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3 weeks ago

News Source: vox.com
Trump Is Approving An Anti-competitive Merger That Will Cost You Money: But He Seems To Have Made Money Off The Deal Personally.
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Trump Is Approving An Anti-competitive Merger That Will Cost You Money

Sprint and T-Mobile, the No. 3 and No. 4 mobile phone companies in the United States, got the green light from the Trump administration on Friday to merge, a baffling decision that’s bad for ordinary Americans but suspiciously good for Donald Trump.

Sprint and T-Mobile currently compete at the lower end of the marketplace, offering cheaper prices for somewhat inferior networks compared to Verizon and AT&T. Merged, they’ll be able to raise their prices without losing market share.

In turn, this will reduce competitive pressure on Verizon and AT&T. Whether that reduced competition manifests itself in higher prices, less favorable terms of service, or slower investment in the next generation of improved technology is difficult to forecast. Regardless, going from four national mobile network service providers to three is clearly going to be bad for consumers — especially because the nature of this market is that it’s extremely difficult for a new competitor to just waltz in.

Nonetheless, Trump’s Justice Department — the same Justice Department that previously sought to block a much less obviously problematic telecom industry merger — decided to approve the purchase.

The overall idea is so obviously unsound that the conditions under which the merger was approved involve a convoluted effort to turn Dish, the satellite television company, into a fourth national mobile provider. But if maintaining the existence of a fourth provider is important (and it is!), then the solution is obvious: block the merger.

One has to suspect that Trump’s close ties to Sprint’s Japanese owner and T-Mobile’s sudden interest in patronizing Trump’s hotels may have played a role. What’s more, the decision to approve the merger casts a suspect light on the Trump DOJ’s earlier effort to stop AT&T from buying Time Warner, making that look more like political retaliation against CNN than sober antitrust analysis.

To understand the context for the deal, it’s important to know that Sprint and T-Mobile, though both second-tier players in the US mobile phone market, are both part of much larger global conglomerates.

T-Mobile, in particular, is the US subsidiary of a German company called Telekom that once upon a time was Deutsche Telekom, the state-owned telecommunications utility of West Germany. Way back in 2001, Telekom decided to enter the US market by buying a company called VoiceStream Wireless and rebranding it as T-Mobile.

After nearly 10 years of experimentation, Telekom reached the conclusion that the return on investment of being a second-tier player in the US wasn’t worth it. It wanted to sell the company (and its considerable assets in terms of infrastructure, stores, and built-in customer base) to someone else and then plow the cash into investing in its core markets or dividends for its shareholders.

In theory, you could simply spin off the company and sell it to anyone with cash. But as a freestanding company, T-Mobile is only modestly profitable — stuck with an inferior network to the big two and locked into competition with Sprint at the low end. The ideal customer for T-Mobile, from Telekom’s viewpoint, would be an existing player in the industry for whom it would make sense to overpay for T-Mobile because of the benefits of reduced competition.

In 2011, it found a willing taker for that deal in the form of AT&T — but DOJ and the Federal Communications Commission, acting as custodians of the public interest, wouldn’t let them.

And competition worked. Forced to try to make the best of things, T-Mobile adopted a new “uncarrier” strategy that helped drive down mobile phone prices and force Verizon to offer an unlimited data plan. Meanwhile, though T-Mobile’s return on investment continued to be less than what the bosses back in Germany wanted, the company was making money.

When Sprint announced in the spring of 2018 that it was going to merge with T-Mobile, the company’s stock fell immediately because markets’ instinct was to say the deal would never be approved. After all, not only had the AT&T deal set a precedent but the precedent turned out to be successful. What would change?

The reason that allowing the United States to go from four mobile phone providers to three providers is okay, according to the Justice Department, is that they have a plan to create a fourth competitor.

Specifically, Dish, the satellite television company — which already owns the minor player Boost Mobile — is also going to acquire Sprint’s prepaid subsidiary Virgin Mobile. What’s more, the new merged T-Mobile has committed to giving Dish seven years’ worth of access to its infrastructure to resell. That means that while there will be only three companies with a national mobile phone infrastructure, there will be four sellers of that infrastructure. Boost, meanwhile, is supposed to spend that seven-year window building out its own infrastructure. So ultimately, there will be four players after all and everything will be okay.

