[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE STATE OF COMPETITION IN THE WIRELESS
MARKET: EXAMINING THE IMPACT OF THE
PROPOSED MERGER OF T-MOBILE AND SPRINT
ON CONSUMERS, WORKERS, AND THE INTERNET
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND
ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
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TUESDAY, MARCH 12, 2019
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Serial No. 116-10
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
44-492 PDF WASHINGTON : 2021
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COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MARY GAY SCANLON, Pennsylvania, Vice-Chair
ZOE LOFGREN, California DOUG COLLINS, Georgia, Ranking
SHEILA JACKSON LEE, Texas Member
STEVE COHEN, Tennessee F. JAMES SENSENBRENNER, Jr.,
HENRY C. ``HANK'' JOHNSON, Jr., Wisconsin
Georgia STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida LOUIE GOHMERT, Texas
KAREN BASS, California JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island MARTHA ROBY, Alabama
ERIC SWALWELL, California MATT GAETZ, Florida
TED LIEU, California MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland ANDY BIGGS, Arizona
PRAMILA JAYAPAL, Washington TOM McCLINTOCK, California
VAL BUTLER DEMINGS, Florida DEBBIE LESKO, Arizona
J. LUIS CORREA, California GUY RESCHENTHALER, Pennsylvania
SYLVIA R. GARCIA, Texas BEN CLINE, Virginia
JOE NEGUSE, Colorado KELLY ARMSTRONG, North Dakota
LUCY McBATH, Georgia W. GREGORY STEUBE, Florida
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas
PERRY APELBAUM, Majority Staff Director & Chief Counsel
BRENDAN BELAIR, Minority Staff Director
------
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND
ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
JOE NEGUSE, Colorado, Vice-Chair
HENRY C. ``HANK'' JOHNSON, Jr., F. JAMES SENSENBRENNER, Jr.,
Georgia Wisconsin, Ranking Member
JAMIE RASKIN, Maryland MATT GAETZ, Florida
PRAMILA JAYAPAL, Washington KEN BUCK, Colorado
VAL BUTLER DEMINGS, Florida KELLY ARMSTRONG, North Dakota
MARY GAY SCANLON, Pennsylvania W. GREGORY STEUBE, Florida
LUCY McBATH, Georgia
SLADE BOND, Chief Counsel
DANIEL FLORES, Minority Counsel
C O N T E N T S
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Tuesday, March 12, 2019
Page
OPENING STATEMENTS
The Honorable David Cicilline, a Member of Congress from the
State of Rhode Island, Chair of the Subcommittee on Antitrust,
Commercial and Administrative Law.............................. 1
The Honorable James Sensenbrenner, a Member of Congress from the
State of Wisconsin, Ranking Member of the Subcommittee on
Antitrust, Commercial and Administrative Law................... 4
The Honorable Jerrold Nadler, Chair of the Committee on the
Judiciary from the State of New York........................... 5
WITNESSES
John Legere, Chief Executive Officer, T-Mobile
Oral Testimony................................................. 12
Prepared Testimony............................................. 14
Marcelo Claure, Executive Chair, Sprint
Oral Testimony................................................. 22
Prepared Testimony............................................. 24
Chris Shelton, President, Communications Workers of America
Oral Testimony................................................. 29
Prepared Testimony............................................. 31
Gigi Sohn, Distinguished Fellow, Georgetown University Law Center
Oral Testimony................................................. 144
Prepared Testimony............................................. 145
Carmen Scurato, Senior Policy Counsel, Free Press
Oral Testimony................................................. 152
Prepared Testimony............................................. 154
Carri Bennet, General Counsel, Rural Wireless Association
Oral Testimony................................................. 209
Prepared Testimony............................................. 210
Scott Wallsten, President and Senior Fellow, Technology Policy
Institute
Oral Testimony................................................. 215
Prepared Testimony............................................. 218
Christopher S. Yoo, John H. Chestnut Professor of Law, University
of Pennsylvania Law School
Oral Testimony................................................. 241
Prepared Testimony............................................. 242
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Statement from the Honorable Doug Collins, Ranking Member of the
Committee on the Judiciary from the State of Georgia submitted
by The Honorable James Sensenbrenner, Ranking Member of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Wisconsin for the record..................... 10
Correspondence from The Honorable Pramila Jayapal and Elizabeth
Warren to John Legere submitted by the Honorable Pramila
Jayapal, a Member of the Subcommittee on Antitrust, Commercial
and Administrative Law from the State of Washington for the
record......................................................... 252
An article entitled ``Huawei Connects Rural America: Could It
Threaten the Country's Most Sensitive Military Secrets from
CNN,'' submitted by the Honorable Matt Gaetz, a Member of the
Subcommittee on the Antitrust, Commercial and Administrative
Law from the State of Florida for the record................... 262
A letter from Frank DiRico, CEO, Viaro Wireless submitted by the
Honorable Ken Buck, a Member of the Subcommittee on the
Antitrust, Commercial and Administrative Law from the State of
Colorado for the record........................................ 274
A letter from Colorado Cellular, Inc., submitted by the Honorable
Matt Gaetz, a Member of the Subcommittee on the Antitrust,
Commercial and Administrative Law from the State of Florida for
the record..................................................... 282
A letter from David Erikson, CEO, freeconferencecall.com
submitted by the Honorable David Cicilline, Chair of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Rhode Island for the record.................. 300
Statement from George Slover, Senior Policy Counsel, Consumer
Reports, and Jonathan Schwantes, Senior Policy Counsel,
Consumer Reports, submitted by the Honorable David Cicilline,
Chair of the Subcommittee on Antitrust, Commercial and
Administrative Law from the State of Rhode Island for the
record......................................................... 303
A letter from a coalition of organizations in support of the
proposed merger of Sprint and T-Mobile, submitted by the
Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island for the record.................................... 312
Statement from David A. Little, Executive Director, Rural Schools
Association of New York State, submitted by the Honorable David
Cicilline, Chair of the Subcommittee on Antitrust, Commercial
and Administrative Law from the State of Rhode Island for the
record......................................................... 315
Statement from Corrina Freedman, Political and Legislative
Director, Writers Guild of America West, submitted by the
Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island for the record.................................... 318
Statement from Tony Vargas, State Senator, Nebraska, submitted by
the Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island for the record.................................... 320
Statement from Richard M. Manning, President, Americans for
Limited Government, submitted by the Honorable David Cicilline,
Chair of the Subcommittee on Antitrust, Commercial and
Administrative Law from the State of Rhode Island for the
record......................................................... 322
Statement from Grover Norquist, President, Americans for Tax
Reform, submitted by the Honorable David Cicilline, Chair of
the Subcommittee on Antitrust, Commercial and Administrative
Law from the State of Rhode Island for the record.............. 324
Statement from Julian Canete, President & CEO, California
Hispanic Chambers of Commerce, submitted by the Honorable David
Cicilline, Chair of the Subcommittee on Antitrust, Commercial
and Administrative Law from the State of Rhode Island for the
record......................................................... 326
Letter from the California Hispanic Chambers of Commerce to the
Federal Trade Commission regarding the proposed merger of T-
Mobile and Sprint, submitted by the Honorable David Cicilline,
Chair of the Subcommittee on Antitrust, Commercial and
Administrative Law from the State of Rhode Island for the
record......................................................... 327
Statement from Kent Lassman, Competitive Enterprise Institute,
submitted by the Honorable David Cicilline, Chair of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Rhode Island for the record.................. 329
Statement from Pat Fong Kushida, President & CEO, California
Asian Pacific Chamber of Commerce, submitted by the Honorable
David Cicilline, Chair of the Subcommittee on Antitrust,
Commercial and Administrative Law from the State of Rhode
Island for the record.......................................... 333
Statement from Chip Pickering, CEO, INCOMPAS, submitted by the
Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island for the record.................................... 335
APPENDIX
An article entitled ``Enabling opportunities: 5G, the internet of
things, and communities of color,'' Brookings, submitted by the
Honorable Hank Johnson, a Member of the Subcommittee on the
Antitrust, Commercial and Administrative Law for the State of
Georgia for the record......................................... 340
QUESTIONS AND ANSWERS FOR THE RECORD
Questions for John Legere submitted by the Honorable Ted Lieu, a
member of the Committee on the Judiciary from the State of
California for the record...................................... 368
Responses to Questions from John Legere submitted by the
Honorable Ted Lieu, a member of the Committee on the Judiciary
from the State of California for the record.................... 369
Responses to Questions from John Legere submitted by the
Honorable James Sensenbrenner, Ranking Member of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Wisconsin.................................... 370
Responses to Questions from John Legere submitted by the
Honorable David N. Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island for the record.................................... 373
Responses to Questions from John Legere submitted by the
Honorable Ted Lieu, a member of the Committee on the Judiciary
from the State of California for the record.................... 372
Responses to Questions from Carri Bennet submitted by the
Honorable Matt Gaetz, a Member of the Subcommittee on the
Antitrust, Commercial and Administrative Law from the State of
Florida and James Sensenbrenner, Ranking Member of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Wisconsin for the record..................... 373
THE STATE OF COMPETITION IN THE WIRELESS MARKET: EXAMINING THE IMPACT
OF THE PROPOSED MERGER OF T-MOBILE AND SPRINT ON CONSUMERS, WORKERS,
AND THE INTERNET
----------
Wednesday, March 12, 2019
House of Representatives
Subcommittee on Antitrust, Commercial and
Administrative Law
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to call, at 2:00 p.m., in
Room 2141, Rayburn Office Building, Hon. David Cicilline
[chairman of the subcommittee] presiding.
Present: Representatives Cicilline, Johnson of Georgia,
Raskin, Jayapal, Demings, Scanlon, Neguse, McBath,
Sensenbrenner, Nadler, Gaetz, Buck, and Armstrong.
Staff Present: David Greengrass, Counsel; Lisette Morton,
Director, Policy Planning, and Member Services; Madeline
Strasser, Chief Clerk; Moh Sharma, Member Services and Outreach
Member; Susan Jensen, Parliamentarian/Senior Counsel; Amanda
Lewis, Counsel; Joseph Van Wye, Professional Staff Member;
Slade Bond, Chief Counsel; Lina Khan, Counsel; Daniel Flores,
Minority Chief Counsel and Andrea Woodard, Minority
Professional Staff. Mr. Cicilline. The Subcommittee will come
to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
We welcome everyone to today's hearing on the State of
Competition in the Wireless Market: Examining Impact of the
Proposed Merger of T-Mobile and Sprint on Consumers, Workers,
and the Internet.
Mr. Cicilline. I now recognize myself for an opening
statement. Today's hearing is an important opportunity to
examine the State of competition in the wireless industry and
the competitive effects of the proposed merger of T-Mobile and
Sprint.
Over the past century, the telecommunications industry in
the United States has demonstrated the harms that result from
monopoly power. By 1948, AT&T's dominance was so entrenched
that it was widely considered to be a lawful monopoly. Over the
next 40 years, it grew to become the largest corporation in the
world, controlling more than 80 percent of the market. It
earned more than $53 billion in annual revenue and was the
second largest employer in the United States, behind only the
Federal Government.
In 1982, the Justice Department successfully concluded its
landmark anti-monopoly case against AT&T for blocking
competition in the telephone service and equipment market. As a
result, the Bell System was broken into separate telephone
companies while AT&T's long-distance services were structured
separately from its device manufacturing services.
The importance of the breakup of the Bell System cannot be
overstated. It facilitated an explosion of competition in long
distance markets, significantly lower prices for consumers,
improved products, and services, and spurred the creation of
new jobs.
Perhaps most importantly for the purposes of today's
hearing, the competitive pressure resulting from robust
enforcement also led to the deployment of fiber optic across
the country, particularly much of the Internet's
infrastructure.
Anne Bingaman, the Assistant Attorney General of the
Antitrust Division, testified before the Subcommittee in 1994
that AT&T had copper wires across the country until competition
entered that market, and when it did, Sprint and MCI laid fiber
optic coast to coast and AT&T, spurred by competition, followed
them.
She noted then that there was no question that the speed of
building the infrastructure for nationwide internet was years
and years ahead of where it would have been in the absence of
the breakup of AT&T.
When coupled with some of the pro-competitive reforms in
the Telecommunications Act of 1996, such as phone number
portability, consumers and small businesses saved billions of
dollars each year while maverick competitors were incentivized
to enter the market to offer better services and more choice.
Due largely to a retreat from aggressive antitrust
enforcement over the past several decades, there are only four
national carriers today. The proposed merger of T-Mobile and
Sprint would shrink this market to just three national wireless
carriers, resulting in the combined company controlling nearly
a third of the wireless market.
The merging parties claim that the transaction is necessary
to deploy the next generation of broadband internet across the
country and to compete more vigorously with the two largest
carriers, AT&T and Verizon.
To their credit, both Sprint and T-Mobile have aggressively
competed with the larger carriers over the past decade,
resulting in lower prices and better policies for consumers.
But, I am deeply skeptical that consolidation is the path
forward to lowering prices, increasing opportunity, or
unleashing competition in places around the country where there
is none today.
First, the competition that has been driven by Sprint and
T-Mobile over the past decade has occurred in the absence of
consolidation, not because of it. Second, nearly a century of
experience with telephone monopolies has taught us that the
pressure of competition is critical to building out the
nation's internet infrastructure and improving quality for
consumers. Finally, there is mounting evidence that additional
consolidation in this market would likely give the combined
company the incentive and ability to raise prices, lower wages,
and abandon the policies that have benefited consumers over the
past decade.
Under both longstanding Supreme Court precedent and the
horizontal merger guidelines, mergers that significantly
increase concentration in highly concentrated markets are
presumed to be illegal.
It is beyond dispute that this transaction will
significantly increase concentration in the wireless market far
beyond the level that the antitrust agencies consider to be
likely to enhance market power, and because of this reality,
the only thing preventing the merging parties from raising
prices, lowering quality, and depressing wages are promises for
a limited period of time.
Today's hearing is also an opportunity to examine concerns
related to the current State of merger enforcement. It has been
nearly a year since the Federal Trade Commission last
challenged a merger in court, and since the beginning of the
Trump Administration the Justice Department's Antitrust
Division has only challenged one significant merger, AT&T's
acquisition of Time-Warner.
Not only did the Antitrust Division lose this challenge,
but this case has been mired in controversy from day one due to
the President's shameful attempts to interfere in antitrust
enforcement.
Last week, Jane Mayer of The New Yorker reported that the
President instructed senior White House officials to, and I
quote, ``get this lawsuit filed'' against the AT&T and Time-
Warner merger following a series of reports suggesting that the
President seeks to wield the antitrust laws as a political
weapon to reward friends and punish perceived enemies.
In response to this explosive report, Chair Nadler and I
are seeking the production of every communication and document
related to this case. We must get to the bottom of whether the
White House has weaponized our antitrust laws to punish enemies
or reward friends, and we will.
Most importantly for the purposes of today's hearing, the
proposed merger of T-Mobile and Sprint is really a critical
test. Is the Antitrust Division genuinely dedicated to
promoting competition or does it only oppose mergers when the
White House tells it to do so?
Finally, this proposed merger does not occur in a vacuum.
Working families across the country are struggling to make ends
meet. Parents lie awake at night wondering how they will be
able to afford their child's insulin. People work double and
triple shifts just to afford their health insurance deductibles
and co-pays for prescription drugs, and for too many families
having as much as an extra $50 in the bank can be the
difference between scraping by to the next paycheck or having
the heat turned off in the middle of a cold winter.
Decades of consolidation throughout the economy have wiped
out countless small businesses and hollowed out the middle
class, resulting in record levels of inequality that have
undermined social mobility in our country significantly.
During this period, corporations have converted monopoly
rents into higher compensation for executives, and in the
process, driven down wages and made life unaffordable for many
people.
As Nobel Prize-winning economist Joseph Stiglitz has
warned, and I quote, ``We have become a rent-seeking society,
dominated by market power of large corporations, unchecked by
countervailing powers, and the power of workers has been
weakened, if not eviscerated.''
It is every stagnant paycheck, every surprise medical bill,
every overpriced and overcrowded flight with hidden fees, every
trip to the hospital where patients are forced to wait for
hours and risk personal bankruptcy to receive medical care, and
every astronomical telephone and cable bill that is accompanied
by a forced arbitration clause and horrible customer service.
These are all reminders that America's monopoly problem has
fundamentally broken our economy and destroyed the American
dream. We read stories of billionaires buying yachts that are
furnished like palaces and as large as some elementary schools
while the brave men and women in uniform who fought for our
country do not have access to affordable healthcare.
This economic nightmare is exactly why Democrats promised
Americans that we would crack down on corporate monopolies
through a better deal on competition. Ending this moral crisis
is a top priority for me as Chair of the Antitrust Subcommittee
and a top priority for House Democrats to keep our promise to
work for the people, to prevent big mergers that would harm
consumers, workers, and competition.
In closing, I thank our esteemed panel of witnesses for
appearing before us today, and I very much look forward to all
your testimony.
I now have the privilege of recognizing the distinguished
gentleman from Wisconsin, the Ranking Member, Mr.
Sensenbrenner, for his opening statement.
Mr. Sensenbrenner. Thank you very much, Mr. Chair, and I
welcome the witnesses to today's hearing, which will examine
the Proposed T-Mobile-Sprint Merger and its Impact on the
Market and Consumers.
Let me say at the beginning that I am disappointed to hear
Chair quote a partisan spin on this proposal even before we
hear the testimony from the witnesses.
You know, I certainly have not made up my mind on whether
this proposed merger is in the public interest or not, this
hearing will shed some light on it, but I do want to say that I
don't think that antitrust questions should be partisan in
nature whatsoever.
I have been on this Committee for 40 years and there are
very few of these proposals that the Committee has examined
where Republicans and Democrats have been divided from the get-
go.
On March 29th, 2018, T-Mobile and Sprint announced a merger
agreement that undoubtedly will change the telecommunications
landscape. If approved, this $26.5 billion deal would combine
the third and fourth largest wireless providers.
While eliminating a competitor, the merger could put
companies in a much stronger position to take on AT&T and
Verizon, which have dominated the marketplace. If combined, T-
Mobile and Sprint hope to improve service, innovate and expand
their network into underserved and rural areas.
I look forward to hearing from both CEOs on the implication
of this merger as on the deployment of 5G. 5G is key to
improving service with greater coverage, higher speeds, and
increased added capacity.
Ensuring that we are at the forefront of this technology
will provide untold benefits to American consumers and the
American economy and is important to many Members of the
committee.
We will hear today from witnesses who will outline a very
different picture, one that paints this merger as negatively
impacting low-income consumers and rural communities. Many
wireless competitors and consumer advocates believe a more
concentrated wireless industry will reduce competition, raise
prices, and result in job losses.
Under the Communications Act of 1934, the Federal
Communications Commission is reviewing the merger to ensure
that it promotes the public interest, convenience, and
necessity. U.S. Department of Justice and State Attorneys
General are also reviewing the transaction pursuant to their
respective authorities.
While Congress has no formal role in the DOJ or FTC's
merger review process, hearings like this provide an
opportunity to ask and debate questions of great importance to
American consumers, and I look forward to the testimony of the
witnesses and debate among Members of the committee, and in the
end wise decisions by DOJ and the FTC that ensure competitive
future for wireless communications in America.
I yield back the remainder of my time.
Mr. Cicilline. Thank you, Ranking Member Sensenbrenner.
The Chair now recognizes the Chair of the Full Committee,
the gentleman from New York, Mr. Nadler, for his opening
statement.
Mr. Nadler. Thank you, Mr. Chair.
I appreciate this opportunity to carefully consider the
impact of the proposed merger of Sprint and T-Mobile on
competition, consumers, and workers.
While I do not prejudge the merits of any proposed merger,
it is clear that this transaction, if approved by regulators,
would usher in significant changes to the market for mobile
wireless services.
