The Trump Administration Is Selling Out Hundreds of Millions of Cell-Phone Users
In the alliance of convenience between Donald Trump and the Republican Party, the division of labor is straightforward. With his Twitter blasts, trade war, and crusade to build a border wall, Trump garners the attention, dominating the headlines on a day-to-day basis. Attracting less attention, many Republicans who work in the Administration busy themselves enacting the Party’s more traditional agenda, which involves stripping away government regulations, cutting taxes, and doing favors for big corporations.
The events of Monday certainly fit this pattern. As usual, Trump spent part of the day online, attacking the media and his political enemies. Then he went to Pennsylvania for a political rally. Meanwhile, Ajit Pai, the chairman of the Federal Communications Commission, threw his support behind a merger of T-Mobile and Sprint, which could lead to higher prices for cell-phone users across the country. By midafternoon, the Wall Street Journal was featuring this story prominently on its home page, as you might expect. The Washington Post and the New York Times weren’t. Like the three cable-news networks, they were highlighting other Trump news.
Corporate mergers and antitrust aren’t exactly sexy subjects, of course. But according to the Pew Research Center, ninety-five per cent of Americans now own a cell phone of some kind, and they already pay considerably higher prices for service than people in countries such as Britain. That’s partly because, for years, the U.S. government favored a hands-off approach to the wireless industry, nodding through a series of mergers that left just four national carriers: A.T. & T., Verizon, T-Mobile, and Sprint. In 2011, A.T. & T. tried to buy T-Mobile, which would have reduced the number of big carriers to three. But the Obama Justice Department stepped in, suing to block the merger on competitive grounds. T-Mobile subsequently explored a separate get-together with Sprint, but the Obama Justice Department again expressed its disapproval.
After Trump was elected, T-Mobile and Sprint saw a chance to resurrect their courtship. In April of last year, they announced a prospective merger and said that they would seek federal approval. The day after the announcement, nine T-Mobile executives, including the company’s chief executive, John Legere, made reservations at the Trump International Hotel, on Pennsylvania Avenue, according to report in the Washington Post. T-Mobile subsequently confirmed that, since the merger announcement, it had spent $195,000 at the Trump hotel on “meeting space, catering, business center services, audio/visual equipment rental, lodging, meals, taxes and other incidental expenses.”
There is no suggestion that Pai’s backing for the merger was tied to T-Mobile’s patronage of the Trump hotel. A forty-six year old Republican lawyer, Pai was originally appointed to the five-member F.C.C. by Obama, in 2012, on the recommendation of Mitch McConnell, who was then the Senate Minority Leader. (Only three of the five commissioners can be from the same party.) In February, 2017, Trump elevated Pai to the chairmanship of the F.C.C., and even before his announcement on Monday, he had demonstrated his affinity for monopolistic network providers. In December of 2017, he and his two G.O.P. colleagues voted to abandon the net-neutrality rules that forced Internet service providers to treat all Web sites alike. This controversial policy shift was strongly supported by companies like A.T. & T. and Verizon.
In a statement issued on Monday purporting to explain why a combination of T-Mobile and Sprint would be beneficial, Pai emphasized commitments that the companies have made to build a 5G network that would cover nearly the entire country, including rural areas that are currently underserved. He also pointed to pledges from the companies not to raise prices for three years, and to divest one of T-Mobile’s prepaid plans, Boost Mobile.
Pai failed to mention that T-Mobile and Sprint were already planning to build 5G networks before they announced the merger, or that Boost Mobile represents only a small part of T-Mobile’s business. He also ignored the voluminous evidence, from the wireless industry and other sectors of the economy, that higher levels of concentration are associated with less vigorous competition and higher prices. “We’ve seen this kind of consolidation in airlines and with drug companies,” Jessica Rosenworcel, one of the two Democrats on the F.C.C., wrote on Twitter. “It hasn’t worked out well for consumers. But now the @FCC wants to bless the same kind of consolidation for wireless carriers.”
Since we are already down to four big wireless providers, would it really make much difference if the number were reduced to three? Actually, it would. A.T. & T. and Verizon are the two dominant players, with a combined market share of roughly seventy per cent. But in recent years, T-Mobile and Sprint have both competed aggressively with the big two and with each other, on price and other service features. Marketing itself as the “Un-carrier,” T-Mobile, in particular, has played the role of disrupter—allowing customers to buy their own phones, eliminating annual contracts, and ditching hefty overage fees. Sprint has offered cheap trial subscriptions with no required commitments from the consumer, and it has leased its network to smaller wireless companies in many parts of the country, which has also boosted competition.
If T-Mobile and Sprint are allowed to merge, the danger is that the combined company, which would be called T-Mobile, could be tempted to disavow this competitive past and settle into a cozy relationship with A.T. & T. and Verizon, offering similar plans and avoiding disruptive price wars. Coördination of this nature isn’t illegal as long as it isn’t explicit. But it can be very costly to consumers—and it’s a lot easier to sustain with three players than four. Indeed, the demise of genuine competition was the very threat that the Justice Department highlighted when it went to court to block the merger between A.T. & T. and T-Mobile, in 2011.
In its complaint, the government said, “the substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. Certain aspects of mobile wireless telecommunications services markets, including transparent pricing, little buyer side market power, and high barriers to entry and expansion, make them particularly conducive to coordination.” In other words, the wireless industry is a conspiracy against the consumer waiting to happen.
Other countries have also recognized this danger and taken steps to head it off. For example, in preparing to auction off space in the electromagnetic spectrum for 4G networks, the British regulator Ofcom “concluded that consumers would be more likely to benefit from better services and lower prices if, following the auction, there continued to be at least four credible national wholesalers of mobile services,” the Organization for Economic Co-Operation and Development noted in a report published in 2015. The Brits designed the auction to insure the survival of four players, and it worked.
Pai is surely aware of this history. Much of it was detailed in a brief opposing the merger that a number of public-interest groups—including Common Cause, the Consumers Union, and the Open Markets Institute—filed with the F.C.C., last October. The merger would lead to a “market with higher prices, reduced variety in products and services, lower innovation, poorer quality of service, and reduced incentives to invest and compete,” the brief said.
Despite Pai’s capitulation, all is not yet lost. The merger still has to be approved by the Justice Department, and the Wall Street Journal reported, last month, that staffers in the antitrust division have voiced serious concerns. Ultimately, however, the leadership of the Justice Department will make the decision on whether to block the merger. The White House might even get involved. Before that happens, someone in the press should ask Trump if he’s on the side of American consumers or the corporate bigwigs who stayed at his fancy hotel. Unfortunately, we already know the answer.