Sprint Boss’s Statements Undercut DOJ Claims

Published October 10, 2011

Like a football quarterback under siege, Sprint CEO Dan Hesse is shouting out some strange audibles. He’s reversing past pronouncements about the risks of market concentration and is even reinterpreting the U.S. Department of Justice’s views about T-Mobile’s possible merger with AT&T.

Sprint has pointed to the DOJ-endorsed Herfindahl-Hirschman Index of market concentration to explain why the proposed merger of AT&T and T-Mobile should be blocked. But at an investors’ conference in September, Hesse suggested something altogether different: that market concentration doesn’t matter so long as Sprint is the one gaining market power.

“My view is [the Justice Department] would look at other consolidation very differently,” Hesse said by way of explaining away the forecasted market concentration that would result if T-Mobile were to combine with Sprint instead of AT&T.

A little PR flourish might be understandable as part of the upbeat chatter at an investors’ conference. But Hesse’s suggestion that DOJ doesn’t mean what it says about preserving T-Mobile–and therefore might approve a Sprint takeover of the Washington-based carrier–indicates his opposition to the AT&T transaction has much more to do with hurting a rival than limiting market concentration or preserving consumers’ choices.

The gap between Hesse’s interpretation and the DOJ’s own statements gives new meaning to the word “unbridgeable.” According to the Wall Street Journal, here’s what Hesse told the investors’ conference on September 20: “I don’t believe that what the DOJ said in any way, not even a little bit, should be viewed as we want to keep four [wireless providers].”

But here’s what DOJ said in its August 31 filing to block the merger: “T-Mobile in particular … places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition. AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market.”

Hesse seems to believe DOJ has one set of antitrust rules for AT&T and Verizon and another set for Sprint, presumably because Sprint is seen as a little guy. But that’s a tough sell when one considers that in combination with its business partner Clearwire, Sprint holds twice as much available spectrum as either of its two top rivals.

Here’s a key point Hesse apparently wants us to forget: DOJ’s job is to protect competition, not to choose one merger partner over another or to favor any individual company. In its brief against the AT&T/T-Mobile combo, DOJ describes T-Mobile as an innovative “maverick” whose presence imposes competitive constraints equally on Sprint and its larger rivals. If DOJ believes eliminating T-Mobile is bad for consumers, the acquirer doesn’t matter.

Perhaps Hesse believes T-Mobile’s days are numbered no matter what DOJ prefers. That would be a reasonable conclusion given that Deutsche Telekom, T-Mobile’s parent company, says it wants to get out of the U.S. market and focus its investments in Europe. In fact, it’s hard to find anybody in telecom circles who shares DOJ’s seeming confidence in T-Mobile’s continued independence.

Or maybe Hesse is suggesting (correctly in my view) that a smaller number of carriers in the marketplace is not in itself bad news for consumers. After all, prices for wireless services have been falling steadily over the past decade despite a wave of consolidation. The devices and services available by wireless are light years better than what consumers were experiencing even five years ago, before smartphones, tablets, and e-readers signaled a new frontier in mobile communications. Based on that logic, an AT&T/T-Mobile combination will deliver significant consumer benefits.

Bottom line: Hesse can’t have it both ways. If consumers are worse off if T-Mobile merges with another wireless carrier, the diagnosis doesn’t change because Sprint is the partner instead of AT&T. But if the number of competitors by itself isn’t decisive, then the AT&T deal with T-Mobile should pass muster.

Either way, instead of acting as if he speaks for DOJ or daydreaming about buying T-Mobile, Hesse might be better off figuring out what to do with all the spectrum assets his company already has.

Jim Lakely ([email protected]) is co-director of the Center on the Digital Economy at The Heartland Institute.