Sprint and T-Mobile Merger Looms Large (Episode 77)

So, absolutely. I don’t recommend that people tune in and really try to follow this thing super closely. There’s better uses of your time. Following all of ILSR’s work, for instance, would be a better use of people’s time.

In those days, as I’m going to be dating myself, the issues were mostly around trying to promote diverse ownership of media and trying to make sure that broadcasters and cable operators served the public interest. The internet was really only a dream in scientists’ and academics’ eyes. It wasn’t until around 1998, 1999 where the internet started to become a thing. With it, my focus certainly shifted, because I was kind of tired of trying to make top-down command and control media behave, and saw the internet as a way to empower individuals. It does a lot of that. Obviously, there’s some other things we don’t like.

For Media Access Project, I went to the Ford Foundation where I started the funding program that now funds a lot of public interest advocates like me. And then, I started an organization called Public Knowledge, where I worked as the CEO for twelve years. And then, I went off to the FCC for three years to work for Chairman Wheeler. Since then, I’ve been a fellow at Georgetown. Again, a public advocate, but like a public advocate without an organization. I’m just out there, as my own little part of the resistance, trying to make sure that the internet stays open, that competition flourishes, and that people get to speak without gatekeepers getting in the way.

So if you take away Sprint … Okay. If you combine Sprint into T-Mobile, T-Mobile’s incentives change. They go from wanting to beat up on the big guys and compete for the value-conscious consumer with Sprint to wanting to be like the big guys. And in fact, the record at the Federal Communications Commission on this merger … And this merger now has been going on, the proceeding’s been going on for over a year. It’s a very long, drawn-out thing. And I’m happy to talk about the process, because the process at a minimum is weird, and at maximum is just wrong, quite honestly.

I do hear people say, “Well, Europe is a different market than the United States.” If anything, they think it’s smaller. So you would think that three would be okay, right? But even in those smaller markets, the shrinking from four players to three players have resulted in huge price increases. So yeah, we have a lot of evidence in that regard.

Again, even more compelling, the evidence on the record … Which, by the way, the merging companies don’t dispute. So what they say is, “Well, you’re going to get more for your money.” Right? So it’ll be a lower price per gig.

So, what we have here is a situation where unfortunately, for good or for ill, some people are reliant upon mobile for the foreseeable future. Look, I’m with you. I want everybody to be connected to fiber and to have gigabit speeds, but we are so far away from that. Maybe in 10 years, in 20 years we’re having a different conversation about mobile. But in 2019, the conversation we’re having is that I think about a third of poor families or more rely upon mobile broadband to do things like their homework, right? And to look for a job.

It’s not an ideal situation. I did a speed test. I was in Montgomery, Alabama, and I did a speed test on my mobile just for the heck of it. I was getting five megabits per second down and actually six up, which was interesting. I got more up than down. But those speeds are so poor. That’s the state of the market that we have today. It’s that low-income Americans rely on this slow service.

But one other thing I just wanted to ask regarding the potential of the merger. We don’t have time to go into all the details that I know you could talk about. But it does seem like Sprint and T-Mobile, in part because they’re the smaller ones, have historically been a little bit more innovative. And in having that merge, we could lose that.

Again, if Sprint goes away and T-Mobile would become just about as big in customer size. Verizon has about 110 million customers. AT&T a little under 100 million. This combination, depending on whether there are divestitures or not, would be again around 100 million. So all of a sudden, it’s of equal size and power to the other two. Do you think that the incentives are going to be to try to continue to undercut it? No. And it’s really important. So in the soap opera, that is this merger, you see that every time that there’s bad news for the merger, not only do Sprint and T-Mobile stocks go down, but Verizon and AT&T stocks go down. And while Wall Street is not necessarily magical, what it’s saying is that Wall Street believes that this merger is good for AT&T and Verizon because it will lead to greater coordination between the three companies and higher prices. In other words, T-Mobile will no longer be the feisty un-carrier trying to undercut those two companies, but they will work in concert with them.

