And Then There Were Three? Telecom Deregulation Likely to Happen
November 3, 2017
2017 has brought many changes to the telecommunications industry and yet, it remains to be seen what effect recent developments will have in the future. One thing we can count on is the continued deregulation of the industry overall under the current administration. This trend is readily apparent in two recent developments: 1) the much-rumored merger of industry giants T-Mobile and Sprint; and 2) and the Federal Communications Commission’s (“FCC”) decision to vote on rolling back prohibitions against owning both a newspaper and broadcast station within a certain vicinity.
Recently, rumors surrounding the potential merger of T-Mobile and Sprint have intensified. The prior deal negotiated by the parties in 2014 was unsuccessful because regulators felt that having four major competitors in the cellular space (AT&T, Sprint, Verizon and T-Mobile), instead of three, would preserve competition and benefit consumers. However, the recent appointment of FCC Chairman, Ajit Pai, an advocate for telecommunications deregulation, has reignited the merger discussion between T-Mobile and Sprint, something that is likely to happen in the near future.
T-Mobile and Sprint have each battled to capture a large market share in the competitive telecommunications industry. A merger between the two is attractive, as it would result in economies of scale and cost-cutting, saving the companies billions of dollars annually. This would allow a greater investment in developing an expensive 5G network. Such a merger would also allow the companies to better compete against AT&T and Verizon. From a consumer standpoint, it is unclear what effect a merger would have on the price of cellular data plans, coverage, and customer service. There is also a concern that a merger would eliminate thousands of jobs resulting from closing stores and shutting down call centers. However, a merger would also reduce the “big four” cellular providers down to just three, generally reducing competition in the market place.
Supposedly, the parties’ due diligence on each other is nearing completion. They have each formed committees comprised of independent boards of directors to decide whether the deal should be signed once the merger agreement has been finalized. This is expected to happen in the next three weeks. Nonetheless, the merger would still have to be approved by the Justice Department and FCC because of its antitrust implications. It is believed that Sprint and T-Mobile delayed their merger until now as they did not think it would be approved by the previous administration.
In addition, last week the FCC decided it would vote on November 16, 2017 to roll back prohibitions against common ownership of newspapers and broadcast stations within the same area. The rules prohibiting such common ownership date back to 1975. Chairman Pai has voiced his opinion that such a vote would allow for diversification of the industry. Yet, critics are concerned that the deregulation of the media will lead to consolidation and monopolization, which will decrease the number of smaller, independent new outlets.
Although there has been much speculation, it is unclear what the merger will mean for consumers and businesses. Those in the industry and anyone who is a consumer should stay tuned for further developments on these issues, as they will have longstanding effects on the telecom industry, services, and media.