Response to State Lawsuit against T-Mobile/Sprint: Mergers Signal Dynamic Markets
The end of the first blog post in this series warned that the real result of a successful lawsuit to block the merger of Sprint and T-Mobile would not be a market with four large wireless competitors, but rather one without Sprint or T-Mobile at all. This is because mergers signal a dynamic marketplace that is highly competitive. If companies are prevented from merging, they likely face an uphill battle to stay competitive and may just fall out of the marketplace altogether.
Such an outcome is not unprecedented. Consider Blockbuster and Hollywood Video. In 2005, as video streaming services were starting to dominate and displace the rental of physical video cassettes and DVDs, Blockbuster and Hollywood Video attempted to merge. The Federal Trade Commission (FTC) sued to block the merger and ultimately the companies ended up abandoning the idea. Now both companies are relegated to memory.
Merges and acquisitions obviously make companies larger, but generally leaner and more agile as well. Far from being a sign of market consolidation and stagnation, mergers are generally a sign that someone or something is about to dramatically upset the status quo. Companies merge to reduce the resources dedicated to overhead, liberating resources for reshaping their businesses to meet the challenge of new technologies and/or new competitors.
In the case of the wireless market, fifth generation or 5G wireless Internet technology is but one of a handful of new technologies that will continue to blur, if not erase, the lines dividing the Internet service provider (ISP) market. Wireless companies and other ISPs, such as cable providers, are currently offering competitive speeds with one another in certain areas.
New 5G networks will dramatically increase wireless speeds. This has led other ISP market segments to introduce initiatives and pursue technology to offer matching or faster speeds themselves via traditionally wired connections. It has also caused ISPs from other segments of the market to enter the wireless space. Both Comcast and Charter (cable companies) have begun rolling out wireless service.
The T-Mobile/Sprint merger is a clear sign of a market becoming more competitive and less segmented because of technological innovation. This technological change means companies will be looking for ways to maximize efficiency in their existing businesses in order to dedicate more resources towards developing 5G networks and deploying higher-capacity wired networks.
It is particularly important to emphasize that in the case of 5G, it is not simply a matter of companies upgrading their existing networks. 5G operates in fundamentally different ways than current cellular technology. Companies hoping to compete will need every available resource to bring their networks online as they are all but starting from scratch.
Considering this clear market evolution and blurring of the lines between ISPs, it is hard to see how the merger of Sprint and T-Mobile limits competition. Essentially, the marketplace that the new T-Mobile will ultimately be competing in is still forming. Blocking this merger would likely prevent them from gaining access to it in the first place. The key takeaway for policymakers here is that mergers and acquisitions are a signal that innovation or competition is about to turn the given industry on its head. This is a sign of a healthy marketplace, not a signal for politicians to get involved.