The second weird thing that happened was that 14 States Attorneys General, including the Attorney General of the District of Columbia, which I live there, so I consider it a state, have sued. So they went ahead of the Department of Justice and they’re suing to block the merger. So that’s weird thing number two. Weird thing number three is that for the past, I’d say three weeks or so, three or four weeks, the Antitrust Division is trying to broker an agreement where they basically create a new, I call it like a Frankenstein monster, a new fourth carrier, right? Rather than block the merger, so we have four carriers already, rather than blocked the merger, and if Sprint wants to get out of the market, it could sell its assets to somebody else, is trying to kind of cobble, boost Mobile here and some Spectrum there, and sort of create this new fourth carrier.

And that’s just unprecedented, at least in this country. Supposedly, they did it in Italy. I’ve heard mixed things about whether it has succeeded or not, but it’s now been, like I said, three weeks, a month now that they’ve been trying to create this Frankenstein monster. It doesn’t seem to be happening, but depending on what report are you listened to, either, a deal is imminent or it’s never happening. So it’s just the whole thing is strange, most particularly the fact that three FCC Commissioners would come out in favor of a merger, when at least two of them have not even seen the decision. So the FTC Chairman has not sent around his decision approving the merger. And so that’s this really, that’s weird. And frankly, I think that’s wrong. I mean that’s highly irregular, but put the state’s lawsuit on top of that, and this Frankenstein process on top of that, and you have an unprecedented situation as far as merger review is concerned.

I’ve been urging making Delrahim to follow his predecessor and push away, as he applies pressure, push away whatever pressure is coming from the White House. Supposedly, there is, it’s not coming from the President, he’s got other things on his mind. And just do the right thing and join the states to block this merger. But we’ll see what happens.

Now, we’re going to get back to our discussion about the Sprint and T-Mobile merger, and we’re going to branch out a little bit, so let me bring Hibba back into it. Hibba, what did you think about the Gigi discussion? Did you have any takeaways from it?

And oddly enough, Gigi Sohn’s group, Public Knowledge, was really essential in making that happen. But I think, even a situation in which we lose this, the question will be how do we move on to the next thing? I think people really have to think about these issues as a longterm fight to build local power to stop monopoly. That means that even if we lose battles, we figure out how to move forward as best we can. Because what’s important is the longer issue of who has power in this country, our communities, or the big centralized businesses, or even centralized political power elsewhere. I think there’s tremendous hope to stop this merger, and I think that one of the things I’m hopeful about is that as we’re fighting these mergers, we are focused on how we can build the bigger movement for stopping monopoly in general.

If there’s an infrastructure plan in 2021, where government wants to try to create Smart infrastructure, that could drive investment. But as to the merger, I think there is a good case to be made that it would accelerate T-Mobile’s investment, and then that would accelerate AT&T and Verizon’s. But a big question mark to me is whether the current negotiations between T-Mobile and Dish result in a deal between the two of them, and then the deal will almost certainly pass scrutiny by the Department of Justice, then it has to get through the litigation with the states. But if all that happens and Dish is investing at the same time, particularly, because Dish will be investing in a brand new network without legacy and networks, that could accelerate investments.

The second thing I would say is Wall Street, and this is one reason I really actually enjoy working with Wall Street investors, is they actually care about real facts. They care about real data, they care about real things, and they’re not heavily influenced by soundbites, because if you make investment on the basis of sound bytes, you are going to lose all your money, and then you won’t have a job. On the other hand, there are people in Washington who always make decisions based on soundbites, and they managed to keep their job. So it’s a very different kind of situation, and I definitely prefer the environment in which there is a premium on actually being accurate.

In the telecom space, people like Craig Moffett have been around a very long time. They know the business. They’re not always hard on the stock picks because that’s about probability, but you can trust their numbers to be more accurate, and certainly they’re much more logical. When I read speeches by policy makers in Washington, I’m constantly finding logical flaws, flaws of data, etc. I don’t find that when I read competitors’ works, which I sometimes get to do.