Given the fact that 95 percent of American adults own a
cell phone and 20 percent use a mobile device as their primary
means of accessing the internet, it is critical that we closely
analyze any proposed merger with such a wide-ranging impact.
As independent companies, Sprint and T-Mobile have each
brought competitive and innovative products to market. These
products have not only benefited their customers but have also
benefited the customers of other wireless carriers whose own
carriers have had to compete with both companies.
For example, Sprint and T-Mobile's reintroduction of
unlimited data plans in 2016 resulted in lower monthly bills
and better internet access for millions of consumers. These
companies have also provided important services, such as
competitive prepaid mobile wireless plans, to some of our most
underserved communities. These prepaid plans offer certain
customers the ability to purchase wireless broadband and
wireless cellular services without passing a credit check.
I applaud both companies for their competitive efforts, for
their ingenuity, and for serving consumers in every market.
In considering their proposed merger, however, we must
determine whether this proposed new combined company with the
largest share of the marketplace would have less incentive to
innovate and to compete with other companies.
I am concerned about any merger that would significantly
increase concentration in a market that is already highly
concentrated. There are only four national wireless carriers
today, AT&T, Verizon, T-Mobile, and Sprint.
As a result of this transaction, there would be only three,
each of which would control about a third of the marketplace,
thereby dramatically altering the competitive landscape.
Consequently, the combined Sprint and T-Mobile may no
longer have any market-based incentive to lower prices and to
offer pro-consumer policies once it becomes as large as the
other two carriers. This in turn could harm other carriers'
customers who have indirectly benefited from Sprint and T-
Mobile's competition over the past decade.
Concerns have been raised about the merger's impact on low-
income consumers who often must rely on cheaper prepaid phones
for their wireless service. Because the proposed transaction
would also consolidate the market for these services, it may
have disproportionately negative effects on low-income
households.
This would be particularly harmful in major cities with
large populations of middle- and low-income people, such as New
York, which may experience even higher levels of concentration
in the market for prepaid phones than in other regions.
For their part, Sprint and T-Mobile offer a variety of
justifications in support of this merger. They argue that the
transaction would enable New T-Mobile, as the company would be
called, to supercharge the market for wireless competition. Its
increased scale, they argue, would lead to better quality of
its network and would enable the development of innovative new
products at dramatically faster speeds.
Moreover, they believe that the merged company would be in
a better position to compete with the other wireless giants and
would push the other companies to offer better services to
their customers.
They also anticipate that the new company would expand its
workforce and would invest up to $40 billion in the first three
years after the merger. This may lead to the creation of more
jobs, better policies for consumers, and new competition in the
broadband marketplace, thanks to faster deployment of a
nationwide Fifth Generation or 5G wireless network.
These claimed benefits of the merger would be welcome
developments for millions of employees and consumers. They
should be viewed with healthy skepticism, however, in light of
numerous mergers we have seen in recent years that have made
economic promises that were ultimately not borne out.
That is one reason why I introduced the Restoring and
Improving Merger Enforcement Act, legislation designed to
prohibit the consideration of spurious unverifiable economic
efficiencies to justify anticompetitive mergers.
Merging parties routinely justify anticompetitive mergers
under the guise of corporate restructuring and other so-called
efficiencies which are generally code words for widespread
layoffs and reduced wages and benefits for employees.
Rather than create more efficient markets, waves of
consolidation throughout the economy over the past several
decades have imperiled the financial security of American
workers and consumers. As a result, employers have immense
power to reduce the wages, benefits, and economic mobility of
workers while consumers routinely pay higher prices for goods
and services than they would in a more competitive economy.
When combined with the precipitous decline of collective
bargaining, this massive consolidation has shrunk the middle
class and has increased income inequality through stagnant
wages and less economic opportunity.
Needless to say, I am pleased that State and federal
regulators are closely scrutinizing this transaction to
determine what impact it may have on consumers and employees,
and I appreciate Chair Cicilline holding this hearing today so
that Members of this Subcommittee may also examine the
important questions the proposed merger raises.
I look forward to hearing from our large panel of expert
witnesses, including the CEOs of both Sprint and T-Mobile, and
I thank them for their participation, in particular those who
have rearranged their schedules on several occasions to
accommodate congressional conflicts that have arisen.
I yield back the balance of my time.
Mr. Cicilline. I thank the gentleman.
I now recognize the Ranking Member for unanimous consent.
Mr. Sensenbrenner. Mr. Chair, I ask unanimous consent to
put in the record the statement by the Ranking Member of the
Full Committee, the gentleman from Georgia, Mr. Collins.
Mr. Cicilline. Without objection.
[The information follows:]
MR. SENSENBRENNER FOR THE RECORD
=======================================================================
STATEMENT OF DOUG COLLINS
Thank you, Chairman Cicilline and Ranking Member
Sensenbrenner for holding this hearing.
This nation's communications infrastructure is of paramount
importance. It helps to bind together America's families and
communities, it's critical to our economy and it's vital to our
national security.
The proposed merger of T-Mobile and Sprint raises
significant issues for the future of our communications system.
America is rapidly continuing its shift to primary reliance on
wireless and fiber-optic infrastructure for its communications
needs, and T-Mobile and Sprint are two of just four nationwide
wireless companies serving those needs.
The proposed merger, moreover, comes precisely as markets
in the U.S. and abroad begin the transition to the next wave of
wireless technology--5G. Whether the merger, if approved, will
help or hinder the fastest, strongest transition to 5G has far-
reaching implications for families, students, small business
owners, major companies and everyone beyond and in between. It
is no understatement to say that the proposed merger has
serious implications including whether the U.S. will continue
to lead the world in communications innovation and the advanced
goods and services that depend upon it.
I expect the Department of Justice's Antitrust Division and
the Federal Communications Commission to resolve with the
fullest application of their expertise whether the proposed
merger meets legal standards for approval. My concern at this
hearing is that Congress help to elevate the profile of issues
and explore for the benefit of American families what the
future consequences of approval or disapproval would be.
One area I greatly look forward to hearing about is the
potential this merger could have to help fmprove communications
across rural America, like in northeast Georgia. Of the four
national carriers, including T-Mobile and Sprint none are
serving rural districts like mine well enough. If the merger
will not improve access, rural America will only suffer more.
If it will improve access, then welcome relief may be on its
way.
Another question is whether Sprint will disappear no matter
what happens with the merger. There are those who claim that,
for financial reasons, Sprint will soon no longer be a viable
national competitor. If that's true, the question could simply
be whether we go from four to three national competitors
because of the merger or because Sprint goes into bankruptcy.
The question may even be whether we go from four to two,
because eventually, if T-Mobile is left alone in competition
with AT&T and Verizon, it too will ultimately go under.
But there are also those who claim that Sprint will be
financially viable going forward. They assert that, if Sprint
remains independent, scores of regional competitors who rely on
its market-leading support of roaming services will help to
build out a 5G network even faster than the merged T-Mobile and
Sprint could. They also claim that will be especially true in
rural areas.
For the benefit of my constituents, I want to hear
everything I can today about the potential this merger has for
positive or negative impact on rural communities.
I commend the Subcommittee for holding this hearing on the
proposed merger. I am also delighted that the Subcommittee is
beginning this term of Congress with two consecutive antitrust
hearings. Our antitrust jurisdiction is critical and I am eager
to continue its reinvigoration this term.
I look forward to each of the witnesses' testimonies and
yield back the balance of my time.
Mr. Cicilline. It is now my pleasure to introduce today's
witnesses.
Our first witness is John Legere, the Chief Executive
Officer of T-Mobile. He has been named a Top CEO by Glassdoor
and was granted the Maverick and Leadership Award by Yale's
Chief Executive Leadership Institute.
Before his time at T-Mobile, Mr. Legere served as CEO of
both Global Crossing and Asia Global Crossing as well as Head
of Global Corporate Strategy and Business Development at AT&T.
Mr. Legere received a Bachelor's Degree in Business
Administration from the University of Massachusetts, a Master's
Degree in Science as an Alford P. Sloan Fellow at the
Massachusetts Institute of Technology, and, additionally, he
received his Master's of Business Administration degree from
Fairleigh Dickinson University and completed Harvard Business
School's Management Development Program.
Our second witness is Marcelo Claure, the Executive Chair
of the Board of Sprint Corporation.
Previously, Mr. Claure served as Sprint's Chief Executive
Officer. He is also currently the Chief Operating Officer at
SoftBank Group and CEO of SoftBank Group International.
Mr. Claure was named a Young Global Leader by the World
Economic Forum as well as one of 42 individuals selected by the
Carnegie Corporation as part of the Great Immigrants: The Pride
of America Initiative.
He received his B.S. in Finance from Bentley University.
Our third witness is the President of the Communication
Workers of America, Christopher Shelton.
He has worked with CWA since 1968, when he was elected a
shop steward while working for New York Telecom. A native of
the Bronx, New York, Mr. Shelton joined CWA's National Staff in
1988 and has served in multiple positions representing locals
throughout New York, New Jersey, and New England.
Mr. Shelton was elected the President of CWA at their 75th
Convention in 2015.
The fourth witness on our panel is Gigi Sohn, a
Distinguished Scholar with the Georgetown Law Institute for
Technology, Law, and Policy, and a Benton Senior Fellow at
Public Advocate.
For 30 years, Ms. Sohn has worked to protect and promote
competition policies that have made the Internet more open,
competitive, and affordable.
Ms. Sohn previously served as counsel to Tom Wheeler during
his tenure as Chair of the Federal Communications Commission.
She received her B.S. from Boston University and her JD
from the University of Pennsylvania Law School.
Our fifth witness is Carmen Scurato, Senior Policy Counsel
with Free Press.
Before working with Free Press, Ms. Scurato served as Vice
President of Policy as well as General Counsel at the National
Hispanic Media Coalition and as a Project Supervisor with the
Office of Legislative Affairs at the Department of Justice.
She received her B.A. from New York University and her JD
from the Villanova University School of Law.
Our sixth witness is Carrie Bennet, General Counsel at the
Rural Wireless Association.
Since 1987, she has represented primarily rural wireless
carriers, telephone companies, and cellular carriers before the
FCC, the courts, and in Congress.
She is a member of both the Federal Communications Bar
Association and the American Bar Association and has published
numerous articles on wireless and rural communications issues.
She received her B.A. from North Carolina State University
and her JD from the Columbus School of Law at Catholic
University.
Scott Wallsten, the President and Senior Fellow at the
Georgetown Technology Policy Institute, is our seventh witness.
An economist with an expertise in industrial organization
and public policy, his research focuses on competition,
regulation, telecommunications, and technology policy.
Mr. Wallsten is also a Senior Fellow at the Georgetown
Center for Business and Public Policy.
He received his B.A. in Economics from Washington
University and his Ph.D. in Economics from Stanford University.
Our final witness is Professor Christopher Yoo. Professor
Yoo is a Director at the Center for Technology, Innovation, and
Competition as well as the John Chestnut Professor of Law,
Communication, and Computer and Information Science at the
University of Pennsylvania Law School.
His research focuses on administrative and regulatory law,
especially in relation to technology, innovation, and the
Internet.
He has also taught at Vanderbilt University School of Law
where he serves as the Founding Director of the Technology and
Entertainment Law Program.
Mr. Yoo received his A.B. from Harvard University and his
J.D. from Northwestern University.
We welcome all our incredibly distinguished witnesses and
thank you for participating in today's hearing.
Now if you would please rise, I will begin by swearing you
in. Please raise your right hands.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and accurate to the
best of your knowledge, information, and belief, so help you
God?
[A chorus of ayes.]
Mr. Cicilline. Let the record show the witnesses answer in
the affirmative. Thank you. You may be seated.
Please note that each of your written statements will be
entered in the record in its entirety. Accordingly, I ask that
you summarize your testimony in five minutes. To help you stay
within that time, there is a time light on your table. When the
light switches from green to yellow, you have about a minute to
conclude your testimony and when the light turns red, it
signals that your five minutes have expired. So please keep
that in mind.
We will begin with Mr. Legere.
TESTIMONY OF JOHN LEGERE
Mr. Legere. Thank you, Chair Nadler, Chair Cicilline,
Ranking Member Sensenbrenner, and other Members of the
Subcommittee, for inviting Marcelo, me, and the rest of the
panel here today.
I appreciate the opportunity to tell you about the
tremendous benefits of the proposed T-Mobile/Sprint merger and
the progress we are making towards making it a reality.
So, first, what will the merger deliver? It will deliver a
super-charged un-carrier which can ensure U.S. leadership in
5G, increase competition, and create American jobs.
First and foremost, the New T-Mobile will make sure America
wins the global 5G race. This is so important because 5G will
unlock new capabilities that will fuel innovation and job
creation well beyond anything we have seen so far.
5G will completely transform the way Americans live, work,
travel, and play. 5G means real-time navigation, downloading a
movie in seconds, instant language translation, and much more.
Nearly every American business will be able to use 5G to
revolutionize how they create and deliver goods and services.
Best of all, with this transaction, the benefits of 5G
won't just flow to big cities. Combining Sprint and T-Mobile
will produce a faster, broader, and deeper network that is
truly nationwide. It will benefit consumers and businesses
everywhere, including in rural America. Neither company could
do this on its own.
Second, the New T-Mobile will have the capital, scale, and
network to super-charge competition, unleashing significant
benefits for all consumers, including keeping prices low. The
combined company will continue the T-Mobile tradition of
disrupting the wireless space, and we will disrupt in-home
broadband with the new wireless mobile and in-home broadband
options, offering average download speeds of a hundred megabits
or greater to 90 percent of the United States population by
2024 and, thus creating a new broadband option for millions of
Americans who have none and freeing millions from the
stranglehold of big cable.
Budget-conscious customers use the most data, as many of
them rely on their phones as their main point of access to the
internet. That means they have the most to gain when data costs
less. New T-Mobile will offer a much-needed new bridge across
the digital divide.
Our opponents are wrong when they claim the merger will
lead to higher prices. In fact, the opposite is true. The
massive increase in our network capacity and huge reductions in
our costs to deliver our services will enable the New T-Mobile
to win customers through lower prices and better services, and
it is in my business plan to do just that.
I am so confident that this merger will lower prices that
we have committed in writing to the regulators that we will
make available the same or better rate plans as those currently
offered by T-Mobile and Sprint for the next three years.
Third, this merger will be a tremendous jobs creator at New
T-Mobile and across our country. Our merger will be jobs
positive from day one and going forward. In the first year, we
will have thousands more employees than the stand-alone
companies combined. By 2024, we will have 11,000 more
employees.
Our critics are wrong about the impacts on jobs.
I have looked at their arguments and supposed analysis and
they do not make sense. They ignore the facts. They don't
account for any areas where jobs will grow, like new customer
experience centers, enterprise services, broadband and media,
and network build and integration.
We have heard this story before. They said we would cut
10,000 jobs when T-Mobile merged with Metro-PCS. In fact, we
expanded jobs by tens of thousands.
Let me say this to every T-Mobile and Sprint employee
working at one of our stores today: Each of you will be offered
a job with the New T-Mobile. Make no mistake. Opponents of the
transaction are fear-mongering about job losses and price
increases in a desperate effort to maintain the status quo.
They know that blocking this transaction will only entrench the
incumbent Big 2 wireless carriers and big cable, and that is
their goal. Opponents and their backers are terrified of the
competition that a super-charged un-carrier will bring.
On the other hand, many have already recognized the
tremendous benefits of this merger. CFIUS and Team Telecom have
completed their national security review and approved the
transaction. Sixteen of 19 State regulatory commissions have
completed their reviews and found the transaction to be in the
public interest, and over 200 organizations, companies,
government officials, and community leaders publicly support
the transaction.
I am particularly honored that Congressman Eshoo,
Congressman Long, and 11 other Members have signed a bipartisan
letter of support.
To those that doubt us, I would simply say this: We are the
un-carrier. My management team and I believe in delivering on
our promises, and we know if we do not, we will lose the
credibility and trust of our customers and employees.
I can promise to you the New T-Mobile will deliver for
consumers, American workers, and for our country.
Thank you, and I look forward to answering your questions.
[The statement of Mr. Legere follows:]
STATEMENT OF MR. LEGERE
Introduction
Thank you, Chairman Cicilline, Ranking Member
Sensenbrenner, and Members of the Committee.
My name is John Legere. I have been Chief Executive Officer
of T-Mobile U.S., Inc. since September of 2012. Since becoming
CEO almost seven years ago, I've been privileged to lead T-
Mobile on its mission to fix a stupid, broken, arrogant
industry and to redefine how the American consumer views and
experiences ``wireless.'' As the ``Un-carrier,'' T-Mobile has
worked to attract customers by fixing a wide range of their
pain points while ultimately providing consumers better value
for lower prices. If the merger is approved, I will proudly
serve as the CEO of New T-Mobile.
I appreciate the opportunity to be here today alongside
Marcelo Claure of Sprint to discuss the proposed merger of our
two companies. New T-Mobile will enable U.S. leadership in 5G,
deliver significant value and benefits to consumers in all
corners of the nation, increase competition in wireless and in-
home broadband, and create American jobs. New T-Mobile will be
able to leverage a unique combination of complementary assets
to unlock massive synergies to build a world-leading 5G network
that will deliver unprecedented services and value to all
consumers, increasingly disrupt multiple industries, and
enhance the American economy and national security.
Our proposed merger with Sprint will provide New T-Mobile
with the added scale and critical spectrum and network assets
to supercharge our Un-carrier strategy. As a result, we can
take competition to new levels. We will offer a much faster,
broader, and deeper network and new services at lower prices
than either T-Mobile or Sprint could achieve alone. This will
force our rivals--AT&T, Verizon, and the cable monopolies--to
improve their services, increase their own capacity, and lower
prices even further. All American customers will win with lower
prices and better services!
When we build our world-class 5G network, we are not only
going to benefit wireless customers, but also finally bring
real competition for in-home broadband consumers, including
rural customers, who are typically stuck with no choices for
in-home broadband service today. We will bring new competition
to Big Cable in two ways. Our 5G network gives us the speed and
capacity to offer an affordable in-home high-speed broadband
service to millions of American households. And with fiber-like
speeds across our mobile network, many more Americans will be
able to ``cut the cord'' entirely and eliminate a separate
broadband charge--saving hundreds of dollars a year! The
industry will have to respond, and prices will drop even more!
Importantly, we will bring these benefits to parts of the
United States that other larger wireless carriers and cable
companies often ignore--such as rural America and lower income
communities. Our 5G network will be nationwide and connect the
whole country. We will back our commitment to these areas with
at least 600 new retail stores, five new customer experience
centers, and 12,000 new employees on the ground in rural areas
and small towns--communities that need them the most. Our lower
income customers use the most data because they
disproportionately rely on their phones to access the internet.
They have the most to gain when the price of data drops! Urban
or rural, the merger will build a much-needed bridge across the
digital divide.
We aren't stopping there, as our plans include breaking
into new and emerging lines of business such as enterprise,
Internet of Things (``IoT''), and video.
This merger will be a tremendous jobs creator at New T-
Mobile and across the country.
Certain opponents of our merger with vested interests in
maintaining the status quo have falsely characterized this
merger as a job killer. But they have it all wrong: Our merger
will be jobs positive from day one--and going forward. The
build-out of our 5G network, investment in new customer
experience centers, and expansion into new businesses like
broadband, video distribution, and enterprise services means
thousands more jobs than the two standalone companies would
have needed. New T-Mobile will need approximately 3,600 more
employees in its first year and more than 11,000 more employees
by 2024 than the standalone companies combined without the
merger. We recently announced the locations for three of five
new technologically advanced customer experience centers that
New T-Mobile will build--one in Sprint's hometown of Overland
Park, Kansas, one in the greater Rochester area of New York,
and one in California's Central Valley--each with over one
thousand new employees.
