Members of the House’s Subcommittee on Communications and Technology grilled T-Mobile US CEO John Legere and Sprint Chairman Marcelo Claure on everything from the commitment of a merged Sprint/T-Mo to the Lifeline program and covering rural America, to trying to discern what the long-term impacts of the merger will be on U.S. jobs and consumer prices.
Witnesses invited to testify at the hearing on Wednesday presented two starkly different views on the impacts of the merger. Legere and Claure maintained T-Mobile US’ insistence that the merger will be a net positive all-around, from jobs to prices to coverage for rural America; opponents expressed fears that the “New T-Mobile” will eliminate a “maverick” competitor from the market and raise consumer prices, and worried that the merged company would not have Sprint’s willingness to working with rural roaming partners and the wholesale market as well as the federal Lifeline program for subsidized mobile service for low-income people.
Members of the House subcommittee noted that this was the first time in eight years that the House has held an oversight hearing on a merger. The body does not have regulatory power over the merger, and the decisions on whether it will proceed will ultimately be made by the Federal Communications Commission and the Department of Justice.
Some of the takeaway moments from the testimony:
-Legere sought to address the national security concerns based on the use of Chinese vendors’ equipment in telecom networks, saying that Huawei and ZTE’s equipment is not used in the carriers’ networks “and it never will be. Not today, not tomorrow, not ever.”
-Claure painted a bleak picture of Sprint’s ability to compete in the market on its own, and both he and Legere repeatedly said that the vast majority — 90% — of the industry’ cash flow and profitability go to Verizon and AT&T. As far as Claure and Legere were concerned, even a post-merger “New T-Mobile” would still be a relative David against two Goliaths, with both insisting that the current wireless market is essentially a duopololy. Still, Legere insisted that because the combined company will be able to offer “much faster, broader and deeper network and new services at lower prices”, that will force AT&T, Verizon and cable companies to improve their services and compete on price as well.
-Asked why this merger is different from others that have resulted in less competition and higher consumer prices, Legere took an interesting tack to argue that the merger of Sprint and T-Mobile US is “unique” because it will increase supply — that is, the supply of high-speed network capacity, which in turn, he claimed, would drive down prices.
-Chris Shelton, president of the Communications Workers of America, proclaimed that the merger would kill American jobs while enriching two foreign companies who have major stakes in the two merging carriers — Deutsche Telekom and Softbank. Shelton leveled a number of attacks on both companies’ history of offshoring call center jobs and problematic labor, saying that the company “has been the subject of more unfair labor practice charges per employee than any other big business in the United States, including WalMart.” CWA estimates that the merger will result in the loss of 30,000 jobs, of which 25,500 would come from retail stores that are often located very close to each other, especially for each company’s prepaid brands; and that it will put a damper on wages in the overall industry.
“Trusting Sprint and T-Mobile with American jobs is like trusting a vampire at a blood bank,” Shelton said.
Legere noted that T-Mobile US has recently announced the locations of three of five planned customer experience centers, and that its acquisition of MetroPCS resulted in the expansion of that brand and related jobs, not fewer. Legere also said that the merged company would need about 3,600 additional employees in its first year and more than 11,000 more by 2024, many of whom would be needed in rural areas for either network integration and 5G roll-out or as part of 600 new stores.
-A number of House members who represent rural districts took the carrier executives to task for the poor coverage and quality of rural networks in their current state, and some expressed skepticism about the extent to which the merger would actually fix those issues, since T-Mobile US has not historically served rural markets extensively. Legere said that in the past, the company didn’t have 600 MHz spectrum in order to make it feasible to do so, and Claure at one point blamed inaccurate Sprint coverage maps on AT&T and Verizon, saying that because it relies on roaming relationships with those two carriers in rural areas, it relied on their coverage maps as well.
-T-Mobile US and Sprint’s histories were also up for discussion, from T-Mo’s $40 million fine last year for call failures and inserting false ringtones into rural calls, to Sprint’s track record of supporting the wholesale market and the federal Lifeline program to an extent that T-Mobile US has not. Legere noted that T-Mobile US offers wholesale capacity to resellers who participate in Lifeline, rather than participate directly as a Lifeline provider (which Sprint does). Legere said that the merged company would honor Sprint’s wholesale and Lifeline commitments — which didn’t completely satisfy committee members who wanted more detail on how the merged company would handle those arrangements in the future and whether prices would rise. Legere also claimed that the New T-Mobile’s investments in 5G would make it a better Lifeline provider.
-Carri Bennet, general counsel for the Rural Wireless Association — which opposes the merger — said that the impact of the merger on roaming agreements and prices will be most acutely felt by rural Americans, who are often already underserved. While Legere has committed to a three-year freeze on rate plans, Bennet noted that there other many other ways that the merged company could raise its prices — such as through additional fees or surcharges. Sprint has been uniquely willing, among the national carriers, to offer reciprocal roaming agreements at reasonable prices and without incentives to throttle data usage under roaming conditions, Bennet said, and RWA members are concerned not just about the ability to finish out existing contracts but the ability to sign similar contracts with the merged company. She said that T-Mo’s roaming agreements have been one-sided — it will allow rural carriers’ customers to roam onto its network where available, but not vice versa — and that according to RWA members, Sprint’s roaming prices are 20 times less than T-Mobile US’.
Legere maintained that the large amount of capacity that the merged company’s network will have, will incentivize the company to fill that capacity with users, including rural roaming agreements. He did not make any specific commitments on roaming pricing or relationships other than to say that the merged company would honor Sprint’s existing agreements.
-Rep. Doris Matsui (D-California) asked what lessons the two companies had learned from the Sprint-Nextel merger and the failure to realize a full deployment of WiMAX during the last generational technology transition.
“Sprint chose the wrong technology,” Claure responded, going on to say that both Sprint and T-Mobile US have chosen the same technology to move forward with 5G. Legere said that one of the factors boosting T-Mobile US’ ability to roll out 4G was the significant break-up payment that the company received after its proposed merger with AT&T fell through.