So I would say if you read any one analyst, you’re probably better off than reading any speech by a government official.

One of the really interesting things that is not being discussed in the Sprint/T-Mobile deal, but I think is an interesting policy point, is there… One of the arguments T-Mobile makes is that Sprint can not survive as a 5G competitor. This is not a failing firm defense, but it’s what we refer to as a flailing firm defense, which is, as the industry moves forward, Sprint won’t be able to move forward. I think it’s an interesting question whether in a world of 5G, whether a lower priced 4G company would put some price constraints on 5G services. I don’t know the answer to that. Intuitively I think it would, but I think that’s what, that requires a lot more economic analysis before I would make an answer, but the question is, from a consumer perspective, if you had a choice of 4G at $40 or 5G at $80, which would you buy? And would that $40 4G service cause 5G prices to be lower?

My point is simply that the money has to come from the sale of services in the future. And by the way, as we’re talking about investment, there could be, the merger could lead to a short term significant investment, but maybe longer term it would slow down investment because if you have three players, traditionally you get less investment than if you have four players, so…

Another thing they talked about is autonomous vehicles. There was no car company that is building a car to be an autonomous vehicle that will depend on 5G. Zero. And the reason is very simple. You can’t build it unless you are 100% certain that by the time the car was on the road, 100% of all roads would have 5G service. That’s never going to happen. Are there some benefits of 5G to autonomous vehicles? Yeah. One of the really interesting things to me about 5G is that the wireless industry shows, and they were making reasonable business judgements, to use the friendliness of the FCC to get a little bit of money from the cities, about three billion dollars, which in the context of a 100 billion, 200 billion, 300 billion dollar capital expenditure for 5G, isn’t that much money. But they have now completely pissed off one of the largest potential buyers of 5G services with our cities. Cities are part one of the few institutions that have tremendous mobility needs, police, fire, trash pickup, etc. and can use 5G in all kinds of ways to improve the way traffic flows and other kinds of services. And instead of working with the cities to make that happen, they got the FCC to essentially do a wealth transfer in which cities have to turn over billions of dollars, a few billion dollars, and the companies don’t have to do anything.

I think this is a huge mistake for lots of different reasons. But one of them is cities should be one of the big drivers of 5G, and we’re not focused on that at all. Instead we’re focused on some things that actually don’t matter.

Currently you can’t sue your phone company if there’s some bad consequence of the service going down for five seconds. But the contracts, and I, like anyone else, I’ve never read the contract, but I’m 100% certain that AT&T and Verizon have something in that, or T-Mobile, have something in it that says they’re not liable. But that’s part of the reasons why it’s highly unlikely that a surgeon will rely on it, or… They’re going to rely on private networks that do make those kind of guarantees as opposed to a best efforts network that simply says well do our best.

It’s also a good reminder that we don’t know exactly what will happen as a result of different mergers. I have opposed many mergers, and they have not all been awful. And frankly, some of these mergers that we’ve seen, like AT&T/Time Warner, I think there’s less of a concern that AT&T will ruin the broadband market, although they’ll try, than that they’ll just destroy HBO as being a wonderful source of video content because of their terrible management. So these things have many different factors, and sometimes we get too focused on one or two of them, and it’s worth remembering that.

But I wanted to force a recommendation in here, even though we don’t always do that. And that’s because I’m very excited about a new report that we just put out about rural broadband. We did this report 18 months ago or so showing where co-ops are offering fiber optic service across the United States. We’ve updated that with the most recent data from the Federal Communications Commission. My colleagues, Katie, Hannah Trostle, and Hannah Bonestroo, did really great work showing how much growth there’s been, and oh boy, I’ll tell you, there’s actually more hope for high quality broadband in rural America than there are in our cities, frankly, where many of us are going to be stuck with the cable monopoly for a long time. So that’s up on our site. The report is called Cooperatives Fiberize Rural America, a Trusted Model for the Internet Era. And that will be something we link to, but also you can just find with a search and make sure you’re looking at the 2019 version.