On top of increasing competition and adding jobs, this
merger will also help ensure that the tremendous benefits of 5G
leadership are realized here in America. The United States led
the world in 4G and the monumental ecosystem that was built
around it, spawning companies such as Uber, Snap, and Venmo.
Our merger creates the opportunity to continue that leadership
in the 5G world. Nothing short of our global technology
leadership is on the line.
New T-Mobile will build the robust, nationwide, secure 5G
network that will win the race to 5G.
Neither Sprint nor T-Mobile could do anything close to this
on their own. And no one else will do it on our accelerated
time frame if we don't do it together. The benefits of the
transaction have always been obvious to us. Since we announced
the merger last April, the evidence is even more powerful today
than it was then. In the meantime, I have heard what our
opponents have to say, and I am here today to address those
concerns directly and explain why they're wrong. We are
confident that a T-Mobile/Sprint merger will benefit the U.S.
economy for American workers and consumers and promote U.S.
technological leadership and our national security.
Make no mistake, opponents of the transaction are fear-
mongering about job losses and price increases in a desperate
effort to maintain the status quo. They know that blocking this
transaction will only entrench the incumbent Big Two wireless
carriers AND Big Cable--and that's their goal. Opponents and
their backers are terrified of the competition that a
supercharged Un-carrier will bring!
T-Mobile welcomes this Committee's role in providing
oversight, and I am pleased to answer your questions. First, I
will provide some further details on the transaction and topics
of interest.
Excitement Over the Benefits of the Transaction
Together with Sprint, we have been working since the deal
announcement in April to share the tremendous benefits of the
transaction in every corner of the country. We have also
provided the evidence to back up our claims so that consumers,
employees, policymakers, and regulators could make up their own
minds. We have provided over 25 million pages of T-Mobile
documents to the U.S. Department of Justice and Federal
Communications Commission and have had many meetings with the
staff of both agencies to answer their questions. We've made
filings on the transaction in 19 states and met with a number
of State Attorneys General and their staffs. I've also had the
honor to meet with several Members of this Subcommittee one-on-
one to discuss the transaction's benefits directly. We engaged
from the beginning with U.S. national security agencies with
whom both T-Mobile and Sprint have had longstanding
partnerships. And we've connected with many consumer groups,
small business organizations, civil rights groups, and other
important stakeholders in the wireless economy to understand
their needs and explain the benefits of this transaction.
It has been a long road, but what we've learned is that
when workers, consumers, regulators, and policymakers
understand the facts about the transaction--the details I will
share with you today--they can understand that together T-
Mobile and Sprint will protect and enhance technological
leadership in the world, improve the consumer experience and
consumer welfare, supercharge competition in wireless and
beyond, and create a jobs engine for the U.S. economy.
I'll mention just a few important milestones in our
journey. The Committee on Foreign Investment in the United
States (``CFIUS'') and Team Telecom completed their national
security review and approved the transaction. Sixteen of
nineteen State regulatory commissions (including the District
of Columbia) have approved the transaction, including most
recently the New York Public Service Commission, which
concluded that the transaction is in the public interest.
Attorneys General Sean Reyes (R-UT) and Hector Balderas (D-NM)
have written in support, highlighting benefits to rural
America. Governor Laura Kelly (D-KS) and numerous other State
officials have expressed support for the transaction. We are
particularly honored that Congresswoman Anna Eshoo (D-CA) and
Congressman Billy Long (R-MO) spearheaded a bipartisan letter
of support.
Over 200 national and local civil rights, economic
development, community and business organizations, companies,
government officials, and community leaders have provided
public support for the transaction, including: The U.S.
Hispanic Chamber of Commerce; the U.S. Black Chamber of
Commerce; the National Hispanic Caucus of State Legislators;
the National Rural Education Association; the National Puerto
Rico Chamber of Commerce; and Silicon Harlem, among many
others. At three public interest hearings in Fresno, Los
Angeles, and San Diego, California, at least 60 private
individuals and Members of local community groups came out to
voice support. And a number of MVNOs--so-called ``virtual''
carriers that utilize the T-Mobile, AT&T, Verizon, or Sprint
networks to offer service--such as TracFone, Ultra Mobile/Mint
Mobile, Prepaid Wireless Group, and Republic Wireless, support
the merger because it gives them access to a super 5G network
that will expand their business opportunities and enable them
to compete and better serve their customers.
Several well-respected academics and think tanks have
published papers that support and extol the transaction,
including papers on the competitiveness and dynamism of
wireless markets, the convergence of wireless and wired
broadband, the importance of 5G for rural economic development,
and how U.S. leadership in 5G can help close the digital divide
for the benefit of communities of color.
I have been encouraged by this tremendous support and
excited by the opportunity to share our story with all of you.
U.S. Leadership in 5G is Critical to American Innovation and
National Security
I will start with the amazing 5G network that New T-Mobile
will build by combining T-Mobile and Sprint. This merger will
help ensure that the tremendous benefits of 5G leadership are
realized here in America. The stakes are high--nothing less
than preserving our edge in innovation and maintaining our
security.
Just look at 4G. The U.S. started rolling it out nationwide
before almost any other nation, getting the technology into
hands of innovators and entrepreneurs, and today 99.7% of
Americans are covered by 4G LTE. The result: America and our
innovators led the global mobile economy for the last decade.
Uber, Snap, Venmo, and Instagram are all products and
businesses built largely or entirely on the 4G mobile web.
Furthermore, many of today's global internet leaders like
Google, Facebook, and Amazon rose to prominence by leveraging
the transition to mobile here in the U.S. first. Analysts
estimate this early leadership generated billions in economic
value and millions of new jobs here in America.
As the next generation of wireless technology, 5G is a game
changer. The capacity, speed, and latency of 5G are truly
revolutionary and far beyond what the most advanced 4G network
can support today. 5G will enable superior capacity, faster
data rates, and much lower latency, as well as energy
efficiency leading to longer battery life and the capability to
connect a greater number of devices. Our 5G network will
deliver fiber-like data speeds, low latency for real-time
interactivity, more consistent performance and user experience,
and massive capacity for unlimited data to support things like
4K video streaming, smart cities, real time translation, online
gaming, and other exciting applications that cannot be served
across a substantial number of users by 4G. This will transform
the way Americans live, work, travel, and play. Nearly every
business in America will use 5G to revolutionize how they
create and deliver goods and services. New T-Mobile's 5G
network will serve as a platform for ensuring that the 5G
ecosystem of innovation and technological development occurs in
the United States.
Just as we experienced with 4G, the countries who are first
to deploy broad, robust 5G will enjoy a critical global edge in
innovation, development, and deployment of related technologies
and products, such as the IoT, autonomous vehicles, advanced
telemedicine, and entertainment.
The United States is not alone in pursuing this goal. The
United States must win the 5G race against China and do so in a
way that protects our national security. 5G will be the means
to connect and control phones, computers, cars, and
appliances--nearly every device you can imagine. It is
therefore imperative that U.S. 5G networks are secure. Winning
the 5G deployment race is critical to assuring this security.
It will give U.S. companies more influence as the standards
that define 5G technology continue to develop. It will also
bolster trusted network equipment suppliers who must compete
against Chinese companies such as Huawei and ZTE. And it also
ensures that cutting-edge U.S. innovation around 5G occurs in
the United States, which is as critical for our security as it
is for our economy. The flood of innovation that 5G will
unleash must occur in our country.
Although 5G leadership is critical to America's future, the
United States is falling behind in the 5G race. Other countries
have shown that they will do whatever it takes to win the race
to 5G and are making substantial commitments to support this
goal. China has taken a global lead in the race, thanks to
industry momentum and government support. China's 5-year
economic plan specifies $400 billion in 5G-related investment,
and China Tower alone has added nearly ten times the number of
5G sites than all U.S. companies combined. Since 2015, the U.S.
has underspent China in wireless infrastructure by $8 to $10
billion. It is critically important that we turn the tide and
recommit to American leadership in 5G.
The Combination of T-Mobile and Sprint Ensures U.S. 5G
Leadership
Time is of the essence. Only accelerated deployment of
robust, nationwide 5G will preserve our edge. Only New T-
Mobile's 5G network will do it!
This transaction ensures that America secures 5G leadership
today and in the future. The combination of T-Mobile and Sprint
accelerates deployment of a world-leading, national, broad and
deep 5G network in the United States, built upon a set of
perfectly complementary assets of the two companies. T-Mobile
possesses low-band (600 MHz) spectrum, which is particularly
useful for providing coverage across broad geographic areas,
but has limited capacity, and high-band (mmWave) spectrum,
which is useful primarily for outdoor applications and in
targeted densely populated areas. By contrast, Sprint lacks low
and high-band spectrum, but possesses substantial mid-band (2.5
GHz) spectrum, which has more limited coverage capabilities
than low-band spectrum but provides deep network capacity.
Combining T-Mobile's low-band and high-band wireless spectrum
with Sprint's mid-band spectrum will allow for both extremely
broad coverage and deep network capacity, providing the optimum
scenario for a robust, nationwide 5G network. New T-Mobile will
have the complete portfolio of spectrum necessary to offer top
speeds and massive capacity to dense urban areas. At the same
time, New T-Mobile will also bring robust 5G service to rural
areas that will otherwise lag far behind. No other U.S. company
currently has the available spectrum necessary to deploy 5G
both broadly--truly nationwide coverage to nearly all
Americans--and deeply--with the high speeds and massive
capacity that 5G applications will require. Only this merger
brings these assets together to enable a supercharged,
nationwide 5G network!
New T-Mobile will be able to invest significantly more in
its 5G network than either company could standing alone.
Through cost savings and efficiencies largely derived from
combining the two networks and the scale we will achieve, New
T-Mobile will be able to invest nearly $40 billion over the
next three years to build out and enhance its network and bring
the company into the 5G future. How? Combining with Sprint will
give us the resources to enhance and build the vast, dense
network of cellular towers and high-capacity antennas that will
make full use of these assets for 5G. Today, T-Mobile has
64,000 macro sites across the Nation and Sprint has 46,000. Of
the combined 110,000 towers, New T-Mobile will integrate
approximately 11,000 sites from the Sprint network into the T-
Mobile network and add 10,000 new sites, creating a much
denser, higher capacity network that can carry substantially
more traffic at the same time than either company could on its
own. The breadth of the new cell site infrastructure, with
approximately 84,000 macro cell sites blanketing the country,
will allow New T-Mobile to provide reliable signal strength
levels to far more areas than either standalone company.
When compared to the standalone networks in 2021 and 2024,
New T-Mobile will more than double 5G capacity by 2021, and
nearly triple 5G capacity by 2024--more than eight times the
capacity of T-Mobile and Sprint's networks combined today. This
increase in capacity will dramatically decrease our cost of
delivering each gigabyte of data, which will be translated into
lower prices for customers. Indeed, our business plan
anticipates that prices will continue to decline over the next
six years, and an analysis of our merger by a leading economist
concluded that building the nationwide 5G network will also
provoke competitive responses from Verizon and AT&T and result
in as much as a 55 percent decrease in price per gigabyte and a
120 percent increase in data supply for all wireless customers
across the industry than would happen without this merger.
In terms of speed, within two years of closing, the New T-
Mobile network will be able to offer data speeds five times the
speed of what the standalone T-Mobile 5G network would be able
to offer. By 2024, the speeds will reach a point of fiber-like
capabilities, averaging over 450 Mbps--that's 15 times the
speed of today's T-Mobile network--and the New T-Mobile network
will virtually eliminate the constraints consumers currently
experience in congested environments, allowing for near
instantaneous sharing and downloading of content from almost
any location. This will transform the way Americans live, work,
travel, and play by facilitating an enormous variety of IoT
applications, as well as the full spectrum of connected
devices. In sum, compared to today's T-Mobile network, New T-
Mobile will have 8 times the capacity and 15 times the speed by
2024.
In terms of coverage, New T-Mobile's 5G network will be
truly nationwide. In fact, by 2024, over 290 million Americans
(90 percent) will have access to average data speeds over 100
Mbps through New T-Mobile--higher speeds than many homes have
through wired broadband service today. Neither Sprint nor T-
Mobile on their own would be able to offer anything like that
coverage. Even more incredibly, two-thirds of the country will
have lightning fast 500 Mbps average data speeds by 2024--data
speeds that neither Sprint nor T-Mobile will be able to offer
any consumers on their standalone 5G networks for the
foreseeable future.
Even better, the broad geographic reach of New T-Mobile's
5G network will finally bring rural communities into the mobile
broadband era. Rural communities that lack access to quality
broadband can stagnate economically, as skilled workers take
their talents to urban centers to fully participate in today's
digital economy. Combining T-Mobile's and Sprint's spectrum
allows us to close the gaps in rural broadband access and
increase outdoor wireless coverage to reach 59.4 million rural
residents, or 95.8 percent of the estimated 62 million rural
residents.
Opponents of the transaction have claimed that T-Mobile and
Sprint do not need to merge to roll out 5G. That misses the
point. To be clear, we are not saying we cannot get to 5G
without Sprint. What we are saying is that together, we can
build a world class 5G network with breadth and depth well
beyond anything we could do alone. So, while it is true that T-
Mobile and Sprint have already announced 5G plans, the
standalone plans to deploy 5G are not even close to comparable
to the network New T-Mobile can and will build.
The Combination of T-Mobile and Sprint Safeguards U.S. National
Security for 5G
This transaction will also empower New T-Mobile with the
network, resources, and spectrum to drive U.S. leadership in
5G, safeguarding our networks. New T-Mobile's incredible,
industry-leading 5G network will be built and operated right
here in the United States by an American company with American
management. Our New T-Mobile 5G network will not only be the
most robust, but it will also be the most secure.
T-Mobile and Sprint have engaged extensively in partnership
with the U.S. Government for many years. This partnership will
continue with New T-Mobile into 5G, setting us apart from other
U.S. wireless carriers in providing visibility into our 5G
suppliers and ensuring our network remains safe and secure. As
the global 5G deployment leader, New T-Mobile will have the
most recent and up-to-date security framework with the U.S.
Government of any wireless carrier. And as I mentioned at the
outset, CFIUS and Team Telecom have approved this transaction
after an extensive national security review.
Opponents of the transaction have set up a shadowy group
that refuses to disclose its donors and lobs allegations that
this transaction will allow Huawei and ZTE into U.S. networks.
That's false, and they know it is. Let me be clear--we do not
use Huawei or ZTE network equipment in any area of our network.
Period. And we will never use it in our 5G network.
New T-Mobile will buy network equipment only from trusted
network equipment suppliers with a strong security track record
in the United States. By accelerating deployment of true,
robust nationwide 5G, New T-Mobile will provide a critical lift
to these trusted network equipment vendors--Huawei's
competitors--protecting the 5G supply chain for the United
States and our allies.
Combining T-Mobile and Sprint will create a world-leading
robust, broad, and deep nationwide 5G wireless network unlike
anything either company could do alone and well before anyone
else can do it. The United States will have 5G with or without
this merger. The question is whether America will lead or
follow. As the Un-carrier, we want to lead! Our merger with
Sprint will be the catalyst to do that.
The Creation of New T-Mobile Will Be Better for Consumers
New T-Mobile will have the capital, scale, and network to
supercharge competition and drive a full-on competitive
response from AT&T and Verizon as well as newer players. The
competition will still be far, far larger than us, but the
merger will allow us to upend their lock on the market like
never before. The combined company will continue the T-Mobile
tradition of disrupting the wireless space, but we won't stop
there. We will disrupt broadband, enterprise, and video as
well. This increased competition in wireless and other areas
will also lead to more innovation. This deal is exciting and
transformative for American consumers!
At T-Mobile, we are serious about the potential to grow,
disrupt, and deliver new solutions and alternatives to
consumers from one end of the country to the other. Being a
maverick is in my DNA and T-Mobile's DNA, but it is also
central to our successful business strategy and to the business
plan of the combined company. As we build out our 5G network
and expand into new services, we will need to grow our customer
base. That means keeping the customers we've fought hard to win
and attracting new customers with great quality and prices, and
more innovative offerings. That's why two core assumptions of
our business plan for the New T-Mobile are that prices will go
down and output--data usage by customers--will increase. That's
what makes this merger fundamentally different from one
designed to restrict consumers' choices, reduce supply, and
raise prices. Business success is based on increasing
competition, not reducing it!
First and foremost, the merger will increase competition in
wireless. Our opponents claim that the merger will lead to
higher prices, but this couldn't be further from the truth. I
want to reiterate, unequivocally, that New T-Mobile rates will
NOT go up. Rather, our merger will ensure that American
consumers will pay less and get more.
Greater capacity means our network can handle many more
devices with greater capabilities at the same time everywhere
in the country. It's like building a new stadium with three
times as many seats--we will have the incentive and ability to
bring more people in the door than ever before to fill up the
seats. Our existing customers won't be enough to use all that
extra capacity. We will have enormous economic incentives to
bring new customers in to fill up the network. How will we do
that? By lowering our prices, improving our products, and
offering better service. Indeed, as capacity goes up, the price
per gigabyte goes down, so we will not only be incentivized to
add customers, but to do so at lower prices. The business plan
for New T-Mobile calls for lower prices to win more customers.
This isn't just for any segment of customers--this capacity
dividend will be passed along to all customers, including our
wholesale and prepaid customers. All American customers will
win with lower prices and better services!
In fact, we are so confident that this merger will give
consumers more for their money that we are willing to put our
money where our mouth is. Last month T-Mobile made a commitment
that I stand behind: New T-Mobile will make available the same
or better rate plans as those offered by T-Mobile or Sprint for
three years following the merger. Let me be clear: We are
committed to making the same or better plans available at
current or lower prices. We will not raise prices, and we are
happy to put it in writing!
But that is only part of the story--that's just what New T-
Mobile will do. AT&T, Verizon, Comcast, Charter, and the other
players won't stand still as they will be forced to react fast
or lose even more customers to New T-Mobile! When we lower our
prices, they will have to lower their prices. When we improve
quality, they will have to improve quality. The standalone
T-Mobile has shaken up the industry and caused the big
players to take notice, but the competitive response that we
can force from them will be nothing like what we can do as the
New T-Mobile. When we innovate to offer new products and
services, they will have to do the same. This competitive
response will be game changing, and we can't wait to see the
kind of ecosystem of innovation and technological development
that will occur right here in the United States. When we force
Verizon and AT&T to respond, we're helping more than just our
customers, we're helping all wireless customers across the
country. We've submitted economic analysis to the FCC and DOJ
demonstrating that American consumers will pay roughly 55
percent less per gigabyte of data in 2024 as a result of the
transaction. All consumers, including lower-income and our
diverse customer base, will benefit from increased competition
and lower prices.
One thing I am particularly excited about is that New-T-
Mobile will bring new competition beyond wireless to in-home
broadband--a market where tens of millions of consumers have
few if any choices. Consumers hate their cable and wireline
broadband choices, but today, they rarely have somewhere else
to turn. With the spectrum and infrastructure assets of the
combined companies, New T-Mobile's 5G network will give them a
better option and a reason to ``cut the cord.'' By 2024, we
will be able to deliver mobile wireless data speeds averaging
over 100 Mbps, speeds that will equal or exceed wireline
broadband to nearly 90 percent of the U.S. population, giving
tens of millions of consumers a new mobile wireless alternative
to their current fixed and wired broadband provider, allowing
them to cut the broadband cord. Cutting the cord will offer
enormous savings to consumers. Today, a consumer will typically
pay around $80 a month for wired in-home broadband service.
Cutting the cord will lead to $960 in annual savings for
consumers.
