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What About Sprint?

Original Article

If you haven’t already heard that the wireless market would be left with a struggling competitor if AT&T acquires T-Mobile USA, you soon will. As the FCC and members of Congress begin debate about what this merger would mean to the wireless industry, and specifically for Sprint Nextel Corp., it’s important to remember that the competitor’s long-standing struggles have nothing to do with this merger.

Many of today’s consumers have long forgotten that Sprint’s troubles date back at least to its own problematic merger with Nextel in 2005. The struggling carrier has been losing customers and revenue ever since, and this year alone lost $3.5 billion.

Sprint’s CEO, Dan Hesse, now says that he’s worried that too much power would be in the hands of AT&T and Verizon Wireless if the T-Mobile merger is approved. Hesse’s words suggest the very real possibility that Sprint may urge policymakers to block the deal.

And why not? The process by which mergers are reviewed by the Department of Justice and the Federal Trade Commission, and especially the process by which licenses are transferred by the Federal Communications Commission, provide a golden opportunity for struggling competitors and others to practice legal extortion. For example, AT&T could be forced to sell assets at fire-sale prices, or to provide services to Sprint at overly generous prices. AT&T could literally be forced to subsidize its competitor.

This raises the question whether government can and should intervene to preserve the wireless industry as a whole. As a general matter, when government intervenes to protect weak competitors, it risks diverting private investment away from well-managed and successful companies that are otherwise prospering in the free market.

A market with three equally strong providers would certainly be more desirable than a market of two, if that were possible. The only option we may have here is a market with only two self-sustaining competitors plus a third participant that would have to be nurtured by regulators and subsidized by rivals.

The merger review and license transfer processes are not the only options policymakers have to generate unjust enrichment for Sprint. For example, Sprint and other allies are already in Washington seeking pro-competitive regulation, in this case urging the FCC to require wireless providers to carry their competitor’s customer data traffic at “just and reasonable rates … coupled with a robust FCC enforcement mechanism to enforce it.” Another name for such a rule is government-mandated subsidy — or even price control.

Sprint’s pleadings reveal that what the carrier means by the term “just and reasonable rates.” In simple terms, Sprint believes private companies should not be free to set their own prices when they’re negotiating with other companies. And at the end of the day, a policy like this means consumers lose and Sprint wins.

Executives such as Hesse have a legal obligation to shareholders to maximize returns, using any means possible. This includes the recruitment of politicians and bureaucrats — who, although well-intentioned, may not fully grasp the consequences of their actions. Federal regulators in Washington should remember that artificial competition is not in the best interest of consumers. A market where there are no winners or losers is stagnant in terms of investment, innovation and ultimately better services and lower prices.

At a time when wireless service is getting cheaper and more innovative, there is no reason for a Depression-era bureaucracy like the FCC to step in and regulate a dynamic and competitive marketplace.

Regulators have an unfortunate tendency to seize opportunities to tinker with free markets in vain attempts to even the playing field for smaller competitors. This is shaping up to be yet another opportunity for the FCC to impose more regulations on private companies, and ultimately stunt the future of the market for American consumers.

Hance Haney is a fellow of the Discovery Institute.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.