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T-Mobile’s Corporate Hypocrisy

The mobile carrier's argument for merging with Sprint is disproven by its success in recent years—and its CEO's past statements.

David Becker/Getty Images

T-Mobile has been looking to get hitched for a long time. Back in 2011, the telecom company tried to merge with AT&T, but President Barack Obama’s Justice Department blocked the deal on the grounds that it would increase prices for consumers and reduce innovation. Three years later, T-Mobile cozied up to Sprint, but the Obama administration again indicated it didn’t want to reduce the number of major wireless carriers in America to three.

So T-Mobile tried something novel: It started to attract cell phone customers with lower prices and superior quality.

T-Mobile’s “Un-carrier” campaign took shots at hated industry practices, killing two-year contracts, eliminating data overage fees, adding free call and data service in Canada and Mexico, letting customers upgrade their phones at any time, and finally moving to unlimited data plans. The company became so good at stealing subscribers that the other three major carriers—AT&T, Verizon, and Sprint—copied all of these tactics, expanding options for cell phone users, bringing down prices, and improving service. The result was a rare competition success story in an age of corporate concentration.

So why should antitrust officials, under President Donald Trump, look differently at another proposed T-Mobile merger with Sprint today? Sprint and T-Mobile argue that combining forces “would allow them to create a better so-called 5G network than either company could alone, at a time when the White House views a 5G wireless network as crucial for the country’s economic and national security,” The New York Times reported. “The two companies also contend that the wireless business is changing, with new competitors like Comcast finding ways to enter the mobile sector.”

But T-Mobile’s own CEO, John Legere, has repeatedly dismissed these very arguments in past comments to investors. And the notion that T-Mobile will use its profits to invest in better network infrastructure is at odds with the recent history of the telecom market.

Legere, the brash T-Mobile leader, said in a statement on Sunday that wireless, cable, and broadband have all become the same basic business. “This isn’t a case of going from 4 to 3 wireless companies—there are now at least 7 or 8 big competitors in this converging market,” he said, citing Comcast’s move into mobile phones through its Xfinity service and Charter Communications’ expected entry this year.

But as the subscription-based website The Capitol Forum first uncovered, Legere said in an earnings call last April that Comcast’s wireless play is “the biggest non-announcement in the history of the wireless industry,” calling it “confusing,” “expensive,” and “a charade.” “They’re going to fail miserably in this industry,” he concluded. In February, he told investors a similar story about Comcast: “I think they’re incompetent and they don’t belong in wireless… The furthest thing from my mind is any concern about the impact of cable.”

The actual data on Comcast’s wireless business bear Legere out. Comcast has a mere 577,000 subscribers; T-Mobile has added 5.7 million over the same period, and had a total of 72.6 million by the end of 2017. A T-Mobile/Sprint merger would give the combined company around 100 million customers, bigger than AT&T’s 93.6 million and rivaling Verizon’s 116.3 million. Compared to this, Comcast is a flyspeck, and Charter hasn’t even gotten started. Neither company has built its own wireless networks, instead piggybacking off Verizon’s—hardly a path to disruption.

Importantly, Legere’s previous statements that cable companies couldn’t possibly enter the wireless industry pre-suppose that cable and wireless are separate markets. He will get pummeled with these comments if the Justice Department challenges the merger.

The 5G argument fares just as badly. It’s true that the Trump administration has been preoccupied with a secure next-generation wireless network, even making it a formal national security priority. By teaming up, Sprint and T-Mobile claim they’ll be able to make investments in 5G faster, accelerating the timeline for deployment.

This doesn’t square with the fact that T-Mobile will be acquiring Sprint’s considerable debt, which will detract from investment possibilities (joint debt would total $77 billion, according to a presentation from the two companies). But the biggest impediment is that trust telecom companies have been promising large investments in infrastructure for years, without following through.

Years ago, Verizon promised that they would build out a fiber optic network if they got tax breaks they requested. They got the tax breaks and didn’t build out the fiber. Similarly, AT&T has promised fiber deployment for years, while only building the infrastructure to a few housing developments and cutting investment elsewhere.

Last year, the same companies promised 5G build-out, in exchange for the Trump tax cuts. They got the tax cuts. Now T-Mobile and Sprint say they need to merge in order to build 5G—even though both companies previously promised their 5G would be ready by next year.

T-Mobile and Sprint are also playing on Trump’s jingoism, claiming that if the merger dies, South Korea and China will take the lead on 5G. This is a bizarre claim to be made by T-Mobile, owned by a German telecom, and Sprint, owned by Japanese conglomerate Softbank.

We’ve already seen Softbank’s CEO Masayoshi Son flatter Trump by promising $50 billion in U.S. investment. T-Mobile and Sprint are also vowing to open more stores (particularly in rural communities) and create thousands of new jobs, both in retail and in building the 5G network. But analysts also expect cost savings of $43 billion from the deal, suggesting less and not more overall investment. Companies don’t typically merge to create more jobs; they want to eliminate redundancies and reduce payrolls.

Trump’s Justice Department is challenging AT&T’s purchase of Time Warner in court. It’s investigating whether AT&T and Verizon have colluded to prohibit consumers from easily changing wireless carriers. At the staff level, the same antitrust officials who rejected a T-Mobile/Sprint tie-up in 2014 still work there. If the department somehow waves this through, you would have to see Softbank’s overtures to Trump, and the highlighting of America keeping the lead in 5G, as the contributing factor.

The biggest reason to reject this merger, and all the claims from T-Mobile and Sprint that it would lead to positive benefits, is the transformation that T-Mobile has undergone since 2014. Unable to merge with a competitor, the company instead innovated, outfoxed the bigger players, and succeeded wildly. What’s more, consumers got better mobile-phone services at a more affordable price. The Justice Department’s opposition to T-Mobile mergers proved wise—if only the company’s executives could see it.