Further, the merger enables New T-Mobile to offer its own
in-home wireless broadband solution (New T-Mobile Home
Internet), and we project that we will sign up 9.5 million
households nationwide for in-home broadband service by 2024--
New T-Mobile will be the fourth largest in-home internet
service provider in the country based upon current subscriber
shares, and a real competitive force in that market segment.
Our economic analysis shows that by 2024 American consumers
will save as much as $7 to $13 billion annually in lower
broadband prices from the new alternatives and competition this
merger will create.
While some opponents of the merger have argued that this
merger will hurt lower-income or budget-conscious consumers,
that is 180 degrees wrong! Budget conscious consumers have the
most to gain from the combination of T-Mobile and Sprint!
Remember, the whole point of this transaction is to give
consumers more for less--that is exactly what budget-conscious
consumers want. That's why we love those customers at T-Mobile.
They demand the best product at the lowest prices possible.
They keep us sharp, so we keep the competition sharp. That's
what we do, and what we will continue to do under the merger--
only bigger and better. All customers of New T-Mobile will
benefit from the transaction because they will all be on the
same great network and benefit from the same massive increases
in capacity and dramatic decreases in the costs of delivering
our service.
Budget-conscious customers, including those on prepaid
plans, will benefit the most from increased capacity and
improved quality of the network. Those customers rely far more
on mobile data than our other customers. They often lack a
fixed broadband connection and use their phones as their
primary or sole connection to the internet. Prepaid customers,
like all of New T-Mobile's customers, will benefit from New T-
Mobile's LTE and 5G improvements at no added cost. A faster,
deeper, and broader network from New T-Mobile is exactly what
they need! And for those that do have broadband today, $960 in
annual savings from cutting the cord is a massive dividend that
we will deliver. New T-Mobile is going to keep all of the great
prepaid brands our customers love from both T-Mobile and
Sprint--great choices like Metro, Boost, and Virgin will
remain, in addition to those our competitors offer.
We will also continue to offer Lifeline services, which is
a program that helps low- income consumers afford phone and
broadband service. You have my commitment on this: Barring
material changes to today's Lifeline program, New T-Mobile is
committed to continuing to offer Lifeline service indefinitely.
But it gets even better: New T-Mobile's expansive 5G network
will allow Lifeline services to be offered in many places where
Sprint had no coverage. And all Lifeline subscribers will be
able to take advantage of the same incredible New T-Mobile
network as other subscribers.
New T-Mobile will also be able to compete in wireless
market segments that T-Mobile and Sprint rarely serve today.
For example, AT&T and Verizon currently dominate enterprise
services, or wireless services for business and government
customers. Despite best efforts, neither Sprint nor T-Mobile
has been able to make in-roads into AT&T and Verizon's nearly
90 percent share of the enterprise space. T-Mobile has only a
very small share of the business market segment (including
small businesses) today, and only an estimated 4 percent share
of the large enterprise and government portion of the segment.
Going forward, New T-Mobile will have the capacity and
resources to be a disruptor in the enterprise space, and we
will have every reason to compete hard for that business by
innovating, offering better service, and lowering prices. Right
now, AT&T and Verizon dominate that market. Armed with more
scale and network capability, New T-Mobile will inject more
competition and innovation into the Enterprise market.
Better for American Workers
T-Mobile is an amazing company to work for. I am proud that
we are rated a top place to work by many organizations,
including among many other accolades being recognized among the
``Best Places to Work'' by employee crowd-sourced website
Glassdoor.com and for the eleventh consecutive year, being
named one of the World's Most Ethical Companies by Ethisphere
Institute.
Our employees are motivated and energized by the success of
the company. They are proud Magenta heroes, all of whom are
owners and invested in the company. Our employees are also
diverse, reflecting who we are and who our customers are. We
have won many kudos for our leadership in the area of diversity
and inclusion. In 2018 alone, Forbes named T-Mobile a ``Best
Employer for Diversity''; we were honored as one of the ``Best
Places to Work for Disability Inclusion'' by the U.S.
Department of Labor's Disability Employment Initiative; and we
were named the ``Best-of-the-Best Corporation for Inclusion''
by the National LGBT Chamber of Commerce. We were also honored
by Military Friendly as one of the ``Nation's Top Military
Friendly Employers''; we were named the ``Top 30 Best Employers
for Latinos'' by Latino Leaders Magazine; and we received a
perfect score on the Human Rights Campaign Corporate Equality
Index.
I am proud that this transaction will grow the number of T-
Mobile employees so even more people will experience our
terrific teams and culture. Unlike many transactions, our
merger will be jobs positive from Day One and in the future.
From 2019 forward there will be more employees at the New T-
Mobile than the standalone companies combined. This is because
New T-Mobile will spend nearly $40 billion to combine spectrum,
sites, and assets and to develop its business over the next
three years. We will need to hire thousands of employees to
combine the networks and deploy 5G, to extend the Un-carrier
customer care model to a wider subscriber base, and to support
growing services like in-home broadband.
New T-Mobile's business plan shows that New T-Mobile will
employ 3,600 more employees after year one, and over 11,000
more employees by 2024, than the standalone companies combined.
This is a result of approximately 600 new stores located to
serve rural customers and small communities and five new
technologically advanced customer experience centers that will
implement the company's innovative ``Team of Experts'' customer
care model. These stores and customer experience centers will
create over 10,000 new American jobs. In fact, we will offer a
job with the New T-Mobile to every single employee of T-Mobile
and Sprint working in one of our retail stores.
T-Mobile's history shows that we may end up hiring even
more people than we expect. When we acquired MetroPCS in 2013,
we expected that MetroPCS's employee count would stay about the
same. Flashing forward to today, over 20,000 more people work
in support of the MetroPCS brand than when the transaction
closed. The same team that integrated MetroPCS into T-Mobile
will lead the effort to seamlessly integrate T-Mobile and
Sprint, and we can expect a similarly successful transition. We
know we will grow jobs, not reduce them. We will need every
hand on deck to build a world-leading 5G network and bring new
competition to AT&T, Verizon, and the Cable giants.
Communications Workers of America (``CWA'') has said that
this transaction will lead to nearly 30,000 job losses across
the United States--more than the total number of Sprint
employees today! Well, I've looked at their study. With all due
respect, it's pure hogwash. The merger does the opposite of
what CWA claims--it grows jobs, not eliminates them. How does
CWA come up with a different answer? Well, it's easy if you
ignore the facts. For example, their analysis doesn't account
for any areas where jobs will grow--like in new customer
experience centers, enterprise services, broadband and media,
and network build and integration. And we've heard this story
before: CWA predicted that T-Mobile would cut 10,000 jobs when
we merged with MetroPCS. Today, over 20,000 more people have
jobs working under the Metro banner than before that merger!
CWA was completely wrong then, and they are wrong now.
Beyond T-Mobile, the innovation and growth fostered by the
acceleration of broadly deployed 5G networks, which the
transaction will instigate, will add hundreds of thousands of
jobs to the U.S. economy. A study we have submitted to the FCC
shows that New T-Mobile will stimulate economic growth
contributing to more than 33,700 additional jobs over the five-
year study period. CTIA predicts that the United States will
add millions of new jobs if we win the race to 5G, and this
transaction will put America in the pole position. We are
excited to be a part of that growth, spurring our suppliers to
hire more workers as we rely on them to turn our investments
into a better, faster 5G network.
New T-Mobile Must and Will Deliver on Its Commitments
No one except a few self-interested critics disagrees that
the United States has to lead in 5G and that creating a more
effective competitor for Verizon and AT&T is better for
consumers and the economy. But some have argued that this
merger will not deliver on what we are promising. I could not
disagree more. We are the Un-carrier. If we broke faith we
would lose our loyal customers and destroy the future of our
brand. I want to assure you that we would never do this. My
management team and I believe in delivering on our promises,
and we know if we do not, we will lose credibility and the
trust of our customers.
Everyone at T-Mobile has put too much blood, sweat, and
tears into this brand and philosophy to abandon our Un-carrier
ways, and our customers are committed to us for it. It matters
to us, it matters to consumers, and it works for our
shareholders. We fully understand that being successful in the
evolving telecommunications marketplace requires that New T-
Mobile continue being an aggressive disruptor that challenges
the status quo. If we changed, we'd run the risk of losing the
confidence of our customers and losing our position of brand
strength in the marketplace--and it would clearly cost us
paying customers. These people came to us because we offered
something different from the other guys. They would abandon
us--and I wouldn't blame them--if we started acting like AT&T,
Verizon, or a hated cable company.
Our business plan and our future success are centered
around building a world class 5G network for everyone and
delivering more to consumers for less. We have a history of
delivering on our promises, and we have no plans of changing
that now. New T-Mobile will deliver on the benefits--a robust,
deep 5G network, increased competition, lower prices for higher
quality, and increased jobs! We will keep true to who we are
and deliver for consumers and for our country.
It's who we are at T-Mobile--but delivering more for less
is also great business! Accelerated, industry-leading, robust,
nationwide 5G deployment is the foundation of New T-Mobile's
business plan. New T-Mobile's business plan also projects
aggressive share increases--taken from the industry leaders
AT&T and Verizon--through its accelerated, enhanced 5G
deployment. New T-Mobile will be able to attract new customers
by delivering more data for the same or less dollars on a
world-class 5G network and bringing new competition to
broadband, enterprise, and video. New T-Mobile's success
depends on being a stronger, more aggressive competitor! T-
Mobile has committed to shareholders that it will rapidly
integrate the networks and deploy industry-leading 5G, and they
have staked billions of dollars on this happening.
That's why we are happy to put our money where our mouth is
and make clear commitments on prices and jobs. We know we can
deliver, as New T-Mobile planned to do it anyway!
Conclusion
The New T-Mobile will enable U.S. leadership in 5G and
bring tremendous benefits for consumers, American workers, and
the economy as a whole. Only this merger, combined with our
winning Un-carrier strategy, can get us there. As we build out
our 5G network and expand into new services our plan is simple:
Keep the customers we've fought hard to win and win new
customers with great quality, lower prices, and more innovative
offerings. Only the New T-Mobile, with the track record and DNA
of the Un-carrier, can actually make that a reality.
Thank you for the opportunity to speak today. I look
forward to your questions.
Mr. Cicilline. Thank you, Mr. Legere.
Mr. Claure is now recognized for five minutes.
TESTIMONY OF MARCELO CLAURE
Mr. Claure. Thank you.
Chair Cicilline, Ranking Member Sensenbrenner, and Members
of the Subcommittee, it is truly an honor to be here, and I am
grateful for the opportunity to speak to you.
I would like to take this opportunity to explain why
Sprint's proposed merger with T-Mobile will be great for the
American consumers, will be great for Sprint employees, and,
more importantly, is going to be great for our country.
I will go into details in a moment but before I do so, I
want to tell you a little about me. First, I am an immigrant. I
immigrated to the United States as a young man from Bolivia. I
had very little money. I went to a small but great university
in Boston and I received a priceless education.
Second, I am an entrepreneur. After I graduated, I founded
a company called Brightstar. I started selling phones out of my
car and I gradually grew Brightstar into the largest mobile
phone distribution and supply chain company in the world. We
worked hard. We grew to over $10 billion in. sales and we had
thousands of employees all over the world. I am most proud that
we made Brightstar the largest Hispanic-owned company in U.S.
history.
In 2014, I sold my business Brightstar to SoftBank. After
that, I immediately became Sprint CEO. At that time, Sprint, a
proud Kansas company, was near financial ruin. In 2013, the
company had lost over $5 billion and in the previous 10 years
Sprint had lost over $25 billion, and we had approximately $31
billion in debt. A great company with tens of thousands of jobs
across the U.S. was at risk.
Beginning in 2014, we undertook a massive and painful
transformation of the company. We worked very hard from the
ground up. We reduced our expenses by close to $6 billion
through cost reductions, employee layoffs, and some unwanted
transfers of jobs overseas. We didn't want to, but we had to do
that to save Sprint.
Today, Sprint is no longer in financial dire straits, but
we still do face serious challenges. Despite our success, we
are unable to fix our remaining challenge, the quality of our
network. We cannot fix our network because of our poor
financial situation and our lack of low band spectrum.
Because of our network quality issues, Sprint still
struggles to attract lots of customers and many customers that
we acquire today leave at a faster pace than our competitors.
Customers today are not willing to sacrifice quality.
Today, the U.S. wireless market has become a duopoly.
Verizon and AT&T has close to 70 percent market share and they
control over 93 percent of the cash flow generated in our
industry. As a result, there is no way that we can invest and
be able to compete at the same level.
Today, America and the world are at a technological
inflection point. Over the next few years, 5G, a new standard
of connectivity, will completely change the way we connect, but
Sprint doesn't have the resources to build a nationwide 5G
network to provide the necessary competition against the AT&T
and Verizon duopoly.
We estimate ourselves that we need at least $20 to $25
billion just to have 5G in our limited coverage area and
because we aren't generating any cash flow, the only way to pay
for this will be to raise more debt and to pay for that debt we
have to raise our prices. We could no longer be the price
leader.
The only company that can build the world's best 5G network
is a combination of Sprint and T-Mobile and we can only do this
if this merger is approved. As a combined company, we are
committed to invest nearly $40 billion over the next three
years to build the world's best 5G network with nationwide
coverage.
How can we do this together? It is simple. It is a marriage
of two necessary and complementary 5G pieces. Sprint has high-
capacity spectrum which it acquired over many years. T-Mobile
has broad national coverage spectrum. It is capacity plus
coverage together that will allow us to build the most advanced
network covering every network, every corner of America in
urban, suburban, and rural areas.
Sprint cannot do this alone and T-Mobile cannot do it
either. We need each other to succeed. We cannot take lightly
the fact that America needs to lead the world in 5G. China has
made it a priority to win the 5G race. They are investing
billions of dollars. When a country has the best network with
the latest technology, it brings massive economic stimulus,
explosive job growth, and a new wave of entrepreneurs.
America's the land of innovators and disrupters. Let's keep
it this way. My story validates this. Letting another country
take 5G leadership away from the U.S. is going to cause
irreparable damage. This is an opportunity of a lifetime.
In addition, as you heard John, we are committed to lower
prices. When we merge our two companies, we are going to create
eight times the network capacity that we would have on our own.
We will have to beat AT&T and Verizon on prices to fill this
new capacity. This makes financial sense. It is good for
business but, more importantly, it is our commitment.
Lastly, it is true that most mergers do not create jobs.
This merger is the opposite. This is a growth story. This new
company will create new jobs, blue-collar and white-collar
jobs, jobs in urban, suburban, and rural America. We will need
a skilled network of engineers, construction crews, enterprise
sales teams, call center jobs that we are going to bring back
from overseas, and new sales reps for the new stores we are
opening.
I can't thank you enough for allowing me to speak today. As
I mentioned, I am grateful to this country. As an American
entrepreneur, I hope the merger is approved. I look forward to
answering your questions.
Thank you.
[The statement of Mr. Claure follows:]
STATEMENT OF MR. CLAURE
Chairman Cicilline, Ranking Member Sensenbrenner, and
Members of the Subcommittee, thank you for the opportunity to
appear today to share my perspective on why this merger will be
good for American consumers, good for Sprint employees, and
good for U.S. technological leadership and the next generation
of entrepreneurs.
This is a critical time in the evolution of the wireless
industry, and it is a particularly critical time for the
customers, employees, and shareholders of Sprint. I have spent
my career driving innovation and competition in the wireless
industry. I served as Sprint's CEO from August 2014 until May
31, 2018, when I transitioned to my current role as Sprint's
Executive Chairman. I am also the Chairman Emeritus of CTIA, a
trade association representing the U.S. wireless communications
industry, and I am expected to serve on the Board of the New T-
Mobile following the completion of the merger.
I know John Legere will be elaborating on his vision for
the new company and all that he hopes to achieve. For my part,
I would like to focus on why joining with T-Mobile now
represents the best opportunity for Sprint to continue to be a
force for competitiveness and innovation in the industry. I
also want to explain the considerations that led us to this
merger.
It is no secret that in recent years, Sprint has had to
chart a course through daunting obstacles. Over the last
decade, the company had lost over $25 billion. For all the
talent and work of our employees, our path was simply not
sustainable.
I am proud of what Sprint has done to stabilize itself and
to put us in position to seize the important opportunity that
we have today to address some of those longstanding challenges.
Sprint is currently in the fifth and final year of its ``Sprint
Now'' plan to turn around the company. We made difficult but
necessary changes that have enabled us to cut billions of
dollars in costs, improve our networks, and do better at
attracting and retaining subscribers. In 2017, Sprint became
net income positive for the first time in 11 years, and we
achieved positive metrics across several other financial
performance measures. Today, we are a more stable company
financially than we have been in a very long time, and that
financial stability has enabled us to embark on new, much-
needed investments in our network aimed at trying to catch up
with technological innovation in our industry. We have also
been able to undertake initiatives such as the 1Million
Project, which gives mobile devices and free high-speed
internet access to high school students who don't have reliable
connectivity at home. I am thrilled that this program will be
continued under the New T-Mobile.
Sprint's employees rightly take pride in all that we have
accomplished together and are optimistic about the future. But
as CEO and now Executive Chairman, I am acutely aware of what
it has taken to get us to this point and the challenges that
lie ahead. Achieving financial stabilization required us to
reduce our network investment to historically low levels and to
shrink the size of the company. Sprint's employee headcount
fell from 40,000 in 2011 to 30,000 in 2018, a 25 percent
decrease that was a painful but necessary step to stabilize our
financial position. We also face an extremely high debt burden,
with nearly $40 billion in total debt as of the end of calendar
year 2018. And we have offered aggressive subscription
promotions in an attempt to gain scale, creating challenges for
our ability to make additional investments.
Even with all of this effort, we still are unable to spend
at parity with Verizon and AT&T, much less catch up to their
previous investments. Our scale presents significant
challenges. Because AT&T and Verizon have significantly more
subscribers than Sprint, they have and can continue to spread
network costs over a much larger customer base, resulting in a
far lower cost per subscriber for a given level of capital
spend. As a result, we continue to face difficult questions
about how best to attract additional customers, improve our
network, and find ways to challenge the two dominant players in
the wireless market, AT&T and Verizon.
There is an urgent need for us to answer the questions
about our future because the wireless industry today is at an
inflection point. It is poised to deploy the next leap forward
in wireless technology--the fifth generation of wireless
service--called 5G. Sprint wants to be a leader in this leap
forward, but our plan anticipates a limited 5G build over time
that will lack broad coverage. Given the characteristics of our
mix of spectrum, our comparatively smaller scale, and the size
of the capital expenditures involved, Sprint will be able to
deliver 5G only in limited areas, focusing on population-dense
metropolitan areas. Consequently, Sprint as a standalone
company cannot fully seize the tremendous opportunity that 5G
creates, much less match what a merged Sprint and T-Mobile
could do together as a competitor and innovator.
It is important to understand how our plans for 5G in the
absence of a merger will necessarily be limited by our spectrum
portfolio, lack of scale, and resource constraints. In
particular, our limited low-band spectrum cannot provide a
basis for launching a ubiquitous coverage layer for 5G, and
building ubiquitous nationwide 5G coverage using only Sprint's
2.5 GHz spectrum would be impractical and economically
infeasible. To be sure, Sprint's 2.5 GHz spectrum will deliver
very high speeds and support substantial capacity where we are
able to deploy it, but due to the propagation characteristics
of 2.5 GHz spectrum, it would not provide a blanket of coverage
outside of major metropolitan and suburban areas. Moreover,
rolling out this more limited 5G network would require Sprint
to invest $20-$25 billion in the next four years.
Although subscribers in certain major cities will benefit
from this roll-out, others will not, nor will we be able to
truly unlock the power of 5G for innovation and
entrepreneurship.
