State attorneys general from fourteen states and the District of Columbia have sued to block the merger of mobile phone and Internet service providers T-Mobile and Sprint. The merger was recently green-lit by the Federal Communications Commission (FCC) and eventually the Department of Justice (DOJ), on the condition that certain assets would be spun off to create a new competitor in the wireless market. The suit claims to be in the interest of preserving competition and thus protecting American consumers. Quite the opposite is true.
The foremost problem with the case against the merger is the fallacy of competition quantity, rife in antitrust law. While the merger agreement itself does lay the groundwork to create a new competitor in the wireless market, the general concern is that the merger will result in the wireless industry moving from one with four large providers down to one with only three (with AT&T and Verizon being the other two). According to those opposing the merger, with fewer options to choose from, consumers will face higher prices, worse service, etc. This is largely a baseless fear. The quantity of competitors in a given field is generally not a good proxy for the benefits of competition that we expect.
We don’t make this simple mistake in other areas. There are far more competitors in college athletics than in professional sports, yet there is far greater parity in the big leagues. Football season is upon us and there’s a saying in the National Football League: “Any given Sunday.” It refers to the fact that even the worst team in the league has a chance to upset a reigning champion. There are only 32 teams in the NFL. Yet in the NCAA, there are 130 Division I teams alone and unless you’re Clemson, you probably aren’t beating Alabama, and vice versa.
The irony of the state attorneys’ general lawsuit is that it inadvertently admits that competition quality is of greater importance than quantity. As stated, the merger agreement spins off assets from the existing companies to create a new wireless competitor, meaning that the total number of firms in the marketplace will not actually shrink. Yet the suit was filed anyway, and thus the attorneys general must be concerned that this new firm will not be able to adequately compete with the new T-Mobile, AT&T, and Verizon.
Despite the fact that the new post-merger T-Mobile will still only be the third largest wireless provider, it gives AT&T and Verizon a lot more to think about than two firms that are clearly in distant third and fourth places at the moment. The quality of competition is of far greater relevance to consumer welfare than the sheer quantity of competitors. Politicians like state attorneys general ought to know this. When election time rolls around, it is doubtful any of them are concerned with anyone but the Democrat or Republican they are running against.
The real threat to consumers is not a market with only three major competitors (and as subsequent parts of this series will explain, this won’t be the case anyway), but rather if this merger is successfully blocked, and we’re ultimately left with a market without Sprint or T-Mobile altogether.