns CNN, which is often critical of Trump).
There are ways to measure market concentration, such as the Herfindahl-Hirschman Index. But its numbers are easy to manipulate to reach any conclusion—just define the relevant market however narrowly or broadly you want, and you can generate a number showing any desired degree of market concentration. The Federal Trade Commission has a set of merger guidelines, but they are not binding and can easily be ignored if politics or other merit-unrelated factors are more important at the moment.
This regulatory uncertainty has costs far beyond whatever happens with the Sprint-T-Mobile deal. Even if the merger goes through, and a merged T-Mobile-Sprint proves a viable 5G-era competitor, the fact that mergers are approved or denied at a whim will continue to have its chilling effect on companies far outside of technology or communications. For some companies, the upside is not worth the cost in legal fees, political engagement, and potential bad publicity. This is consumers’ loss, not just entrepreneurs’ and investors’.
For more reasons to be skeptical not just of the move to stop the Sprint-T-Mobile merger, but of antitrust regulation in general, see Wayne Crews’ and my just-released paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.”