Given these difficulties, I believe Sprint can contribute
most effectively to the rollout of the next generation of
wireless services--with all of the consumer and economic
benefits that it entails--by combining our assets and know-how
with T-Mobile. That is what makes me so excited about this
merger. Through this transaction, the combined company will be
able to build a transformative 5G network in America and unlock
the promise of 5G faster and for more customers than either
company could on a standalone basis. America and the world are
racing to be the first to create the next generation of
wireless technology, and the advantages of being a first mover
cannot be overstated. As you will hear today, this merger will
allow the combined company to dramatically accelerate the
promise of nationwide 5G in the United States, deliver better
performance and value to our customers, and create new jobs and
opportunities for American workers.
I. What the Transaction Means for the Race to 5G
U.S. companies are in a race for 5G leadership, and the
stakes could not be higher. A robust and ubiquitous 5G network
will provide customers with incredibly fast speeds and massive
capacity, and will create an ecosystem where the best creative
minds can develop applications and uses to benefit consumers.
An independent analysis by Accenture concludes that the United
States is positioned to invest $275 billion in 5G, creating
three million jobs and adding $500 billion to our economy. This
merger will accelerate that investment.
This is not just about faster wireless service for our
subscribers--it is about ensuring that the United States leads
in the next generation of innovation, which will rely on the
massive capacity that 5G can unleash. The possible use cases
for 5G include wearables, smart buildings, smart cities, smart
agriculture, and safer self-driving cars. 5G will also include
applications we can only imagine.
The impact of the 4G/LTE deployment helps illustrate how
critical it is for the United States to win the race to 5G.
That generation of technology ushered in companies such as Uber
and Airbnb. Indeed, it helped create the entire ``on-demand''
economy--new businesses and types of jobs that simply didn't
exist before 4G. America led the world in the deployment of 4G.
As a result, the United States got the benefit of the jobs and
increased economic productivity that it facilitated. Much of
the technological innovation enabled by 4G, and many of the
companies built using that innovation, were U.S. companies--
creating new U.S. jobs. An analysis by Recon Analytics
concluded that, by leading when the market evolved to 4G a
number of years ago, the United States boosted annual GDP in
2016 by nearly $100 billion and resulted in a stunning 84%
increase in wireless-related jobs in just a three-year period
(2011-2014).
Winning the race to 5G will require massive new investment
and the right combination of spectrum. As John will describe in
greater detail, the New T-Mobile has committed to spend nearly
$40 billion--far beyond what Sprint has been able to spend in
recent years or what it could spend alone--to achieve this
world-class network and to increase its retail footprint to
market this new technology, creating thousands of U.S. jobs
directly and indirectly.
It is important to understand that the promise of 5G lies
not just in better and faster performance from mobile devices.
The New T-Mobile will have the speed and capacity to substitute
in many areas for in-home broadband--that is, the primary high-
speed internet connection consumers use at home--including in
areas that currently have few or no options for reliable in-
home broadband, finally creating real competition in these
areas. As a result, the new technology will enable the combined
company to increase broadband coverage into more rural areas,
along with improved signal quality and increased network
capacity in places where neither company can profitably do so
on its own. In short, the New T-Mobile will generate
significantly improved and expanded services to unserved and
underserved rural areas and create real choice for consumers.
The blazing speed and enhanced capacity of the New T-
Mobile's 5G network will enable it to offer consumers and
businesses more choices and cost savings. This improved
performance is especially important to our prepaid consumers
and those on a tight budget for whom their mobile wireless
connection is increasingly their best and, in some cases, their
only reliable connection to the internet. The New T-Mobile's 5G
network will also serve as a platform for new video options,
including, but not limited to, video programming offered by the
New T-Mobile itself.
II. What the Transaction Means for Competition
For years, Sprint has recognized the challenges posed by
the fact that it competes in an industry dominated by two main
players: Verizon and AT&T. Eight years ago, my predecessor Dan
Hesse explained to the Senate and the House Judiciary Committee
why a proposed merger between AT&T and T-Mobile would have made
our industry less competitive. At that time, AT&T and Verizon
together had two-thirds of the market, and the proposed merger
would have taken a key disrupter off the field, leaving the
market dominated by two behemoths. That merger did not go
forward, because the government recognized that it was not in
the public interest to let one of the two biggest providers get
even bigger.
But despite the substantial competitive efforts of Sprint
and T-Mobile over the past eight years, AT&T and Verizon's grip
on the market is just as strong today. They still together hold
two-thirds of the market. And they have increasingly found ways
to use their scale to cement their advantages rather than to
compete vigorously with others in the marketplace. A huge and
increasingly insurmountable gap remains between Sprint and both
AT&T and Verizon. The merger today is critical to disrupting
the marketplace and weakening the iron grip these giants have
had on our industry. Even after the merger, the New T-Mobile
will still be third in market share and will still be dwarfed
by AT&T and Verizon in market capitalization. But it will be a
much stronger competitor and a truly disruptive threat to the
two giants' longstanding dominance. As part of the deal
negotiations, executives from Sprint and T-Mobile extensively
discussed the future of the combined company, and it became
clear we share a common vision.
For both Sprint and T-Mobile, this transaction is about the
opportunity to create a better product for consumers than
either company could achieve independently, continuing to offer
innovative services and consumer value, and ultimately becoming
the best wireless carrier in the United States. By joining
forces, our two companies will have an opportunity to go head-
to-head with the giants and to make the marketplace much more
competitive and innovative. In turn, this will force AT&T and
Verizon to accelerate and become more ambitious in their own 5G
plans.
The network that the New T-Mobile will be able to offer
would transform the industry. Combining the complementary
assets of both companies will enable a network that will offer
unmatched coverage, capacity, and quality--both for current LTE
customers and for the future 5G network that the New T-Mobile
will be able to deploy. The combined network will surpass the
quality of the networks offered by Verizon and AT&T, giving
consumers more and better options than they have today.
The transaction provides tremendous synergies, estimated at
about $43 billion, and also provides much-needed economies of
scale. The synergies and scale will allow the New T-Mobile to
make the investments necessary to achieve its vision. Building
and maintaining a national wireless network requires billions
of dollars in capital expenditures and operating expenses each
year. The synergies and scale of the combined company will
create economic incentives for the New T-Mobile to build a
world-class network, and to expand the geographic reach of its
network to more Americans.
In addition, the combined company will be focused on
continuing the disruptive ``Un-carrier'' actions that have
become synonymous with the T-Mobile brand. Led by John and T-
Mobile's Mike Sievert, and drawing on the best that both T-
Mobile and Sprint have to offer, the management team will be
second-to-none. John and Mike have a vision for the New T-
Mobile as a disruptive player in the industry and a force for
innovation. This will be exciting for all the New T-Mobile
employees. And as a prospective member of the Board of
Directors of the New T-Mobile, I am eager to be part of the
combined company and help realize that vision.
Finally, it is important to appreciate that in addition to
AT&T and Verizon, the wireless industry is increasingly seeing
competition from a growing number of companies from other
sectors with different business models, including Comcast,
Charter, DISH, TracFone, and Google. These large, well-
capitalized competitors are pushing into wireless because, just
as we do, they see untapped potential for success if they are
able to deliver better results to customers.
III. What the Transaction Means for Americans
Simply put, this transaction will bring benefits all across
the country--in urban, suburban, and rural America. The
combined company will deliver a far superior network,
delivering tremendous value to consumers. Together, the New T-
Mobile can supercharge the wireless industry with innovation,
disruption, and an obsessive dedication to our customers. These
benefits will be felt in several areas:
4G LTE. In the near term, the combined company will offer
better 4G LTE services. The combined network will be anchored
on the existing T-Mobile 4G LTE network and augmented with
contributions from Sprint's network to improve coverage,
consistency, speed, and capacity, with low income, black, and
Hispanic customers among those who would benefit the most. More
than 37 million Sprint devices are compatible with T-Mobile's
LTE spectrum and can be migrated to the new network, and the
number of customers who can access this improved 4G LTE network
will only increase over time.
5G. Together, as I have discussed, Sprint and T-Mobile will
be the first to deliver a nationwide 5G network with unmatched
breadth and depth. They will be able to do this faster than
either could hope to achieve as standalone companies. In
particular, Sprint and T-Mobile have complementary spectrum
holdings that, when combined, will be perfect for 5G.
As independent entities, both companies would deploy 5G on
their available spectrum, and, as a result of the spectrum they
hold, each company's 5G network would have deficiencies.
Sprint's planned 5G holdings are in mid-band spectrum,
specifically the 2.5 GHz band. A rollout of truly nationwide
coverage on this spectrum would require too many cellular
radios to be economical or practical, and therefore Sprint's
independent 5G network would have coverage gaps. T-Mobile's
planned 5G spectrum holdings, on the other hand, are primarily
in low band spectrum, specifically in the 600 MHz band. Signals
sent over this spectrum travel far, making it ideal for
extending geographic coverage. However, T-Mobile has a fixed
amount of spectrum for 5G, so it will have very limited
capacity, and the network will quickly get congested during
those times when customers most want to use it.
By bringing these resources together, the merger will
create conditions for both nationwide coverage and massive
amounts of network capacity, allowing for a 5G user experience
that is robust and ubiquitous. While others currently advertise
what they claim to be a 5G network, with coverage and capacity
deficiencies noted in the fine print, the New T-Mobile will be
the first to deliver truly mobile and nationwide coverage.
Being faster to develop a ``true 5G'' network will help ensure
that America will lead the development of the 5G ecosystem,
which will be a significant boon for the American economy. If
America can lead in 5G the way that this country led in 4G, it
will benefit not only American consumers, but also all of the
American companies that will develop the products,
applications, and tools that will bring 5G to consumers across
the world.
Lower Prices and Cost Savings. As we have shown in the
analyses we have submitted in support of the merger to DOJ, the
FCC, and State regulators, the New T-Mobile will have powerful
incentives to offer low prices to consumers in order to utilize
the huge increase in network capacity that the transaction will
make possible. The vision that John and Mike have for the New
T-Mobile is that of a ``supercharged maverick,'' with the scale
and resources to make a significant impact on the wireless
marketplace for the better. This means the combined company
will continuously look for ways to offer more for less, so it
can grow its subscriber base and improve value propositions for
American consumers.
Critically, low income consumers will particularly benefit
from these developments. These customers tend to use more
mobile data and therefore will especially benefit from the
increased capacity and improved service quality the New T-
Mobile will provide--as well from the fact that the New T-
Mobile's speed and capacity will give more consumers the option
to ``cut the cord'' and rely on their mobile plans for internet
access.
Jobs. One of the things that excites me most about this
merger is that it will enable us to add employees in the United
States and to bring jobs that have moved offshore back home. I
appreciate that executives' claims that mergers will create
jobs are often met with skepticism. But here, the proposed
merger will grow U.S jobs from day one and for the foreseeable
future. By joining forces, the combined company will be able to
make the investments needed to create a network that neither
company could create on its own. The New T-Mobile is committed
to spending nearly $40 billion over the next three years to
build its 5G network, while also creating thousands of jobs
across the country. In fact, we recently announced that the New
T-Mobile plans to build five new state-of-the-art Customer
Experience Centers around the United States, with each Center
creating an average of 1,000 new jobs.
In addition, the merger puts the combined company in a
unique position to unlock the growth that will come with 5G.
And, as previously mentioned, leading the world in 5G also will
create opportunities for other U.S. companies to develop
products and applications and to start and grow businesses that
will employ thousands and thousands more people. On balance,
this deal will create far more jobs than the status quo.
Impact on Prepaid Customers. Sprint has long been proud to
offer prepaid plans, and it is important to emphasize that the
New T-Mobile's prepaid customers--as with its postpaid
customers--will see significant benefits as a result of this
transaction. As we have explained in our public filings,
following the merger, prepaid customers with compatible
handsets will enjoy the same improved network as postpaid
customers, and perhaps more so, since many prepaid customers
use more data than those on postpaid plans. This improved
service also will not come with higher prices. The New T-Mobile
will be incentivized to deliver more for the same or less due
to having substantially more capacity and lower costs--and will
face continued and likely intensified competition from Verizon,
AT&T, and others.
Impact on Rural Customers. A key benefit of the
transaction, particularly for Sprint subscribers, will be the
dramatic increase in rural 5G coverage due to the combined
company's 600 MHz spectrum and the strong incentives to add
customers created by the enormous capacity of the combined
company's network. Because of the current geographic footprint
of Sprint's network, our customers are too often forced to rely
on roaming agreements for service coverage in rural areas where
they cannot access our network, which are often extremely
expensive and often lead to an inferior customer experience.
But by adding Sprint's 2.5 GHz spectrum to T-Mobile's current
spectrum portfolio, the New T-Mobile will be able to reach more
rural customers and to provide rural customers with mobile and
in-home broadband service at greater speeds and more consistent
signal levels.
The more favorable economics are not limited to wireless
telephony. The new combined 5G network will have the speeds and
capacity to effectively compete with in-home broadband in many
areas. Rural consumers typically have only one or at most two
choices for in-home broadband today. The New T-Mobile would
provide another option and inject competition for the benefit
of these relatively underserved rural customers.
* * *
In short, I truly believe that the New T-Mobile will build
the best wireless network this country has ever seen, far
faster than what either Sprint or T-Mobile could do on its own.
To fill that new network, the New T-Mobile will have strong
incentives to offer a tremendous new product at a great price.
By having the best-in-class network, the new company will be
able to compete for customers who have been reluctant to use
Sprint or T-Mobile because of concerns that the quality of
their individual networks is not as good as those offered by
Verizon or AT&T. The transaction will give these customers more
and better options. AT&T and Verizon have long prided
themselves, and promoted themselves, as having the best network
quality. With the New T-Mobile offering an unrivaled network
experience, Verizon and AT&T will be forced to compete harder
and invest more--and sooner--than they would absent the
competitive spur of this transaction. Their increased
investment will lead to more competition, better service, and
more jobs, all to the benefit of American consumers.
I thank the Subcommittee again for giving me the
opportunity to share my perspective, and Sprint's perspective,
on what will be a procompetitive merger that will benefit
American consumers, American workers, and the American economy.
Mr. Cicilline. Thank you, Mr. Claure.
Mr. Shelton is now recognized for five minutes.
TESTIMONY OF CHRISTOPHER SHELTON
Mr. Shelton. Chair Cicilline, Ranking Member Sensenbrenner,
Chair Nadler, Ranking Member Collins, Members of the Committee.
My name is Chris Shelton. I am the President of the
Communications Workers of America. We represent 700,000
employees in telecommunications and other industries, including
more than 45,000 in the wireless industry.
Let's tell it like it is. This merger would kill American
jobs, depress wages, and raise prices on American consumers to
enrich two foreign companies, Deutsche Telekom from Germany and
SoftBank from Japan.
Members of the Committee--that is economic treason. These
are two of the worst companies in the United States when it
comes to the treatment of workers. They ship jobs overseas and
in recent years T-Mobile has been charged with more labor law
violations per worker than even Walmart.
Let's talk numbers. This merger would kill American jobs.
We estimate that 30,000 Americans would lose their job if this
merger is approved. The Wall Street firm MoffettNathanson
estimates this merger would kill 20,000 jobs.
Whether you take their number or ours, you should
understand that T-Mobile's job creation promises are sheer
fantasy.
Sprint and T-Mobile compete for the same type of customers,
often low-income households, which is why their stores are
located near each other, sometimes right across the street. So,
if the companies merge, chances are they would shut down one of
the two neighboring stores and most of those workers would be
out of a job.
What about the people lucky enough to stay employed? The
merger would drive down wages for all wireless retail workers
in some cases by as much as $3,000 per year.
Employers compete for skilled labor with wages and
benefits. Take away competition and the remaining companies can
throttle down employee's compensation while jacking up prices
on consumers. Both are symptoms of the same disease, too much
market power.
That leads me to something I hope this Subcommittee and
antitrust enforcement agencies will support. We need to include
the wage and job impacts when analyzing whether a merger is
anticompetitive, and we need to consider the impact of
collective bargaining on jobs and wages.
The last 40 years, we have seen more and more mega-mergers.
Corporate profits keep climbing, productivity is going up, and
executive compensation has skyrocketed, but workers' wages have
not kept up. They have stagnated. Highly-concentrated markets
and lack of competition are part of the reason.
The weakening of unions as a powerful force to protect
workers' jobs and wages is another reason for wage stagnation.
As companies have gained market power through consolidation,
workers have gotten weaker as a result of the war on labor. In
antitrust terms, workers have lost countervailing power.
Together, these two factors go far to explain why wages and
living standards have stagnated for U.S. workers. They help
explain the dramatic increase in income inequality in the U.S.,
where the top five percent of Americans control two-thirds of
our nation's wealth.
The good news is that America can do something about it.
First, we can say no to mergers like the T-Mobile/Sprint
transaction and preserve competition in consumer and labor
markets. Second, we can bring back collective bargaining to
protect workers, not just union Members but all workers.
I have yet to hear either of these two corporate CEOs say
they would remain neutral to allow their employees to decide
whether to unionize, free from T-Mobile and Sprint's usual
bullying tactics, intimidation, and antiunion propaganda. They
simply don't want workers to have a say.
If antitrust enforcement agencies and the courts can
consider the consumer price impacts of a merger, they should be
able to consider the impact of collective bargaining as a way
to address anticompetitive effects in relevant labor markets.
Finally, this merger is not only bad for workers, but it
also is a disaster for consumers. T-Mobile and Sprint are each
other's closest rivals, competing aggressively in particular
for lower-income customers and persons of color.
By eliminating this competition, economists estimate price
will go up by as much as 15 percent and while these companies
trumpet the alleged benefits for rural America, their own FCC
filing shows that even six years after the merger, 46 million
Americans, largely in rural areas, would not receive the
benefits of its 5G network.
Thank you, and I look forward to answering your questions.
[The statement of Mr. Shelton follows:]
STATEMENT OF MR. SHELTON
Chairman Cicilline, Ranking Member Sensenbrenner, Chairman
Nadler, Ranking Member Collins, Members of the Committee: Thank
you for the opportunity to testify today.
My name is Chris Shelton. I am President of the
Communications Workers of America (CWA). CWA represents
approximately 700,000 men and women who work in
telecommunications, media, airlines, public service, and
manufacturing. CWA represents more than 45,000 employees in the
wireless industry.\1\
---------------------------------------------------------------------------
\1\ CWA has collective bargaining agreements covering more than
45,000 AT&T Mobility employees and several Verizon Wireless units. T-
Mobile employees, with CWA support, have joined together to form T-
Mobile Workers United, an organization of T-Mobile and MetroPCS call
center and retail employees and technicians working to improve
conditions at work. As I discuss below, both T-Mobile and Sprint have a
long history of violating workers' rights to form a union.
---------------------------------------------------------------------------
My own experience in this industry goes back to 1968, when
I was hired by New York Telephone as a technician. I've worked
in telecommunications and represented telecommunications
employees my entire adult life. So I know a little something
about this industry.
From the outset, let me be clear: This merger as currently
structured would kill American jobs, lower wages, and raise
prices to enrich two foreign companies, Deutsche Telekom from
Germany and SoftBank from Japan. These are two companies with
long histories of violating workers' rights.
I will cover four areas in my testimony today: (1) Job
losses from the proposed merger; (2) T-Mobile's and Sprint's
long history of labor law and employment law violations; (3)
the merger's likely impact on wages; and (4) the reasons
consumers would be worse off if the merger takes place.