But it’s a bit of an odd bankshot solution to a problem when there’s a very straightforward alternative — don’t allow the merger. If you don’t allow the merger, then there will definitely be four competitors standing. If Dish wants to get into the mobile phone business and Sprint wants to merge with someone, maybe Sprint can merge with Dish (the other major satellite TV player, DirectTV, is already owned by AT&T). But fundamentally, the government doesn’t need to micromanage the details. It just needs to say that in order to preserve the principle of four mobile competitors, it’s not going to let any of the four players merge.

The Trump Justice Department has now made big conflicting decisions on antitrust that seem very hard to explain in terms of legal or economic analysis but easy to explain in terms of the president’s personal interests.

In November 2017, the Trump Justice Department somewhat unexpectedly sued to block AT&T from buying Time Warner. When that deal was initially announced in Obama’s final year in office, it was the subject of a fair amount of political controversy, but most legal experts expected the deal to be approved.

This was basically a so-called “vertical” merger between companies in related industries that didn't compete directly with each other, and the Justice Department normally approves such deals. But there’s been a lot of interest in recent years in strengthening antitrust enforcement, and plenty of people (including me) thought the Trump administration had this right on the merits.

The precedent AT&T cited for the deal was the Obama DOJ’s approval of Comcast buying NBCUniversal (which is one of several major investors in Vox Media), which was allowed to go forward under the stipulation that Comcast would abide by a laundry list of conditions. In practice, however, enforcing those conditions has proved difficult, so the idea that a simpler solution — block the deal — would be better made some sense.

But critics alleged that Trump was simply looking to retaliate against Time Warner for what he saw as unfair coverage by CNN, which Time Warner owns. That issue did not directly present itself in court, but the judge ruled in favor of the merger. Subsequent reporting by Jane Mayer indicates that Trump did order then-Chief of Staff John Kelly to have the merger blocked in order to punish CNN. In Mayer’s telling, however, economic adviser Gary Cohn subsequently told Kelly not to give the DOJ that order. Whether Kelly listened to Trump or to Cohn is unclear, though it’s also clear that Trump’s appointees at the Justice Department could have known the president’s views on this matter simply by reading his tweets.

Regardless of exactly what happened back then, it’s certainly difficult to understand why the administration would object to a gray area merger proposal on the grounds that conduct remedies had proven too hard to enforce and then approve a clearly anti-competitive merger on the grounds that a complicated series of conduct remedies will make it work.

Raising further eyebrows is that Masayoshi Son, the chair of Sprint’s Japanese parent company SoftBank, has been aggressively courting Trump since the lame-duck era, lavishing him with praise and visits.

Masa (SoftBank) of Japan has agreed to invest $50 billion in the U.S. toward businesses and 50,000 new jobs....

SoftBank has very close business ties to the government of Saudi Arabia. Trump has only vetoed five bills during his time in office, and four of them were about bipartisan efforts to distance the United States from Saudi Arabia. His finances are opaque, but he appears to have gotten a fair amount of Saudi money through his hotels.

And T-Mobile suddenly became a big customer at Trump’s hotels once it needed approval for a merger.

A consortium of 14 state attorneys general, led by New York, has filed suit in federal court to block the merger, citing the obvious anti-competitive impact of going from four wireless providers to three and arguing that the side deal with Dish is inadequate protection.

The litigation will mostly end up being decided on technical grounds, as antitrust lawsuits tend to be, but it at least potentially could be a venue for some politically ambitious AGs to try to ask deeper questions about corruption in the Trump White House.

And even if the attorneys general don’t go in that direction, congressional Democrats could. Many Senate Democrats, including presidential candidates Cory Booker and Amy Klobuchar, put out statements condemning the settlement on Friday morning. And the deal in an unusual way squares the circle between Democrats’ fascination with Trump’s potential personal misdeeds and a desire to focus on back-to-basics kitchen table economics.

It’s impossible to know for sure whether cash payments from T-Mobile influenced Trump’s decision-making, and — by design — it’s impossible for us to know how much other interested money has flowed into Trump’s pockets. But it’s clear that this arrangement has some kind of financial upside for Trump personally, while it’s far from clear where ordinary Americans should trust that the seven-year plan to create a new fourth competitor will safeguard their interests.