A deal born of necessity
After a lengthy and often painful process, the department of justice (DoJ) has finally signed off on the $26 billion merger of Sprint and T-Mobile in the US, in the process paving the way for a new fourth carrier in Dish Network. The newly combined entity must divest Sprint’s prepaid business including Boost Mobile, Virgin Mobile, and Sprint’s branded prepaid service to Dish Network — businesses with about 9.3 million customers in total.
Dish Network also benefits from 14 MHz of Sprint’s 800 MHz spectrum at a cost of $3.6 billion, and gets access to the new T-Mobile network for seven years. This will be supported by Dish Network’s independent 5G network, which will be required to cover at least 70% of the population by 14 June 2023. Although the deal still faces a final obstacle in the form of a lawsuit from 13 state attorneys and can’t be finalized until resolved, approval from the DoJ is a defining moment for the US mobile market.
The deal is as divisive as ever, as those who have long opposed the move on competition grounds argue that the government is arbitrarily dictating the winners and losers by mandating spectrum divesture and cooperation agreements between the new T-Mobile and Dish Network.
The reality is that the outcome is born of necessity. CCS Insight has long argued that the regulator has doggedly focussed on the importance of maintaining four players for the good of competition. However, as the competitive landscape has diversified and intensified, this perspective became increasingly short-sighted, failing to reconcile the reality of spectrum and network investment. With 5G further increasing the cost of competition, the status quo was unsustainable (see Instant Insight: T-Mobile and Sprint Agree Merger Deal). Having four players in the market doesn’t benefit consumers if two are dominant, one is a distant third and the fourth is struggling to survive. Despite Sprint’s spectrum strength in 2.5 GHz spectrum, its weak investment position meant its situation was unsustainable.
This deal ensures the market has three competitively matched rivals and fulfils the brief of a fourth challenger. The DoJ has been meticulous in ensuring the new T-Mobile doesn’t become overwhelmingly strong and end several years of competition and falling prices for consumers. The divestment of the prepaid business and 14 MHz of 800 MHz spectrum to Dish Network, along with a mandatory network-sharing agreement and a pledge by T-Mobile not to raise prices for three years underlines the commitment to ensure ongoing competition and the will of all sides to complete the deal.
Although this level of interference isn’t ideal, it was a necessary step to reach a sustainable compromise. The widely overlooked inclusion of a provision for T-Mobile to use Dish Network’s unused 600 MHz spectrum and the requirement to use e-SIM to enable easy switching between providers highlight the level of detail that has been pursued. Moreover, it reveals the determination to create a market structure that fosters sustainable competition.
How this will manifest itself in practice remains to be seen. T-Mobile is on a new competitive footing and is now a significant contender to AT&T and Verizon, and this is the outcome that matters. The success of Dish Network is far more uncertain and its self-claimed ability to now “disrupt incumbents and their legacy networks” is questionable.
The bolstering of Dish Network to maintain the competitive balance of four US carriers was necessary only to consolidate the legacy networks into three largely competitive businesses. It’s difficult to envision Dish Network operating any more effectively as a fourth-placed challenger than Sprint managed in the years after SoftBank’s investment in 2013. The deal gives Dish Network little more than a fighting chance, but presents T-Mobile with the opportunity it has sought for years.
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