Job Loss. The merger of T-Mobile and Sprint will eliminate
an estimated 30,000 jobs across the county. Twenty-five
thousand five hundred of those jobs would be in retail stores,
some owned directly by Sprint and T-Mobile and others owned by
independent retailers. The other job cuts would be in
headquarters, eliminating duplicative functions.\2\
---------------------------------------------------------------------------
\2\ See Fact Sheet: How The T-Mobile/Sprint Merger Will Impact
Jobs, https://cwa-union.org/sites/default/files/t-
mobile_sprint_merger_jobs_fact_sheet_20181126.pdf; Reply Comments of
Communications Workers of America (October 31, 2018) at 5, https://
ecfsapi.fcc.gov/file/1031880128823/REDACTED%20-%20CWA%20T-Mobile-
Sprint%20Reply%20Comments%2010-31-18.pdf (``CWA Reply Comments'');
Comments of Communications Workers of America (August 27, 2018)
Appendix D (describing methodology), https://ecfsapi.fcc.gov/file/
10827275801503/CWA%20T-Mobile-Sprint%20Comments%208-27-2018.pdf (``CWA
Comments'').
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Sprint and T-Mobile compete with each other for the same
type of customers, often low- and moderate-income households,
which is why their stores are located near each other,
sometimes right across the street.\3\ I attach maps of retail
store locations of T-Mobile, Sprint, and their pre-paid brands
Metro (T-Mobile) and Boost (Sprint) in Appendix A.
---------------------------------------------------------------------------
\3\ See CWA Presentation to Federal Communications Commission on
Proposed Sprint/T-Mobile Merger (November 28, 2018) at 27, https://
ecfsapi.fcc.gov/file/113007585462/Redacted%2011-
30%20CWA%20Ex%20Parte%20Notice%20WT%2018-197.pdf (maps showing retail
footprint overlaps in New York City and Los Angeles South).
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It would make no sense for the merged company to keep all
these stores open after the merger. That's not how businesses
operate. Even before this merger was announced, Wall Street
analysts were projecting store closures and job losses from
this merger.\4\
---------------------------------------------------------------------------
\4\ ``Could a Sprint merger with T-Mobile kill more jobs than
Sprint has?'' Chicago Tribune (October 10, 2017), https://
www.chicagotribune.com/business/ct-biz-sprint-t-mobile-merger-jobs-
20171010-story.html.
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CWA did a study, based on T-Mobile's own history and
methodology, which showed the merger would result in a net job
loss of:
L13,700 retail workers in T-Mobile and Sprint
stores;
L11,800 workers in Boost and MetroPCS stores (the
companies' prepaid brands);
L4,500 headquarters employees.\5\
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\5\ See Fact Sheet: How The T-Mobile/Sprint Merger Will Impact
Jobs; CWA Reply Comments at 5; CWA Comments Appendix D (describing
methodology).
T-Mobile's and Sprint's track record with call center jobs
is also telling. Both send a significant portion of call center
work to the Philippines, Guatemala, Honduras, India, Mexico,
Panama, the Dominican Republic, Costa Rica, and Canada.\6\
---------------------------------------------------------------------------
\6\ Fact Sheet: How The T-Mobile/Sprint Merger Will Impact Jobs;
CWA Comments at 60-61.
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T-Mobile points to its 2012 acquisition of MetroPCS, and
says look how many jobs that deal created. But MetroPCS was not
a significant competitor. It was in a line of business that T-
Mobile wanted to get into, prepaid wireless retail, and at the
time of acquisition, located in only 15 markets. After the
acquisition, T-Mobile grew the MetroPCS business by expanding
nationwide. The job growth came from that fact, and that fact
alone. More than 95 percent of MetroPCS locations are operated
by authorized dealers, so when T-Mobile is claiming job growth
here, almost none of that is on its direct payroll.\7\
---------------------------------------------------------------------------
\7\ CWA Comments at 57.
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T-Mobile's 2018 acquisition of iWireless, a regional
carrier in Iowa, shows what happens to jobs when T-Mobile takes
over a company that directly competes with it in the same
geographic territory. The results aren't pretty. T-Mobile
closed more than 72 percent of iWireless corporate stores and
more than 93 percent of authorized dealer stores. T-Mobile also
shuttered iWireless customer call centers in Des Moines and
Cedar Rapids, Iowa. After the closures, T-Mobile left virtually
no stores in rural Iowa. People would have to drive an average
of 68 miles or more to get help from a retail employee.\8\
---------------------------------------------------------------------------
\8\ CWA, ``Disrupting Rural Wireless: How a T-Mobile Takeover
Harmed Consumers and Small Businesses in Iowa'' (Feb. 2019), https://
www.tmobilesprintfacts.org/system/files/disrupting-rural-wireless-
201902.pdf.
---------------------------------------------------------------------------
I attach a copy of CWA's report Disrupting Rural Wireless
to my testimony as Appendix B.
So what is the company's response now? Under pressure, T-
Mobile CEO John Legere offers vague promises that the ``New T-
Mobile'' won't close any of the Boost and MetroPCS prepaid
stores and that it will retain current T-Mobile employees.
I can tell you that a promise to keep stores open is
meaningless. A vague promise to keep employees is meaningless.
Without binding and enforceable commitments--and I mean
commitments that have no loopholes--such promises are just
cheap sales talk and are easily broken. If it is more
profitable to close stores, the ``New T-Mobile'' will close
them. If it is more profitable to squeeze employees through
lower wages and commissions or to lay off employees, the ``New
T-Mobile'' will do so.
T-Mobile and Sprint have a long history of violation of
workers' rights. Both of these companies, and T-Mobile in
particular, have long histories of ignoring workers' rights and
violating federal labor laws. This history speaks volumes about
the trustworthiness and corporate character of these companies.
T-Mobile has an aggressive policy to deny employees their
legal right to form a union. It has been found guilty of
violating U.S. labor law six times since 2015 and has been
subject to approximately 40 unfair labor practice charges since
2011. Findings of illegal activity by the federal courts, the
National Labor Relations Board (NLRB), and an Administrative
Law Judge include, among other things:
LMaintaining unlawful rules forbidding workers
from speaking to each other and others about wages and working
conditions (nationwide violation; U.S. Court of Appeals for the
5th Circuit affirmed the Board's order).\9\
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\9\ T-Mobile USA, Inc., 363 NLRB No. 171 (Apr. 29, 2016), enf'd in
relevant part T-Mobile USA, Inc. v. Nat'l Labor Relations Bd., 865 F.3d
265 (5th Cir. 2017).
---------------------------------------------------------------------------
LCreating, maintaining, dominating and assisting
an internal organization called T-Voice to try to discourage
workers from forming, joining, or supporting an independent
union (nationwide violation).\10\
---------------------------------------------------------------------------
\10\ T-Mobile USA, Inc., JD-23-17, 2017 WL 1230099 (Apr. 3, 2017).
LSurveilling and interrogating employees about
union activity, restricting discussions about working
conditions over social media, and prohibiting employees from
sending union-related emails.\11\
---------------------------------------------------------------------------
\11\ T-Mobile USA, Inc., JD-57-16, 2016 WL 3537770 (June 28, 2016).
---------------------------------------------------------------------------
LUnlawfully prohibiting employees from talking
about the union during work time.\12\
---------------------------------------------------------------------------
\12\ T-Mobile USA, Inc., 365 NLRB No. 15 (Jan. 23, 2017).
---------------------------------------------------------------------------
LRequiring employees, including one who filed a
sexual harassment complaint, to sign an unlawful
confidentiality notice prohibiting them from discussing with
one another information from employer-led investigations, and
threatening discipline, up to and including discharge, if they
engaged in those discussions.\13\
---------------------------------------------------------------------------
\13\ T-Mobile USA, Inc., JD (NY)-34-15, 2015 WL 4624356 (Aug. 3,
2015), adopted by NLRB on Sept. 14, 2015.
In recent years, T-Mobile has been the subject of more
unfair labor practice charges per employee than any other big
business in the United States, including Walmart.
Sprint's violation of workers' rights dates back to the
landmark La Conexion Familiar case in which Sprint fired 226
employees and closed its Spanish-language telemarketing center
in San Francisco to avoid a union election.\14\ Sprint current
and former workers have sued the company multiple times for
alleged wage and hour violations affecting thousands of
workers.\15\
---------------------------------------------------------------------------
\14\ CWA Comments at 67-70 (citing La Conexion Familiar and Sprint
Corp., 322 NLRB No. 137 (1996)).
\15\ See Cara Bayles, Sprint Inks $1.2 M Deal To End Workers' Wage
And Hour Suit, Law360 (Oct. 4, 2017), https://www.law360.com/articles/
970869/sprint-inks-1-2m-deal-to-end-workers-wage-and-hour-suit; David
McAfee, $4.85 M Settlement for Sprint Workers Gets First OK, Bloomberg
(Feb. 29, 2016), https://www.bna.com/485m-settlement-sprint-
n57982067900/; Sprint settles overtime pay suits for $8.8 M, Kansas
City Business Journal (Jan. 15, 2009), https://www.bizjournals.com/
kansascity/stories/2009/01/12/daily40.html; See Erin Marie Daly, Sprint
Call Center Workers Win Back Wages, Law360 (May 21, 2009), https://
www.law360.com/texas/articles/102852/sprint-call-center-workers-win-
back-wages.
---------------------------------------------------------------------------
No matter how many online ``Town Hall'' pep rallies Mr.
Legere stages, the facts are clear that T-Mobile does not
respect the rights of its employees that are guaranteed by law.
The merger will reduce wages and benefits for retail
wireless workers. Permitting this merger to go through as
proposed would drive down wages for all Americans who work in
the wireless retail market, in some cases by as much as $3,000
per year.
In recent years, economists have puzzled over a central
question. Over the past three decades, productivity has gone
up, corporate profits have increased, and executive
compensation has skyrocketed. But workers' wages have
stagnated. Wages have become detached from productivity
gains.\16\
---------------------------------------------------------------------------
\16\ See Economic Policy Institute, ``The Productivity-Pay Gap''
(updated August 2018), https://www.epi.org/productivity-pay-gap/.
---------------------------------------------------------------------------
The lack of wage growth is a persistent problem that,
without question, has led to the hollowing out of the American
middle class and increased income inequality. A central reason
for wage stagnation is the decline in collective bargaining
coverage in this country. Simply put, unions raise wages.\17\
Another reason for wage stagnation, and one that is
particularly relevant to this Subcommittee, is the
consolidation that has been brought about through mergers
between non-union firms. Since 2008, American firms have
engaged in one of the largest rounds of mergers in history.\18\
By most accounts, industries in America have become
increasingly concentrated.\19\ And as industries have
consolidated, labor markets have also consolidated. As the
Council of Economic Advisors explained at the end of the Obama
Administration:
---------------------------------------------------------------------------
\17\ See Economic Policy Institute, ``How Today's Union's Help
Working People,'' (August 24, 2017), https://www.epi.org/publication/
how-todays-unions-help-working-people-giving-workers-the-power-to-
improve-their-jobs-and-unrig-the-economy/.
\18\ See ``Too Much of a Good Thing,'' The Economist, March 26,
2016, https://www .economist.com/briefing/2016/03/26/too-much-of-a-
good-thing.
\19\ See generally ``Is there a Concentration Problem in America?''
Stigler Center for the Study of the Economy and the State, University
of Chicago Booth School of Business, https://promarket.org/wp-content/
uploads/2018/04/Is-There-a-Concentration-Problem-in-America.pdf.
The presence of a limited number of firms in the market for a
particular type of labor may give each of these firms some
power in setting wages. For example, factory line workers have
fewer opportunities to ``vote with their feet'' in a town with
one manufacturing plant relative to one with many. Holding
other factors equal, higher concentration in a labor market may
lead to lower wages just as higher concentration in a product
market often leads to higher prices.\20\
---------------------------------------------------------------------------
\20\ Counsel of Economic Advisors Issue Brief (October 2016), Labor
Market Monopsony: Trends, Consequences, and Policy Responses, https://
obamawhitehouse.archives.gov/sites/default/files/page/files/
20161025_monopsony_labor_mrkt_cea.pdf, at 4.
Recently, a number of economists have been measuring the
impact that mergers have on wages, particularly as more
industries become highly concentrated.\21\ Professor Eric
Posner of the University of Chicago has observed that
``[c]oncentration is far more serious in labor markets than in
product markets; wage suppression is much more significant than
price inflation.'' \22\
---------------------------------------------------------------------------
\21\ See Ioana Elena Marinescu and Herbert J. Hovenkamp,
Anticompetitive Mergers in Labor Markets (2018), Faculty Scholarship at
Penn Law, https://scholarship.law.upenn.edu/faculty_scholarship/1965 at
9 (``Until recently, imperfect competition in the labor market has not
received much attention in antitrust enforcement. One possible reason
is the belief that there are many jobs out there, so a merger is
unlikely to lead to a monopsony and tosubstantially affect workers'
opportunities in the labor market. However, a growing body of empirical
evidence indicates that labor market monopsony is a real issue.''); See
also Jose Azar, Ioana Marinescu, and Marshall Steinbaum ``Labor Market
Concentration,'' National Bureau of Economic Research Working Paper No.
24147 (December 2017), National Bureau of Economic Research Working
Paper No. 24147; Kevin Rinz, ``Labor Market Concentration, Earnings
Inequality, and Earnings Mobility,'' CARRA Working Paper No. 2018-10
(2018), https://www.census.gov/library/working-papers/2018/adrm/carra-
wp-2018-10.html.
\22\ See Eric A. Posner, ``Why the FTC Should Focus on Labor
Monopsony,'' https://promarket.org/ftc-should-focus-labor-monopsony/.
---------------------------------------------------------------------------
The antitrust agencies, under both Democratic and
Republican leadership, have begun to focus on the problem of
labor market power.\23\
---------------------------------------------------------------------------
\23\ The head of the Antitrust Division under former President
Obama stated that antitrust enforcement efforts must benefit not only
consumers, but ``also benefit workers, whose wages won't be driven down
by dominant employers with the power to dictate terms of employment.''
Acting Assistant Attorney General Renata Hesse of the Antitrust
Division Delivers Opening Remarks at 2016 Global Antitrust Enforcement
Symposium (September 20, 2016), https://www.justice.gov/opa/speech/
acting-assistant-attorney-general-renata-hesse-antitrust-division-
delivers-opening. The current Chair of the Federal Trade Commission has
directed FTC staff to include effects on the labor market in their
merger investigations. See Pallavi Guniganti, ``FTC will look at labour
monopsony, Hoffman says,'' Glob. Competition Review, June 8, 2018,
https://globalcompetitionreview.com/article/usa/1170360/ftc-will-look-
at-labour-monopsony-hoffman-says. The current head of the Antitrust
Division has increased enforcement efforts directed at so-called ``no
poaching'' agreements among employers. See ``US: DOJ Antitrust Division
announced criminal prosecution for No Poaching agreements,''
Competition Policy International (Feb. 7, 2018), https://
www.competitionpolicyinternational.com/us-doj-antitrust-division-
announced-criminal-prosecution-for-no-poaching-agreements/.
---------------------------------------------------------------------------
Collective bargaining can mitigate this effect.\24\ Indeed,
the preamble to the National Labor Relations Act recognizes
that ``protection by law of the right of employees to organize
and bargain collectively'' may restore ``equality of bargaining
power between employers and employees.'' \25\ In antitrust
terms, collective bargaining can create countervailing power.
As I have already discussed, both T-Mobile and Sprint have long
histories of violating workers' rights.
---------------------------------------------------------------------------
\24\ Efraim Benmelech, Nittai Bergman, Hyunseob Kim, ``Strong
Employers and Weak Employees: How Does Employer Concentration Affect
Wages?'' National Bureau of Economic Research Working Paper No. 24307
(February 2018), https://www.nber.org/papers/w24307.
\25\ See 29 U.S.C. 151.
---------------------------------------------------------------------------
The Economic Policy Institute and the Roosevelt Institute
did a study of the proposed T-Mobile and Sprint merger in order
to see what impact it is likely to have on the wages of retail
wireless workers.\26\ After the merger, those workers will lose
one option that is available to them today about where to work.
The results are instructive. According to the authors,
---------------------------------------------------------------------------
\26\ ``Labor market impact of the proposed Sprint-T-Mobile merger''
(December 17, 2018), https://www.epi.org/files/pdf/159194.pdf.
We find that the merger would reduce earnings in the affected
labor markets. Specifically, in the 50 most affected labor
markets, we predict that weekly earnings will decline by $63 on
average (across markets) using the specification with the
largest magnitude, and $10 on average using the smallest
magnitude specification. These weekly earnings declines
correspond to annual earnings declines of as high as $3,276 (or
$520 under the smallest-magnitude specification).\27\
---------------------------------------------------------------------------
\27\ Id. at 1.
To put this finding in context, it means that the proposed
merger could lead to an aggregate annual earnings reduction of
between $82.8 million and $543.6 million for the roughly
220,000 retail wireless workers in the United States.\28\ This
would be nothing other than a transfer of wealth from workers
to corporate owners, pure and simple. Importantly, these and
other researchers have also found that unionization mitigates
the earnings-reducing effect of concentration.\29\
---------------------------------------------------------------------------
\28\ See CWA Notice of Ex Parte Meeting, March 1, 2019, https://
ecfsapi.fcc.gov/file/1030225339358/CWA%20Ex%20Parte%20%202-27-19.pdf,
at 4.
\29\ Efraim Benmelech, Nittai Bergman, Hyunseob Kim, ``Strong
Employers and Weak Employees: How Does Employer Concentration Affect
Wages?'' National Bureau of Economic Research Working Paper No. 24307
(February 2018), https://www.nber.org/papers/w24307.
---------------------------------------------------------------------------
I attach a copy of the EPI/Roosevelt Institute study
entitled ``Labor market impact of the proposed Sprint-T-Mobile
merger'' to my testimony as Appendix C.
The Merger Would Harm Consumers with Higher Prices.
Finally, I want to spend just a small amount of time on how and
why the proposed merger would be bad for consumers.
A few years ago, SoftBank (the parent company of Sprint)
approached Assistant Attorney General William Baer of the U.S.
Department of Justice Antitrust Division and Chairman Tom
Wheeler of the Federal Communications Commission about a
possible deal with T-Mobile. Both of these officials made it
crystal clear to Sprint's owners not to push ahead with it. As
Baer and Wheeler put it, ``The idea of eliminating a pesky
rival may have made sense for Sprint. But not for the American
consumer.'' Sprint reluctantly ditched the idea.\30\
---------------------------------------------------------------------------
\30\ Bill Baer and Tom Wheeler, ``Here's who loses big time if
Sprint and T-Mobile are allowed to merge,'' CNBC (May 19, 2017),
https://www.cnbc.com/2017/05/19/heres-who-loses-big-time-if-sprint-and-
t-mobile-are-allowed-to-merge-commentary.html.
---------------------------------------------------------------------------
Sprint and T-Mobile are each other's closest competitors.
Their prepaid brands, in particular, compete aggressively for
lower-income customers and persons of color in large, urban
U.S. markets.\31\
---------------------------------------------------------------------------
\31\ See Reply to Opposition by Free Press (October 31, 2018), at
2, 14-18, https://www .freepress.net/sites/default/files/2018-11/
redacted_mobile_sprint_reply_comments_free _press.pdf.
---------------------------------------------------------------------------
While these companies trumpet the alleged benefits of this
merger for rural America, data in their own FCC filings show
the contrary. Even six years after a T-Mobile/Sprint merger, 46
million Americans--which include most of the merged company's
rural customers--would not receive the benefits of its next-
generation 5G network. Rather, they would be forced to settle
for a service that has significantly lower performance than the
urban and suburban parts of the network. The ``digital divide''
between urban and rural America is likely to get worse, not
better.\32\
---------------------------------------------------------------------------
\32\ CWA Comments at 47-52 and Appendix A: Declaration of Andrew
Afflerbach, Ph.D., P.E. (``[B]ased on my review of the information
presented in the Applicant's [Public Interest] Statement, the merged
New T-Mobile would only provide marginally better broadband options
than stand-alone T-Mobile in much of rural America.'').
