A better case for the Sprint/T-Mobile merger

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Article Highlights

  • Strong arguments favor allowing Sprint to acquire T-Mobile, but claim that performance of mobile market is 'terrible' isn't one

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  • The U.S. mobile broadband market is one of the most competitive, and best performing, in the world

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  • In the wireless industry competition focuses more on innovation than on price, economies of scale and scope are essential

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There are strong arguments in favor of allowing the third largest US wireless carrier, Sprint, to acquire the fourth, T-Mobile, but Sprint Chairman (and Softbank CEO) Masayoshi Son's assertion that current performance of the U.S. mobile market is "terrible" isn't among them.

Son is the entrepreneur who founded Japan's SoftBank and has built it into a multi-billion-dollar broadband provider through a combination of innovation and savvy deal making — the latest example being the $21.6 billion acquisition of Sprint last July. Now he wants to add T-Mobile, and has been making the rounds in Washington trying to talk regulators at the Department of Justice and the Federal Communications Commission into allowing what would essentially be a four-to-three merger in the U.S. mobile wireless market. A central part of his argument is that the U.S. mobile market is delivering poor service at high prices. "Every time I make a business trip to the U.S., I am reminded how terrible connections are there," he said recently. "The U.S. has one of the world's highest mobile fees and competition isn't working."

Perhaps he should visit more often — or try using a different provider. The reality is that the U.S. mobile broadband market is one of the most competitive, and best performing, in the world. More than 90 percent of U.S. households have coverage from next generation LTE wireless networks, which are now being deployed by all the major U.S. carriers, including Sprint and T-Mobile. That puts the U.S. in a virtual tie with Japan and South Korea for the most widely available mobile broadband coverage in the world. The U.S. is also tied with Japan for the highest LTE penetration, with 20 percent of subscribers using LTE connections. Only South Korea, at 46 percent, has more.

International pricing comparisons for mobile broadband services are notoriously difficult, thanks to variations in business models (some countries rely more heavily on handset subsidies than others) and usage (Americans use twice as much mobile data as Europeans). But according to the OECD, which surveys prices for a variety of different bundles and service, U.S. prices are lower than those in Japan for nearly every basket, and lower on average by 35 percent.

Both American and Japanese consumers have much to be thankful for, especially compared to Europe, where LTE deployment has lagged far behind, with many countries only now starting deployment, average download speeds half as fast as in North America, and fewer than two percent of customers subscribing. As EU telecoms Commissioner Neelie Kroes has admitted, "Once, Europe led the world in wireless communication: now we have fallen behind."

The notion of a Sprint/T-Mobile merger has thus far gotten a thumbs-down from U.S. regulators: Both antitrust head Bill Baer and FCC Chairman Tom Wheeler have expressed concern that such a deal would make the U.S. market less competitive, driving up prices for consumers. They are likely wrong about that: In the wireless industry, as in the rest of the Internet ecosystem, competition focuses more on innovation than on price, and economies of scale and scope are essential. He can also remind regulators that SoftBank has been a leading innovator in mobile content and e-commerce in Japan, and argue that combining T-Mobile with Sprint will allow it to bring the benefits of such innovations to more U.S. consumers more quickly.

Mr. Son is scheduled to address these issues in a March 11 speech at the U.S. Chamber of Commerce in Washington. One hopes he will dispense with factually challenged arguments about the current state of the mobile wireless market, and focus instead on how the proposed deal could make it even better.

Jeffrey Eisenach is director of the American Enterprise Institute's Center for Internet, Telecommunications, and Technology Policy.  He consults for several communications firms in the U.S. and abroad, but is not involved in the proposed Sprint/T-Mobile merger.

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