5 reasons the T-Mobile-Sprint merger should’ve been rejected—and will raise your phone bill

We shouldn't rely on DISH Network to fill the hole left by Sprint.

There used to be five, then there were four, and with the recent ruling allowing the takeover of Sprint by T-Mobile, there will now likely be only three nationwide wireless carriers. The painful consequences will be felt in your wallet.

The vast majority of economists believe that the elimination of Sprint as a rival to other carriers will result in less competition, higher prices, and lower quality in phone service. Antitrust law is there to make sure that mergers that harm customers are blocked. So, why is this one allowed?

The Justice Department normally would stop this merger. But DISH Network, a satellite TV company, convinced a federal judge that it will be able to replace Sprint as a fourth rival. However, unlike Sprint, DISH has no telecom customers and no telecom network. Evidence presented at the trial showed that it will take DISH up to seven years to build a nationwide network from scratch and require tens of billions of dollars of investment.

Additionally, the Justice Department gave DISH a sweet deal that, paradoxically, provides business incentives to DISH not to invest in a new network. Under the deal, DISH can lease and resell T-Mobile’s wholesale phone service. This encourages DISH to just be a reseller and never build a full-fledged network of its own (or even build a tiny one to satisfy Justice Department lawyers), saving billions of dollars. If DISH does not build a new network, there will not be a fourth major rival to compete for customers, leading to higher bills.

Judges usually err on the conservative side, and, given the speculative—indeed, unlikely—nature of the claim that DISH will spend billions contrary to its business incentives to build a network, one would have expected the judge to block the merger. But this judge ignored economists’ antitrust testimony (including our own amicus brief), and was persuaded by witnesses for the merging parties, including their CEOs. 

It’s part of CEOs’ job descriptions to be persuasive, especially when it concerns future plans. There is nothing that holds them to what they say in court. If accused of making false statements, they can easily claim that adverse business conditions prevented their predictions from being realized. 

Once this merger is done, DISH can do whatever it wants. If it is profitable not to invest, it won’t. There is little the judge can do at that point, while all phone customers, including those of AT&T and Verizon, will be paying higher prices. 

There is another significant error in allowing this merger to go through. For years, T-Mobile acted as a maverick and undercut prices, especially those of AT&T and Verizon. The judge assumed that T-Mobile will do the same post-merger. But the new T-Mobile will no longer be a company with only 17% market share; it will double in size, close to respective shares of AT&T and Verizon. In that market position, T-Mobile could well abandon its aggressive undercutting and become one of the three comfortable fat cats. 

The judge essentially ruled that Sprint does not have a future unless acquired by T-Mobile. This is overly speculative. To be sure, Sprint is a badly run company, and its control by SoftBank starved it of much-needed capital. But Sprint is far away from bankruptcy, has a lot of valuable assets (which, ironically, the judge underscored to tout the importance of the merger), and a very rich, large shareholder in SoftBank. If companies experiencing moderate difficulty can regularly persuade judges that their only choice is to be acquired by a rival, we may end up with many more anticompetitive mergers. 

The final nail in the coffin of this bad decision was the judge’s deference to the Justice Department and Federal Communications Commission (FCC). He quotes from a previous case to describe the agencies as “intimately familiar with this technical subject matter, as well as the competitive realities involved.” If our courts are satisfied with the judgments of the Justice Department and FCC, why even hold a trial? 

The bottom line is that this decision, to a large extent, disregards the interests of consumers. They will pay in the form of higher prices every month, while the testifying CEOs will celebrate the huge bounty they made off this transaction. The rest of us can take bets on how many years it will take for DISH to build its own network—if ever.

Nicholas Economides is a professor at New York University Stern School of Business.

John Kwoka is a professor at Northeastern University.

Thomas Philippon is a professor at New York University Stern School of Business.

Robert Seamans is a professor at New York University Stern School of Business.

Hal Singer is a professor at Georgetown McDonough School of Business.

Marshall Steinbaum is a professor at the University of Utah.

Lawrence J. White is a professor at New York University Stern School of Business.

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