---------------------------------------------------------------------------
I attach a copy of the Declaration of Dr. Andrew Afflerbach
analyzing the impact of the proposed T-Mobile/Sprint merger on
rural America to my testimony as Appendix D.
Last time I checked, the antitrust laws and the
requirements under the Communications Act have not changed.
Congress has not repealed them. And keep in mind, the antitrust
laws are laws, they are not just recommendations or
suggestions. A merger that was presumptively unlawful in 2015
or 2016 is presumptively unlawful today.
Our economy is at a crossroads. We as a Nation must decide
whether we will permit the inexorable drive towards corporate
consolidation and concentrated power at the expense of
employees, customers, communities, and our economy.
This bad deal is not saved by 5G, 6G or 7G. It is not saved
because the next technological development is on the horizon.
It is not saved by speculating about competition with cable
companies.
This deal, if it goes ahead, will destroy 30,000 American
jobs and hurt consumers. The harms are real. The alleged
benefits are pure sales talk. This merger would kill American
jobs and raise prices for consumers to benefit two foreign
companies, Deutsche Telekom from Germany and SoftBank from
Japan.
Thank you for giving me the opportunity to testify.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you, Mr. Shelton.
Ms. Sohn is now recognized for five minutes.
TESTIMONY OF GIGI SOHN
Ms. Sohn. Chair Cicilline, Ranking Member Sensenbrenner,
Chair Nadler, Members of the Subcommittee, thank you for
inviting me to testify today.
When I was working for Chair Wheeler in 2014, executives
from T-Mobile, Sprint, and SoftBank visited the FCC several
times to get his thoughts on a possible merger between T-Mobile
and Sprint.
Chair Wheeler didn't discourage the parties from seeking
merger approval, but he was clear that they would have a tough
time showing that the merger wouldn't be anticompetitive.
A pioneer in the wireless industry, Chair Wheeler had seen
immense consolidation from 2003 to 2013, the country's eight
mobile wireless carriers shrunk to just four. He believed
strongly that reducing the number of wireless carriers from
four to three would harm consumers through higher prices,
coordinated effects, and less innovation.
Bill Baer, the Assistant Attorney General for Antitrust at
the time, agreed and said so publicly in January 2014.
Later that year, after the parties abandoned the deal,
Chair Wheeler said, ``Four national wireless providers are good
for American consumers. Sprint now has an opportunity to focus
their efforts on robust competition.''
Nothing in the intervening five years has altered the
previous analysis that this combination would be harmful for
consumers and the wireless industry.
T-Mobile and Sprint occupy vital roles in today's national
wireless market. Both are mavericks who forced AT&T and Verizon
to lower their prices and to adopt more consumer-friendly
service plans.
T-Mobile was the first carrier to eliminate two-year
contracts and provide unlimited data. T-Mobile and Sprint were
the first to allow subscribers to unlock their phones. Both
companies fought to match AT&T and Verizon in coverage, speed,
and reliability. Importantly, the companies compete to the
benefit of the value-conscious consumer.
This dynamic will change if the companies are allowed to
merge. With a market share similar to AT&T and Verizon, New T-
Mobile would have reduced incentives to engage in price and
non-price competition as well as greater incentive and ability
to cooperate with those companies to raise consumer and
wholesale prices.
Indeed, one analysis found that consumer price increases
from this transaction could be as much as 15 percent. The
merging parties don't dispute that prices will rise but argue
that improvements to the service quality, no matter how small,
will be worth the extra cost. That is a dicey proposition for
consumers that are attracted to T-Mobile and Sprint because of
their cheaper postpaid innovative prepaid services.
These higher prices will have a disproportionate effect on
consumers of prepaid service who tend to be low-income and
people of color. This merger would result in New T-Mobile
controlling about 43 percent of prepaid market and the market
for prepaid services would shrink from three to two.
The merging parties recognize these price increases but
argue that low-income consumers will accept them because they,
and I quote, ``heavily rely on their smart phone for their
communication and media consumption.'' That is quite a
remarkable thing to say about consumers for whom an extra $10 a
month would be an unwelcomed hardship.
The harm from four to three mobile wireless mergers is
clear. In both the Netherlands and Austria, four to three
mergers saddle consumers with double-digit price increases. In
both cases, one of the remaining carriers was a T-Mobile
affiliate. In the U.S. similar concerns over higher prices and
the elimination of competition moved the DOJ to sue to block
the proposed AT&T/T-Mobile merger in 2011.
Faced with overwhelming evidence that four to three mergers
and this particular merger will lead to higher prices, T-Mobile
has twice promised the FCC not to raise prices on its rate
plans for three years. The mere fact that T-Mobile believes it
must make this so-called pricing commitment is an admission
that post-merger there would not be enough competition in the
wireless market to constrain price increases.
It also undermines the parties insistence that the merged
entity would have so much capacity that it wouldn't raise
prices. Regardless, the pricing commitment is riddled with
ambiguities and loopholes. Neither the FCC nor the DOJ is
capable of overseeing this kind of price regulation.
My written testimony argues that the purported benefits of
this merger, faster 5G roll-out, increased rural coverage, and
more jobs, are speculative, non-merger-specific, and non-
cognizable, in any event wouldn't outweigh the merger's harms.
I will add T-Mobile's recent promise that it will provide
in-home broadband to a fraction of U.S. homes by 2024. I would
love to see more competition to big cable, but in addition to
being too far in the future to be relevant to antitrust
scrutiny, this promise has absolutely nothing to do with the
market that is the subject of this merger: the market for
national mobile wireless services.
I am a proud T-Mobile customer and a fan of both its CEO
and its Government Relations Team, but I am not a fan of this
merger because the harms to consumers who value low-cost and
innovative service plans far outweigh the supposed benefits.
Thank you, and I look forward to your questions.
[The statement of Ms. Sohn follows:]
STATEMENT OF MS. SOHN
Chairman Cicilline, Ranking Member Sensenbrenner and
Members of the Subcommittee.
My name is Gigi Sohn. I am a Distinguished Fellow with the
Georgetown Institute for Technology Law and Policy and a Benton
Senior Fellow and Public Advocate. I served as Counselor to
former Federal Communications Commission (``FCC'') Chairman Tom
Wheeler from November 2013 to December 2016. In 2011, as
President and CEO of Public Knowledge, I testified alongside
then-Sprint CEO Dan Hesse at a hearing of the Senate Judiciary
Committee's Antitrust Subcommittee in opposition to the
proposed AT&T-T-Mobile merger.
Thank you for inviting me to testify today on the proposed
merger of Sprint and T-Mobile.
Introduction: The Sprint T-Mobile Merger: Wrong Then and Now
When I was working for Chairman Wheeler in the spring and
summer of 2014, executives from T-Mobile, Sprint and Softbank
visited the Commission on several occasions to get Chairman
Wheeler's thoughts on a possible merger between T-Mobile and
Sprint. These meetings included on at least one occasion, a
detailed Power Point presentation on the alleged merits of the
transaction.
Chairman Wheeler did not discourage T-Mobile and Sprint
from seeking FCC approval of the merger, but he was clear that
the parties would have a difficult time convincing him that
such a merger would not be anticompetitive. As pioneer and an
entrepreneur in the mobile wireless industry, Chairman Wheeler
had seen firsthand immense consolidation in the industry: from
2003-2013, the country's 8 mobile wireless carriers were
reduced to just 4. While he believed then that that the mobile
wireless industry had already gotten too consolidated, he also
believed strongly that further reducing the number of national
wireless carriers from 4 to 3 would harm consumers through
higher prices, coordinated effects and less innovation. In
August 2014, following news that the parties had abandoned the
deal, Chairman Wheeler issued the following statement:
``Four national wireless providers are good for American
consumers. Sprint now has an opportunity to focus their efforts
on robust competition.'' \1\
---------------------------------------------------------------------------
\1\ Brian Fung, Why regulators are the big winners in the failed
Sprint-T-Mobile deal, Washington Post, August 6, 2014 found at https://
www.washingtonpost.com/news/the-switch/wp/2014/08/06/why-regulators-
are-the-big-winners-in-the-failed-sprint-t-mobile-deal/?utm_term=
.69e1ef0f8f16.
Chairman Wheeler was correct then to think that such a
merger would be anticompetitive. Nothing in the intervening 5
years has altered the analysis that this combination would be
harmful. Today, the proposed Sprint T-Mobile merger would be
just as bad for consumers and the wireless industry.\2\ It
would concentrate market power in the hands of three behemoth
wireless companies, driving up prices and reducing innovation.
The history of 4-to-3 mergers in the mobile wireless industry
in Europe is instructive here--in each case, consumers have had
to bear the brunt of significant price increases.
---------------------------------------------------------------------------
\2\ Chairman Wheeler, and Bill Baer, who was the Assistant Attorney
General for Antitrust under President Obama agree, writing in a 2017
editorial that ``the merger made no sense before, and it makes no sense
today.'' Bill Baer and Tom Wheeler, Here's Who Loses Big Time if Sprint
and T-Mobile are Allowed to Merge, CNBC, May 19, 2017) found at https:/
/www .cnbc.com/2017/05/19/heres-who-loses-big-time-if-sprint-and-t-
mobile-are-allowed-to-merge-commentary.html.
---------------------------------------------------------------------------
The merging parties allege a number of benefits that they
say will result from this merger: faster 5G buildout, increased
rural buildout and more jobs. But these purported benefits are
speculative, non-cognizable and not specific to this merger,
and in any event do not outweigh the harms to consumers and
competition that would result from this transaction.
For these reasons, and the reasons described by my
colleagues on this panel and in the FCC's record, the Members
of this Committee should urge the Department of Justice
(``DOJ'') and the FCC to block this transaction.
I. Merger of T-Mobile and Sprint Will Substantially Lessen
Competition in the National Mobile Wireless/Broadband Market
The proposed merger of T-Mobile and Sprint into a New T-
Mobile is a classic 4-to-3 horizontal merger that will lead to
fewer choices, higher prices, and less consumer-friendly
service offerings.
The New T-Mobile would combine two maverick firms that
have, for the past 8 years, forced the two largest mobile
wireless carriers, Verizon and AT&T, to lower their prices and
adopt more consumer-friendly service offerings. For example, T-
Mobile, the ``Un-Carrier,'' was the first to eliminate two-year
contracts and to provide unlimited data and creative family
plans. T-Mobile and Sprint were the first carriers to allow
subscribers to unlock their phones. Sprint proudly took a
chainsaw to its competitor Verizon's bills and offered to cut
those costs in half. Both companies have fought to match AT&T
and Verizon in coverage, speed and reliability.
T-Mobile and Sprint have promoted themselves as low-cost
providers and currently offer the cheapest data plans of the 4
nationwide mobile wireless carriers. As such, T-Mobile and
Sprint have competed vigorously with each other as well, to the
benefit of the ``value consumer'' seeking better rates and
service plans. Just as important, the competition between
Sprint and T-Mobile has had a moderating effect on AT&T and
Verizon, forcing them to respond with lower prices and more
attractive service options. All of this competition has
benefitted consumers.
If allowed to proceed, this merger would result in a New T-
Mobile with a market share closer to that of AT&T and Verizon.
As a result, New T-Mobile would have reduced incentives to
engage in price and non-price competition, as well as a greater
incentive and ability to cooperate and collude with those
companies to raise both consumer and wholesale prices. The
remaining three network operators would each have the incentive
to raise prices unilaterally and also to substantially increase
the maximum price that carriers will be willing to initiate and
match.
Indeed, one analysis found that this transaction ``will
result in [consumer] price increases of up to 15%.'' \3\
---------------------------------------------------------------------------
\3\ Petition to Deny of Dish Network Corporation in the Matter of
Applications of T-Mobile U.S., Inc. and Sprint Corporation (filed
August 27, 2018) at 11.
---------------------------------------------------------------------------
The merging parties don't dispute that prices will go up,
but argue instead without proof that the improvements to the
quality of their service, no matter how minimal, will be worth
the significant extra cost. That is a dicey proposition for the
value and low-income consumers that are most attracted to T-
Mobile and Sprint because of their less expensive postpaid and
their innovative prepaid services.
These higher prices will have a disproportionate effect on
customers of prepaid service, who tend to be low income
customers and people of color. This merger would combine T-
Mobile's Metro PCS and Sprint's Boost Mobile and Virgin Mobile
Services, resulting in New T-Mobile controlling an estimated
43% percent of the pre-paid market.\4\ Since Verizon has
negligible pre-paid service, this merger would for all intents
and purposes shrink the market for facilities-based prepaid
wireless services from 3 to 2. The economists for the merging
parties recognize that such concentration is likely to lead to
higher prices for low income consumers, but argues that such
consumers will be more willing to stomach price increases
because they ``heavily rely on their smartphone for their
communication and media consumption.'' \5\ That's a remarkable
statement for a segment of Americans for whom an extra $10 a
month might mean missing a few meals to pay their cell phone
bills.
---------------------------------------------------------------------------
\4\ Anna-Maria Kovacs, Competition in the U.S. Wireless Service
Market at 6 (August 2018) found at https://cbpp.georgetown.edu/sites/
default/files/Policy%20Paper%20-%20Kovacs%20-
%20Wireless%20Competition%202018-08.pdf.
\5\ Letter from Nancy Victory, Counsel for T-Mobile, to Marlene
Dortch FCC, Attachment A at 18, (December 18, 2018).
---------------------------------------------------------------------------
Many of the same concerns that caused the DOJ to file suit
to enjoin the proposed AT&T-T-Mobile merger are present here.
Like AT&T-T-Mobile, this merger will shrink the already
concentrated mobile wireless market from 4 to 3 players. Like
AT&T-T-Mobile, this merger will lead to higher prices and fewer
innovative service offerings. Like AT&T-T-Mobile, this merger
would eliminate actual and potential competition between the
two merging firms. Instead of combining one maverick firm with
a large incumbent, it combines two remaining maverick firms,
making disruption less likely and coordination more likely.
Moreover, this transaction would lead to unprecedented spectrum
concentration: It will cause New T-Mobile to exceed the FCC's
spectrum screen in 532 Cellular Market Areas (``CMAs''), almost
double the number of the proposed AT&T-T-Mobile transaction.\6\
---------------------------------------------------------------------------
\6\ Petition to Deny of DISH Network Corporation in the Matter of
Applications of T-Mobile U.S., Inc. and Sprint Corporation (filed
August 27, 2018) at 71 (``Second, Brattle finds that New T-Mobile would
be over the screen threshold in 1,996 out of the nation's 3,221
counties, or in 532 CMAs, covering all of the top 100 markets. By
comparison, the rejected AT&T/T-Mobile merger would have caused AT&T to
exceed the screen in 274 CMAs. New T-Mobile would be over the screen
across 90.2% of the country's population and almost half of its land
area.'') (internal citations omitted).
---------------------------------------------------------------------------
Evidence from previous 4-to-3 mobile wireless mergers in
Europe confirm the harms to consumers. In the Netherlands, the
European Commission found that the 4-to-3 merger of T-Mobile
Nederland and Orange in that country resulted in price
increases of between 10% and 17% compared to control
countries.\7\ In Austria, a merger of Orange Austria and H3G
Austria also resulted in 4-to-3 consolidation. While the
European Commission imposed a facilities-based condition to
approving the merger, those conditions didn't materialize, and
the spectrum intended for the new entrant reverted to H3G. As a
result, consumers suffered a 14-20% increase from that
merger.\8\ This example is especially instructive because one
of the three remaining players was T-Mobile's affiliate, T-
Mobile Austria.
---------------------------------------------------------------------------
\7\ European Commission, Ex post analysis of two telecom mergers:
T-Mobile/tele.ring in Australia and T-Mobile/Orange in the Netherlands
found at https://www.rtr.at/de/inf/Analysis _mobile_mergers/Ex-ost_
analysis_of_two_mobile_telecom_mergers.pdf.
\8\ Id.
---------------------------------------------------------------------------
Finally, a recent study by Rewheel Research looked at
European markets and found that ``the median gigabyte price in
3 [Mobile Network Operator] markets is 2 higher than in 4
[Mobile Network Operator markets].'' \9\
---------------------------------------------------------------------------
\9\ Rewheel/research, The State of 4G pricing--2H2018, found at
http://research.rewheel.fi/downloads/
The_state_of_4G_pricing_DFMonitor_10th_release_2H2018_PUBLIC.pdf.
---------------------------------------------------------------------------
II. The Parties' Pricing Commitment Is No Commitment at All,
but Instead Is an Admission That There Will Be No Constraints
on Pricing if This Merger Is Consummated
In response to the consensus that the proposed merger will
lead to higher prices, T-Mobile's counsel submitted an open
letter to the FCC offering a ``pricing commitment'' that would
maintain existing T-Mobile and Sprint ``rate plans'' for three
years. Then, when merger opponents pointed out that the so-
called ``commitment'' was riddled with ambiguities and
loopholes, T-Mobile filed another 8-page letter attempting to
``simplify'' the offer.
First and foremost, the fact that T-Mobile had to file two
letters with the FCC to explain its pricing commitment is an
admission that post-merger, there would not be enough
competition in the wireless market to constrain price
increases.
In its effort to simplify the pricing commitment, T-Mobile
actually sows more confusion. T-Mobile originally promised that
``T-Mobile and Sprint legacy rate plans will continue as New T-
Mobile plans for three years after the merger or until better
plans that offer a lower price or more data are made available,
whichever occurs first.\10\ In its second letter, T-Mobile
explains that a ``better plan'' is ``the same plan with a lower
price; the same plan with more data for the same price; or the
same plan with a lower price and more data.'' \11\
---------------------------------------------------------------------------
\10\ Letter from Nancy Victory, T-Mobile Counsel, to Marlene
Dortch, FCC at 4, WT Docket No. 18-197 (Feb 4, 2019).
\11\ Letter from Nancy Victory, T-Mobile Counsel, to Marlene
Dortch, FCC at 3, WT Docket No. 18-197 (Feb. 12, 2019).
---------------------------------------------------------------------------
But this begs any number of questions: What does ``same
plan'' mean? What does ``same price'' mean? When does a plan
become different? Would a different price per month be
considered the same price if the customer receives some non-
monetary benefit?
Moreover, this new filing does nothing to ameliorate
concerns that this ``commitment'' is anything but. In addition
to being time limited at 3 years, the pricing plan still has
significant loopholes that could allow New T-Mobile to raise
prices on consumers, including:
increased prices through handset or device costs
increased prices through any manner of unnamed
additional fees and surcharges
increased prices to offset claimed costs
increased from ``third party partners'' or cancellation of
benefits (like T-Mobile's free subscription to Netflix) from
those partners
There are still many ways that New T-Mobile could exploit
these loopholes,\12\ for example:
---------------------------------------------------------------------------
\12\ For a non-exhaustive list of examples, see Letter from
Pantelis Michalopolous, Counsel to DISH Network to Marlene Dortch, FCC
at 4-6, WT Docket No. 18-197 (Feb. 7, 2019).
Make it more difficult to upgrade devices
Increase the cost to purchase or upgrade to a new
phone
Increase the down payment for a new phone
Remove the ability to use the phone as a hotspot
The ambiguities and opportunities for evasion in this kind
of behavioral remedy (price regulation) would require strong
government oversight that is generally disfavored by antitrust
authorities. As Assistant Attorney General for Antitrust Makan
Delrahim has explained: ``In telecommunications, as in other
industries, we strongly favor structural remedies. If a
structural remedy isn't available, then, except in the rarest
of circumstances, we will seek to block an illegal merger.''
\13\
---------------------------------------------------------------------------
\13\ Assistant Attorney General Makan Delrahim Delivers Remarks at
the Federal Telecommunications Institute's Conference in Mexico City
(Nov. 7, 2018) found at https://www .justice.gov/opa/speech/assistant-
attorney-general-makan-delrahim-delivers-remarks-federal-institute.
