The merger will face the same regulatory questions that derailed previous attempts at consolidation.
Before smart phones, e-commerce or the cloud, the Seattle area was a center of what was quaintly called the cellular telephone industry.
Craig McCaw, buying cellular licenses around the country, built Kirkland-based McCaw Cellular into the nation’s largest provider of mobile phone service. He sold it to AT&T for $12.6 billion in 1994. Craig McCaw went on to make and — in the dot-com bust, lose — other fortunes. (The McCaw family also was a major force in Seattle philanthropy.)
John Stanton and Theresa Gillespie founded Stanton Communications in 1988, which became Western Wireless, headquartered in Bellevue. The company was acquired by Alltel in 2005 for $4.4 billion.
All that remained of this once promising cluster was T-Mobile, which grew out of a Western Wireless spinoff bought by Deutsche Telekom. The German owner has been trying to sell T-Mobile for as long as I can remember.
Now comes a tentative deal to merge with Sprint, founded by the Southern Pacific railroad in the 1970s as a gambit around the then-monopoly of old Ma Bell.
The $26.5 billion deal would create a giant with 125 million customers.
If approved by regulators, the combination would leave the United States with three giant carriers — the others being AT&T and Verizon — in an age where every face is seemingly transfixed on a smartphone.
For some context, Alltel was the ninth-largest carrier in the field before being snapped up by larger players. In 2003, Americans could pick from six national carriers.
It’s a good deal for the region if the combined entity stays in Bellevue, where no city council is threatening a head tax on employers. T-Mobile’s charismatic and effective CEO, John Legere, who built up his company while Sprint languished, would be in charge. T-Mobile employs about 5,500 in Bellevue.
The Obama administration stopped such a deal in 2014, concerned about too much market concentration, along with fewer choices and higher prices for customers.
A Trump administration, carrying on decades of lax Republican antitrust policies, is more likely to give the go-ahead. Ajit Pai, chairman of the Federal Communications Commission, will be highly sympathetic, based on his previous positions. He led repeal of net neutrality to benefit big corporate interests.
To gain federal assent, the companies are claiming the combination would have the muscle to build the next-generation 5G network, while lowering prices and creating thousands of jobs. Considering that they also promise investors $6 billion in “cost synergies,” we have reason to be skeptical.
Losers would abound. The 6,000 well-paid jobs at Sprint’s suburban Kansas City headquarters would be at high risk. All along the way to this moment, job losses and the elimination of important local headquarters have attended consolidation (for example, Little Rock, Ark., lost Alltel).
Sprint and T-Mobile retail shops would be “rationalized.” Cutbacks is one way mergers benefit shareholders — even though most mergers fail to deliver their promises.
The combined entity would have its strings pulled by overseas owners, too. Deutsche Telekom would own 42 percent. Japan’s SoftBank, which controls Sprint, would hold 27 percent of the shares.
Would this present an obstacle to an “America First” administration? Probably not, given Wall Street’s appetite and GOP pro-merger dogma. The arrangement with two foreign controlling shareholders might put some unpredictable handcuffs on the independence of the new company: Deutsche Telekom, although in the driver’s seat, must now make room for SoftBank’s Masayoshi Son, a billionaire with ambitions for the U.S. market. Culture clashes are always a danger in a merger.
Even if customers don’t pay more — or get locked into more onerous long-term contracts — bigness usually translates into a less dynamic economy. This is why regulators should say no, again.
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None of the concerns that torpedoed earlier attempted deals, including the one in 2014, have changed.
Beyond that, economists are beginning to catch on to the connection between mergers and slower job growth and wage stagnation, especially outside of prosperous metros such as Seattle. Today’s huge companies, the result of years of anti-competitive mergers, are partly responsible for the slow rate of startups. They use their market power to muscle out, or buy, new entrants — or make entry by newcomers impossible.
And promises aside, huge companies tend to be more focused on rewarding shareholders through stock buybacks than investing in innovation. They also hold down worker pay, increasing inequality. The GOP-passed tax cuts have only increased this trend.
Finally, cartels of giant companies — whether banks, airlines or telecom — bring immense lobbying power and outsized political influence to get their way. Keeping regulators and Congress from being “captured” is nearly impossible.
Want to really put America first? Stop this deal.
T-Mobile would be left where it was after previous failed mergers: Forced to grow organically thanks to superior products, service and innovation.
What a concept.