And Then There Were Three

The Justice Department, at least, has signed off on it:

The Department of Justice announced Friday that it has reached an agreement on the more than $26 billion merger between T-Mobile and Sprint.

Following the announcement, shares of T-Mobile and Sprint hit new all-time highs of $85.22 and $8.06, respectively. Shares of Dish Network climbed as much as 3.5%.

As part of the agreement, Dish will pay $5 billion for a combination of divested assets including Sprint’s Boost Mobile, Virgin Mobile and other prepaid phone businesses, as well as some of Sprint’s wireless spectrum. T-Mobile will make at least 20,000 cell sites and hundreds of retail stores available to the company. Dish will also be able to access T-Mobile’s network for seven years.

Makan Delrahim, head of the DOJ’s antitrust division, said without these remedies, the merger would “substantially harm competition.”

“Americans’ access to fast, reliable and affordable wireless connectivity is critically important to our economy and to every American consumer and to their way of life,” he said at a news conference announcing the agreement.

Delrahim added that the agreement establishes Dish as a “disruptive force in wireless.”

I was staunchly opposed to the AT&T/T-Mobile merger from a few years back, and while I don’t like this one it’s not nearly as bad. The biggest problem with the AT&T merger is that it would have created more distance between the top two and the third, running a serious risk of Sprint PCS (then #3) folding and ending up with a duopoly. That’s less likely here and we’re going to continue to have at least three national carriers. Exactly three, probably.

The concession here is weak. Given how much more difficult it will be for Dish to break into the cell market than it would be for Sprint PCS and T-Mobile to stay afloat, the likelihood that we’re going to end up with the arrangement this compromise is supposed to avoid just went up. Further, having four can make a difference. When T-Mobile was in last place, they experimented and tried new things and we ended up with the end of cell phone contracts as we knew them as other companies had to follow suit.

The cell phone market is one of those few areas where, historically speaking, consolidation has been a positive force. When things were getting started we had a ton of different local carriers and as they started buying each other up the networks started becoming larger. Roaming fees went from a fact of life to aberration or something you only have to worry about internationally. But there are limits to this, and four carriers was better than three. (Five might even be better than four, definitely better than three.)

I can be talked down from this view, but I am coming around to the idea that all of the carriers should be broken up. Or, more precisely, the networks should be separated from the carriers, and the carriers should be intermediaries. We saw this for a while when it came to prepaid carriers. It was revolutionary in that it meant that people no longer had to shell out $100 a month to get some minimum plan that included far more than they needed. The market remains changed, but the biggest prepaid are now owned by the big boys (AT&T owns Cricket, T-Mobile owns Metro, Sprint owned Boost until just now) with only TracPhone (StraightTalk) as the major independent dealer.

My general sense is that if the networks were selling to the carriers and the carriers were selling to us, there would likely be more innovation and, counterintuitively, more interoperability over time. Having more companies selling to consumers would allow for more companies to try more different things but without the network fragmentation of 20 years ago. There would also likely be more pressure on on both sides to reduce incompatible parallels as the incentives to lock in would be there only to a lesser degree.

On the other hand, the system may be working fine as-is. Given how broad our country is, it is almost miraculous that we have the degree of coverage that we do. And while creative models have been available for consumers for a while now, something on the order of 90% of consumers still have – and seem to prefer the bloated inclusive plans. Or on the other side a new model, like Republic Wireless or Google Fi (or even something Dish comes up with), and everything gets shaken up no matter what they do.