The Department of Justice has reached a settlement with Sprint and T-Mobile allowing their merger to proceed. Now experts are debating whether this is good news or bad for consumers.
The DOJ granted its approval and the Federal Communications Commission (FCC) recommended the merger go forward on the condition that the combined Sprint and T-Mobile company build out 5G to reach 85 percent of rural Americans within three years, and 99 percent of all Americans within six years.
A senior FCC official told reporters in a press call that the merger will “help bridge the digital divide” and significantly advance 5G. “It’s worth noting that T-Mobile and Sprint have committed to a robust buildout of mid-band spectrum holdings,” the official said. “[They promised] their network would cover 88 percent of our nation with mid-band spectrum offering, including two-thirds of rural areas.”
If they fail to meet these deadlines, the combined company faces multibillion-dollar fines. For example, if the combined company doesn’t purchase mid-band spectrum licenses to build out 5G, they face a $360 million fine, according to the settlement filing with the DOJ. Sprint and T-Mobile also promised not to raise their mobile rates for three years after the merger.
But as the DOJ press release notes, T-Mobile is a $43 billion company and Sprint is a $32 billion company, so the fines are small by comparison.
Sascha Meinrath, the Palmer Chair in Telecommunications for Pennsylvania State University, thinks the merger will cause mobile rates to rise in the long term. He also believes it will hurt telecom competition in rural areas, especially in Pennsylvania.
“In Pennsylvania, you basically have Verizon and AT&T in the big cities and a combination of Sprint, Verizon and T-Mobile outside of the big cities,” he told InsideSources. “They’ve already divvied up the environment but in many ways, you could end up with one or two providers mostly throughout the state. Right now you’re talking about two or three providers in rural areas, and then you’re talking about [going to] one or two. That’s a meaningful change.”
Because many rural areas don’t have the fiber optic cable infrastructure to provide the backbone for 5G, a 5G buildout into rural areas is going to be much harder than the FCC suggests.
“It’s not realistic for a variety of reasons,” he told InsideSources. “There’s no 4G in a lot of rural communities, there’s not even 3G in a lot of rural communities. The first thing we need to do is say, what is the realistic, on-the-ground measure today to measure internet speeds against?”
At the heart of the problem are the FCC’s flawed broadband maps that don’t accurately chart who has internet access and at what speeds. Meinrath and a team of researchers recently developed their own broadband map of Pennsylvania and a prototype allows other states to create their own as well.
Because rural areas will require a massive hundred billion dollar investment to get 5G, Meinrath said Sprint and T-Mobile would most likely swallow the DOJ fine and focus their 5G efforts on more densely populated areas, like cities.
“If you have another $10 billion to invest, you’ll invest it in the place with the highest profits,” he said. “Even if there are profits in rural communities, there’s more to be made in dense urban environments. And that’ll be where the next $10 billion–or $100 billion–goes. It’s a hedge. They’ll pay $2 billion but make $5 billion, totally worth it.”
Tom Struble, the R Street Institute’s Technology and Innovation Policy Team Manager, said the merger may hurt competition in the telecom industry but thinks it’s unlikely. Overall, he thinks the merger will be good for consumers.
“I think AT&T and Verizon will probably cut their prices in competition with the new combined T Mobile-Sprint,” he told InsideSources. “I don’t think prices will go up, at least in the short term. AT&T and Verizon will legitimately face stronger competition from T-Mobile and lower or at least keep their prices steady.”
Struble also said the merger will intensify competition in the home broadband market and may improve the combined mobile-and-home-internet market overall in the long term.
A combined Sprint and T-Mobile, he said, will be poised to compete directly with cable companies like Comcast and Charter. In many rural areas, Comcast is the only home broadband provider and delivers poor service while engaging in fraudulent billing practices.
“They’re very well positioned to go into the home broadband market and take customers away from Comcast,” he said. “It’s [going from] two to three providers in the home broadband market. Even if we’re losing competition on the mobile wireless side, we’re gaining competition on the home broadband market. And as these two markets converge, we’ll see them go after each other. Comcast and Charter are already offering their own virtual mobile networks, so I think there’s convergence already. It’s a more dynamic ecosystem than it was even five years ago. I think that was a big part of what swayed the FCC and the DOJ to approve this merger.”
As for bringing 5G to rural areas, Struble thinks Sprint and T-Mobile’s combined spectrum holdings will allow them to make the investments necessary to build out 5G, but to do so, the FCC will need to improve and update its inaccurate broadband maps.
Others aren’t so sure. The Rural Wireless Association said in May that there is no reason to believe T-Mobile will reliably build out 5G into rural areas because their track record in rural areas is so poor.
“T-Mobile has a history of misleading the [FCC] — such as by overstating its rural coverage in the FCC’s Mobility Fund Phase II proceeding — and of ignoring its obligations to rural consumers — such as by failing to enter commercially reasonable bilateral roaming agreements and by failing to complete hundreds of millions of calls intended for rural America, for which it paid a $40 million-dollar in 2018,” the RWA said. “The proposed ‘penalties’ for failing to comply with the conditions offered are illusory and will not force T-Mobile to keep its promises, as the carrier will only be fined a small fraction of the $100-billion-plus of rural network buildout costs that it will take to meet the conditions imposed.”
The FCC can’t hold telecom companies accountable, as Meinrath pointed out, if they don’t have a reliable metric for gauging their 5G build out progress.
“Assuming they (the FCC) do their job and collect that data, then the 5G buildout will be very meaningful,” Struble said.