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DOJ Proposal May Result in Four Competitors While Avoiding Possibility of Only Two

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In a Tunney Act filing, “Preserving Wholesale/Resale Competition and Reducing Barriers to Future Facilities-Based Competition,” TPI President and Senior Fellow Scott Wallsten, weighs in with more original analysis of the proposed T-Mobile-Sprint Merger.

Testifying before a House Judiciary panel on the combination in March, Wallsten deflated the 4-3 merger arguments deployed by many merger critics, stating that little evidence supported a challenge of the merger. But he raised concerns about the companies’ “outsize shares” in wholesale and resale markets potentially harming low-income customers who tend to prepay for wireless.

The DOJ’s Proposed Final Judgement addressed these and other issues by locking in MVNO agreements, requiring divestment and lowering barriers to entry for DISH to grow as a facility-based provider.

How all of this turns out in the long run depends a lot on how the economics of 5G develops, and if DISH can make an impact in the market.  It is on this question that Wallsten’s analysis breaks new ground again: 

“If the claim of needing very large scale is correct, then DISH is unlikely to succeed and poses a minimal threat. However, in this case, allowing the merger is the correct policy because neither T-Mobile nor Sprint would be able compete effectively in the 5G world, leaving two major competitors. If their claim is incorrect and scale in 5G provision matters less than the parties believe, then T-Mobile by itself could be competitive and Sprint might survive. Because we cannot know for sure how industry economics will evolve, DOJ’s proposals create a kind of insurance policy: allowing the merger in case such scale is necessary, but reducing entry barriers for DISH in case minimum efficient scale turns out to be less than the parties predict. In other words, the DOJ proposal avoids the possibility of having only two competitors while increasing the possibility of four, depending on how the economics evolve.”