Cellular

Consumers Worry That Sprint, T-Mobile May Revive Merger Talks

Renewed speculation about a possible merger between Sprint and T-Mobile is causing worry among mobile phone customers and consumer advocates, though some industry observers say it may be the only way for those cellular carriers to compete against industry giants Verizon and AT&T.

A previous attempt by Sprint to buy its rival fell apart in 2014 under pressure from the Federal Communications Commission. But Wall Street and consumer advocates believe a deal may be possible under the incoming Trump administration.

Merger speculation was fueled this week when president-elect Donald Trump met with Masayoshi Son, the CEO of Sprint’s parent company, a Japanese conglomerate called SoftBank. Trump and Masayoshi Son were all smiles after the meeting, as they announced a SoftBank promise to invest $50 billion in the United States, potentially creating 50,000 jobs. There was no indication that any of that money would be used for Sprint projects.

Softbank paid more than $20 billion for Sprint in 2012. But when Sprint went after T-Mobile, the FCC essentially blocked any deal.

“Four national wireless providers are good for American consumers,” said FCC head Tom Wheeler in August 2014. “Sprint now has an opportunity to focus their efforts on robust competition.”

Earlier in 2016, Son said he was still interested in T-Mobile, though no active negotiations have been announced.

Stock investors are clearly betting the merger will gain new life: After the meeting, Sprint stock reached a 52-week high of $8.86, while T-Mobile hit a yearly high-water mark of $55.99. (Both stocks had been trending upward since the election.)  

What Customers Say

Consumer advocates tend to look skeptically at consolidation, especially in a market that’s as tightly concentrated as cellular, with Verizon, AT&T, T-Mobile, and Sprint dwarfing all their competitors.

"Having four providers has been a boon for investment, consumers, and the public interest,” says Michael Copps, special advisor to the watchdog Common Cause, and the FCC chairman from 2001 to 2011. “Permitting two of the top four mobile carriers to combine would be heading in exactly the wrong direction. That could only drive up consumer costs and limit consumer choice. The answer is not just 'No' but 'Hell no!'"

Many consumers feel the same way. We asked T-Mobile customers about a potential merger on our Facebook page and within a few hours received more than 100 comments. The overwhelming majority liked their T-Mobile service and had problems with Sprint.

One Facebook use summed up the feelings of many: "Used to have T-Mobile and loved them. Made the switch to Sprint to cut costs. HUGE mistake, it's horrible and their customer service is like talking to pavement.”

Another user said simply: "This makes me want to cry." And a third commenter wrote, “If Sprint buys T-Mobile, I'm leaving T-Mobile. I hate Sprint. Worst customer service EVER.”

Those comments echo the results of Consumer Reports’ huge annual survey on cellular services. In our most recent study, Sprint finished last among the four major carriers in consumer satisfaction, while T-Mobile ranked first, taking over from perennial leader Verizon. (As in recent years, all four lagged far behind smaller providers such as Consumer Cellular and Ting.)

The Consumer Case for a Merger

But not all observers of the cellular business think a merger would spell trouble for consumers. Verizon and AT&T dwarf Sprint and T-Mobile, which together account for less than one-third of all cellular subscribers in the United States.

Peter Jarich, chief analyst at Current Analysis, a digital-technology research firm, says the smaller companies could find it hard to stay afloat in years to come.

“We’ve had these non-stop price wars, and that’s been great for the consumer,” says Jarich. “But as we go forward, the question is how difficult is it for stand-alone companies to compete against Verizon and AT&T?”

He says that a combined Sprint-T-Mobile might be better positioned to face major challenges ahead, ranging from potential competitors in the wireless market—such as cable companies and Google—to the expensive work of upgrading their networks to the next generation of technology.

“Rolling out 5G isn’t cheap,” he says.

Harold Feld, senior vice president of the advocacy group Public Knowledge, opposed an earlier potential merger between T-Mobile and AT&T. But now he says a Sprint-T-Mobile deal has both pros and cons for consumers.

“What has changed since the FCC and the Department of Justice signaled they would not look favorably on a Sprint-T-Mobile deal back a couple of years ago, is that both AT&T and Verizon have been bulking up on content,” Feld says.

Just this week, AT&T and Time Warner executives spoke at a Congressional hearing about the cellular company's plan to buy Time Warner, which owns CNN and HBO.

“For consumers there may be an argument that it’s valuable to have a stronger wireless company that is not affiliated with any other line of business—a pure mobile company—and therefore will compete on the basis of price rather than product differentiators like zero rating their own content,” Feld says.

Zero rating is when content such as movies downloaded over a cellular network isn't counted against the consumer's data limit.

On the other hand, Sprint and T-Mobile both serve a substantial number of low-income consumers and people of color who might suffer from a merger, according to Feld.

“For a number of communities we’d be going down from two strong competitors actively soliciting their business to one, and that’s never a happy situation.”

The incoming Trump administration has sent mixed signals regarding mergers of this type. Before the election, Trump spoke out against the AT&T acquisition as well as a merger between Comcast and NBC Universal.

“We'll look at breaking that deal up and other deals like that," he said in October. "That should never, ever have been approved in the first place. They're trying to poison the mind of the American voter.”   

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