What the T-Mobile Merger With Sprint Means for Consumers

Bree Fowler  |  Consumer Reports

T-Mobile and Sprint Sunday unveiled a deal to merge in a bid to better compete with AT&T and Verizon, a move that also would shrink the number of major players in the cellular industry to just three.

For consumers, that consolidation brings with it the possibility of higher prices, according to analysts and advocates, though T-Mobile and Sprint deny that will happen. It also could spur faster development of 5G, the next generation of super-fast wireless connectivity.

The deal would combine two companies with different personalities and different reputations for how they treat customers.

Sprint sits with AT&T at the very bottom of Consumer Reports’ service and reliability ratings for 20 cellular providers, while T-Mobile is rated the best out of the current big four. The scores are based on ratings from 119,772 Consumer Reports subscribers reporting on experiences with their current cell phone service provider as of last summer.

All four companies lag far behind smaller services such as Consumer Cellular, Google’s Project Fi, and Ting.

The two companies have wildly different styles. T-Mobile, which is controlled by Germany’s Deutsche Telekom, has billed itself as the “Un-carrier,” with wacky promotions often featuring a perpetually magenta-clad Legere, who himself has become a social media star with more than 5.6 million Twitter followers.

Sprint, which is majority owned by Japan’s SoftBank, has struggled to pick up customers, and has focused on undercutting the bigger players on price. A basic service plan covering one phone with unlimited talk, text, and data will run you about $65 per month, about $10 cheaper than the other major carriers.

Sprint is also known for offering discounted leases on the latest premium phones, with the condition that customers commit to staying with the company for the duration of the lease.

Advocates warn that reduced competition could lead to higher consumer prices.

“This merger raises several red flags for consumers,” said Jonathan Schwantes, senior policy counsel for Consumers Union, the advocacy division of Consumer Reports. “Right now, Sprint and T-Mobile provide much-needed alternatives to Verizon and AT&T, with some innovative plans and pricing options that keep some semblance of competition alive. If you combine these two companies, those incentives and options could dry up.”

Sprint and T-Mobile have flirted with a potential merger for years.

Tom Wheeler, who served as chairman of the Federal Communications Commission from November 2013 through the end of the Obama administration, voiced opposition to a 2014 attempt by the two companies to combine and the passage of a few years hasn’t changed his view.

“I still don’t see how consumers benefit,” Wheeler told Consumer Reports. “It’s not hard to see how the companies benefit, but that should not be the standard for the FCC.”

The current FCC chairman, Ajit Pai, has indicated he doesn’t believe there’s an ideal number of cellular carriers for providing robust competition.

During a conference call for journalists on Sunday, T-Mobile CEO John Legere said the deal would result in a “larger, stronger competitor that will deliver for consumers,” and that the new, combined, company would “create robust competition and lower prices across wireless, video, and broadband.”

The all-stock deal combines Sprint, with a market value of $26 billion, with T-Mobile, which has a market value of $55 billion, under the leadership of Legere.

Legere and other executives said that a major goal in combining forces is to move rapidly in the emerging 5G market, which may start rolling out to consumers in a few markets this year. The combined companies hope to have more financial resources for an investment like this.

Proponents of 5G describe it as a cloud of connectivity that follows you when you leave your home, allowing for everything from simple conveniences such as the seamless streaming of music to vastly more complicated and high-stakes ideas like “smart” cities and driverless cars.

Legere also said the new T-Mobile will be a job creator, especially in rural areas, as the company builds out the infrastructure for the 5G network.

Craig Moffett, a senior research analyst and founding partner of the research firm Moffett­Nathanson, said the merits of the deal ultimately come down to a simple question.

“Is consumer welfare best maximized by ensuring the lowest prices, or by ensuring that companies are able to maintain the most up-to-date technology?” he asked.

“It’s not an easy question to answer.”

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