---------------------------------------------------------------------------
The challenges inherent in government oversight of
behavioral remedies--and specifically price regulation--
manifested itself just last month, when the European Commission
alleged that Telefonica Deutschland breached its commitment to
offer wholesale 4G services to all interested parties at ``best
prices,'' as part of its acquisition of E-plus, the German
mobile telecommunications business of Dutch Telecom operator
KPN. This too, occurred in the aftermath of a 4-to-3 merger.
III. The Purported Benefits of This Merger are Speculative,
Non-Merger Specific and Non-Recognizable, and Would not
Outweigh Its Harms
In recognition of the harms that this transaction will
bring to consumers and competition, the merging parties allege
three benefits to this merger: Better rollout of 5G services,
greater rural coverage and an increase in jobs. But the parties
have failed to show either that these benefits will ever
materialize or that they are specific to this merger. Nor have
they shown that the benefits will outweigh the harm to
consumers and competition that would result from this
transaction.
A. 5G Deployment Is Already Happening and Will Continue Rapidly
With or Without This Merger
The merging parties alternatively make two claims--that
this transaction is necessary to accelerate the rollout of new
5G wireless services (and therefore make the U.S. the leader in
5G connectivity) and also that neither company alone has the
wherewithal to build a nationwide 5G network.
Neither of these claims are true. With regard to whether
this merger is necessary to speed the deployment of 5G and win
the so-called ``race'' to 5G (presumably with China), AT&T
responded in its comments to the FCC on the merger applications
that:
``In fact, the U.S. is already the world leader in 5G, and AT&T
and the other major facilities based wireless carriers are in
the midst of a race to deploy next generation 5G services--a
race that began long before T-Mobile and Sprint announced their
merger plans.''
U.S. Policymakers like FCC Chairman Pai and Commissioner
Carr have also boasted that the U.S. is the world leader in 5G
deployment. A study released late last month by ABI Research,
which provides analysis on transformative technologies, found
that as a result of the financial health of the four nationwide
carriers and forward-looking FCC policies, the U.S. is
currently the leader in 5G rollout and will continue to be for
at least two years.\14\
---------------------------------------------------------------------------
\14\ ABI Research, 5G in the United States, 1Q 2019, found at
https://www.abiresearch.com/market-research/product/1031420-5g-in-the-
united-states/.
---------------------------------------------------------------------------
But don't just take it from AT&T, FCC Commissioners and
expert analysts. Listen to the merging parties' representatives
themselves and what they said prior to the merger about their
ability and timing to build new 5G networks. Prior to the
merger announcement in February 2018, T-Mobile stated that it
``will be the first to give customers the truly transformative,
nationwide 5G network they deserve[.]'' \15\ It also announced
that it would accelerate its 600 MHz rollout in 2018, while
laying the foundation for the country's first nationwide 5G
network by 2020. In its annual 10-K filing for 2017, T-Mobile
explained that it is ``rapidly preparing for the next
generation of 5G services'' by creating a ``network that will
allow us to deliver innovative new products and services with
the same customer focused and industry disrupting mentality
that has redefined wireless service in the United States.\16\
---------------------------------------------------------------------------
\15\ Ericsson and T-Mobile to Deploy Multiband Nationwide 5G
Network (Feb. 27, 2018) found at https://www.prnewswire.com/news-
releases/ericsson-and-t-mobile-to-deploy-multi-band-nationwide-5g-
network-300605069.html.
\16\ T-Mobile USA, Inc. Form 10K For the Year Ended December 31,
2017 at 13, found at https://s22.q4cdn.com/194431217/files/
doc_financials/2017/annual/1500109984.pdf?O=PDF
&T=&Y=&D=&FID=1500109984&iid=4091145.
---------------------------------------------------------------------------
Just two weeks ago, at the Mobile World Congress in
Barcelona, Sprint announced that it would be the first company
to provide ``mass market'' 5G mobile services in 4 major cities
(Dallas, Atlanta, Chicago and Kansas City) this May, with
another 5 cities (Washington, DC, Phoenix, Los Angeles, New
York and Houston) starting in June.\17\ In addition, the
company's CEO has boasted that it has ``the BEST spectrum and
assets to build an incredible nationwide #5G network that our
customers will love.'' \18\ It said pre-merger that ``I have
never seen a company with such a rich spectrum which is a sweet
spot for 5G, I guess that gives us a tremendous opportunity for
the years to come.'' \19\
---------------------------------------------------------------------------
\17\ Eli Blumenthal, Sprint's 5G Network will go live this May in
Chicago, Atlanta, Dallas and Kansas City, USA Today (Feb. 25, 2019)
found at https://www.usatoday.com/story/tech/2019/02/25/sprint-5-g-
network-goes-live-in-may-in-four-cities/2973150002/.
\18\ Marcelo Claure (@marceloclaure) Twitter (Mar. 9 2018 12:24
p.m.).
\19\ Transcript, Sprint Presentation at Deutsche Bank Leveraged
Finance Conference, Fair Disclosure Wire (Oct. 2, 2018).
---------------------------------------------------------------------------
Both companies are independently putting their money where
their mouths are by heavily investing in 5G deployments. Both
companies each have already committed to investing $5-6 billion
annually until 2020 into their respective 5G deployments. In
fact, their projected combined spend is roughly the sum of what
each intended to spend on its own. Evidence in the record
indicates that the companies aren't admitting how much it will
cost for New T-Mobile to upgrade to 5G: Independent analysis
suggests it will cost more than if Sprint did it alone.
B. The Companies' Claims That the Rural Americans Will Benefit
are Unsubstantiated
The merging companies claim that if allowed to merge, rural
Americans will ``win big.'' But the companies provide little
support for this assertion other than hand-waving. T-Mobile's
owned LTE facilities currently serve 83.1% of the rural U.S.
population, while Sprint serves just 56.2%. So, adding Sprint
to the New T-Mobile adds nothing to T-Mobile's current rural
coverage.
Having spent nearly $8 billion to buy low band spectrum at
the FCC's incentive auction in 2017, T-Mobile already has plans
to extend its reach in rural areas. Importantly, this coverage
doesn't include whatever spectrum T-Mobile may buy at upcoming
auctions.
Even as the carriers move to 5G, the claim that rural
coverage will significantly increase is unsubstantiated. First,
the parties can't seem to make up their minds whether Sprint
will help T-Mobile's rural 5G coverage at all. On the one hand,
the parties claim that Sprint's 2.5 GHz spectrum will enhance
rural deployment for New T-Mobile. On the other hand, they
argue that Sprint's 2.5 GHz spectrum is inadequate and that
Sprint, standing alone, will ``not be a major competitor in
most of rural America in the foreseeable future.'' \20\
---------------------------------------------------------------------------
\20\ Applications of T-Mobile US, Inc. and Sprint Corporation for
Consent to Transfer Control of Licenses and Authorizations, WT Docket
18-197 at 65 (June 18, 2018).
---------------------------------------------------------------------------
Finally, and perhaps most important, the merging parties,
like their national mobile wireless/broadband brethren,
understate the challenges and costs of bringing 5G connectivity
to rural areas. In places where population density is low and
the challenges of steep terrain and thick fauna are high,
deployment is both a technological challenge and expensive and
revenues are hard to come by.\21\ Moreover, the high speed
``special access'' lines needed to bring 5G connectivity to
rural America are also expensive and largely in the control of
3 companies--AT&T, Verizon and Century Link. Indeed, because of
the cost of these broadband data services and other
infrastructure, many rural areas still don't yet have 4G
connectivity. Policymakers should be extremely wary of any
promise to bring 5G to significant parts rural America in the
absence of significant subsidies any time soon, if ever.
---------------------------------------------------------------------------
\21\ See generally, Larry Thompson and Warren Vande Stadt, 5G Is
Not the Answer for Rural Broadband, Broadband Communities (March/April
2017) found at https://www.bbcmag.com/rural-broadband/5g-is-not-the-
answer-for-rural-broadband.
---------------------------------------------------------------------------
C. The Entire Point of a Merger Is To Lower Costs and Create
Efficiencies, Which Necessarily Include Eliminating Jobs
On the question of whether this merger will result in more
jobs, I defer to the testimony of Chris Shelton, the President
of the Communications Workers of America, as well as CWA's
comprehensive filings at the FCC, for a full accounting of the
number and types of jobs that will be lost as a result of this
merger. The numbers are significant--CWA estimates that 30,000
jobs will be lost.
I wish only to note that significant numbers of new jobs
rarely, if ever come from massive mergers of this kind. Like
other merging parties, T-Mobile and Sprint boasted when the
deal was first announced that the combined companies will have
``lower costs, greater economies of scale'' and ``cost
synergies.'' The way that most merging companies achieve these
goals is by eliminating redundancies, which typically means
cutting jobs, among other things. One needn't be an economist
to figure out that duplicative retail stores and call centers
will be closed and that there is no need for two sets of middle
managers and C-Suite executives.\22\
---------------------------------------------------------------------------
\22\ While T-Mobile has promised to open 5 new call centers housing
1,000 new employees each, this seems no more than a desperate PR stunt
to win political support. T-Mobile may call these ``additional'' jobs,
but they fail to say is how many call center and other jobs will be
lost if the transaction is approved.
---------------------------------------------------------------------------
VI. Sprint Is Neither a Failing nor Even an Ailing Firm
It is axiomatic that companies seeking to merge will tell
regulators in Washington, DC one thing and Wall Street another.
In September 2018, Sprint told the FCC, among other things,
that ``[d]espite achieving substantial cost reductions and
stabilizing its financial position, Sprint has not been able to
turn the corner with respect to its core business challenges .
. . . Sprint tried a more localized approach in an attempt to
drive growth, but continues to face declining subscribers and
revenue[.]'' \23\ Just 3 months later, Sprint issued a year-end
press release touting ``a banner year for the Sprint network''
in which it made ``a massive investment to drive strong
improvements in our network performance.'' \24\
---------------------------------------------------------------------------
\23\ Letter from Regina M. Keeney, Counsel for Sprint Corp., to
Marlene Dortch, FCC, WT Docket 18-197, Attachment C at 2 (Sept. 25
2018).
\24\ Dr. John Saw, Celebrating a Year of Sprint Milestones on our
Path to 5G (Dec. 18, 2018) found at https://newsroom.sprint.com/2018-
milestones-on-path-to-5g.htm.
---------------------------------------------------------------------------
One need only look at what Sprint told Wall Street earlier
this year, through its recently released earnings from the 3rd
quarter of 2018, to see that it is not only not a ``failing
firm'' for purposes of scrutinizing a merger, it isn't even
ailing. In fact, Sprint is about as healthy a company as it has
been in many years. As Sprint CEO Michel Combes said on January
31, ``[w]e delivered solid financials, increased network
investments as we prepare for our mobile 5G launch, and the
continued digital transformation of our company.'' \25\
---------------------------------------------------------------------------
\25\ Sprint Reports Continued Year-Over-Year Growth In Wireless
Service Revenue With Fiscal Year 2018 Third Quarter Results (Jan. 31,
2019) (``Sprint Q3 2018 Report'') found at https://
investors.sprint.com/news-and-events/press-releases/press-release-
details/2019/Sprint-Reports-Continued-Year-Over-Year-Growth-In-
Wireless-Service-Revenue-With-Fiscal-Year-2018-Third-Quarter-Results/
default.aspx.
---------------------------------------------------------------------------
Sprint's Q3 results showed, among other things, its second
consecutive quarter of year-over-year growth in wireless
service revenue and its sixth consecutive quarter of postpaid
additions. The number of postpaid additions in the quarter were
309,000, an improvement of 53,000 year-over-year.\26\
---------------------------------------------------------------------------
\26\ Sprint Q3 2018 Report, supra.
---------------------------------------------------------------------------
In addition, Sprint's postpaid service revenue grew year-
over-year for the first time in five years and its pre-paid
service revenue grew year-over-year for the fifth consecutive
quarter. The company also reported its 12th consecutive quarter
of operating income and the highest fiscal third quarter
adjusted EBITDA (Earnings before interest, tax, depreciation
and amortization) in 12 years.\27\
---------------------------------------------------------------------------
\27\ Sprint Q3 2018 Report, supra.
---------------------------------------------------------------------------
Sprint's quarterly network investments of $1.4 billion more
than doubled year-over-year and increased approximately $150
million ``as the company made continued progress on executing
its Next-Gen Network plan.'' \28\
---------------------------------------------------------------------------
\28\ Sprint Q3 2018 Report, supra.
---------------------------------------------------------------------------
The merger proponents, however, point to negative adjusted
free cash flow of $908 million Sprint reported for Q3. But this
was primarily due to ramped up capital investment of $1.4
billion. In fact, in the immediate prior quarter (FY Q2 2018),
Sprint reported a positive cash flow of $525 million. Despite
this recent drawdown, Sprint currently has almost $9 billion of
liquidity, including $6.8 billion in cash.\29\
---------------------------------------------------------------------------
\29\ Sprint Corporation (S) Q3 2018 Earnings Conference Call
Transcript (Jan. 31, 2019) found at https://www.fool.com/investing/
2019/01/31/sprint-corporation-s-q3-2018-earnings-conference-c.aspx.
---------------------------------------------------------------------------
Finally, Sprint hasn't acknowledged the additional measures
that could be used to strengthen the company's financial
position even further. For example, Sprint's owner SoftBank
holds more than $31 billion (more than 3 trillion yen) in cash
and cash equivalents across its portfolio that can be invested
into Sprint.\30\ SoftBank's Vision Fund has more than $90
billion (10 trillion yen) in capital from both SoftBank and
third parties, which it uses to invest in cutting-edge
technology companies.\31\
---------------------------------------------------------------------------
\30\ SoftBank Group Corp., Annual Report FY 2018 at 1 (July 20,
2018) found at https://cdn.group.softbank/en/corp/set/data/irinfo/
financials/annual_reports/pdf/2018/soft_bank
_annual_report_2018_001.pdf..
\31\ SoftBank Group Corp., Consolidated Financial Report For the
Three-month Period Ended June 30, 2018 at 22 (Aug. 6, 2018) found at
https://cdn.group.softbank/en/corp/set/data/irinfo/financials/
financial_reports/pdf/2019/softbank_results_2019q1_001.pdf.
---------------------------------------------------------------------------
Policymakers should absolutely believe what Sprint has told
Wall Street--its financial picture gets brighter with each
quarter, and its continuing network improvements will take the
company to even greater success in the future as a stand-alone
firm.
Conclusion
I am a proud and loyal T-Mobile customer and a big fan of
both its CEO and its Government Relations staff. I'm not a fan
of this merger, because the harms to consumers who value good
service and innovative service plans far outweigh the supposed
benefits. Thank you again for inviting me to testify.
Mr. Cicilline. Thank you, Ms. Sohn.
I now recognize Ms. Scurato for five minutes.
TESTIMONY OF CARMEN SCURATO
Ms. Scurato. Chair Cicilline, Ranking Member Sensenbrenner,
Chair Nadler, and Subcommittee Members, thank you for having
me.
My name is Carmen Scurato, and I am a Senior Policy Counsel
at Free Press with 1.4 million Members across all 50 states,
the District of Columbia, and Puerto Rico.
We strongly oppose this merger. Free Press's extensive
research shows the disproportionate harms it would cause to
low-income communities and people of color who are more likely
to be on the wrong side of the digital divide and more often
rely on mobile phones for their only means of connecting to the
internet.
While my organization signed protective orders at the FCC
to assess the merger applicants' data and claims, I am not a
signatory. That means everything I say today is based on
publicly available data, but let me be clear. No matter where
we look, nothing about this deal's benefits, all of which are
speculative and unenforceable, offsets its immediate and
permanent harms.
Sprint and T-Mobile and their prepaid brands, Boost,
Virgin, and Metro, are the dominant providers of mobile service
for low-income people. More than 30 percent of Metro and Boost
subscribers report yearly incomes of $25,000 or less.
Due to structural and systemic racism, people of color are
disproportionately represented in these demographics. T-Mobile
and Sprint customers are far more likely to be people of color
than are AT&T and Verizon's. Fifty-six percent of T-Mobile
subscribers in 2018 identified as people of color as did 45
percent of Sprint's.
The reason that Members of these communities choose Sprint
and T-Mobile is very clear. Their plans cost less. As our
research confirms, these two carriers compete with one another
vigorously. They are each other's closest competitors.
They serve price-conscious customers that AT&T and Verizon
are content and able to ignore. Both T-Mobile and Sprint have
been mavericks, taking customers from each other and from the
Big 2 carriers, as well, after the government rejected
previously proposed horizontal mergers, like this one.
My full testimony touches on T-Mobile's inflated 5G
efficiency claims and exaggerated rumors of Sprint's death used
to justify this deal, but I will focus my remaining time on
three facts illustrating the harms to these most impacted
communities.
First, no matter how antitrust enforcers define the product
markets, this deal would consolidate already highly-
concentrated markets and it would eliminate choice for
customers who want or need to pay less for essential
communication services.
Our FCC filings document how T-Mobile and Sprint's prepaid
and postpaid brands compete, countering each other's
innovations and offers in ways that benefit price-conscious
customers and exert some discipline on Verizon and AT&T, as
well.
T-Mobile and Sprint both offer lower-priced options than
their larger rivals. Don't believe the parties' funny math
suggesting that having fewer competitors somehow strengthens
competition. This is a four to three merger nationally and
closer to a three to two in the prepaid market.
It would reduce choice for all lower-priced plans that
don't require customers to pass discriminatory credit checks or
finance devices through the carrier.
Second, the merger would increase prices. In their filings,
Sprint and T-Mobile don't even hide the likelihood that prices
would go up for their postpaid and prepaid customers alike.
That is right. Their own economic models say prices would go
up.
T-Mobile's price pledge is riddled with loopholes and does
nothing to allay this concern. T-Mobile announced that legacy
plans would continue, and I quote, ``for three years or until
better plans that offer a lower price or more data are made
available.''
This mockery of a promise is meaningless. Prices will stay
the same unless, of course, T-Mobile decides to raise them.
Just as T-Mobile did with its initial attempts to hide this
fact, the carrier gets to decide whether a more expensive plan
is better for you, even if it offers more than many customers
might want, need, or be able to afford.
Third, this merger would mean massive consolidation in the
wholesale wireless market. Reducing wholesale supply would
raise costs passed along to the retail customers of all
resellers. Wholesale is used by carriers without their own
networks, including most Lifeline carriers, to offer service at
resale.
Throughout my career, I have been a strong defender of
Lifeline because it helps the most vulnerable in society stay
connected, providing just $9.25 a month to defray the high
cost.
Lifeline is dependent on a well-functioning wholesale
market. Consolidation would further widen the quality gap
between wireless Lifeline offerings and non-subsidized plans.
In sum, you should closely scrutinize the too-good-to-be-
true claims made by these two companies. You should also
consider the real-world impacts on communities that struggle
with high-priced connectivity and often find themselves on the
wrong side of the digital divide.
Thank you, and I look forward to your questions.
[The statement of Ms. Scurato follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you very much.
The chair now recognizes Ms. Bennet for five minutes.
TESTIMONY OF CARRI BENNET
Ms. Bennet. Chair Cicilline and Ranking Member
Sensenbrenner, and Members of the Subcommittee, my name is
Carrie Bennet, and I am here on behalf of the Rural Wireless
Association.
Thank you for this opportunity to testify today on the
impact the Proposed T-Mobile/Sprint Merger will have on rural
Americans.
RWA opposes this merger. This merger is bad for
competition. It is bad for consumers, especially in rural
areas, who will experience fewer choices, price increases, and
substandard service. It should be denied.
T-Mobile has had more than 20 years to build out in rural
America. Let's face it. T-Mobile is making a lot of promises
about how it will expand coverage in rural America and improve
service for these Americans, but based on its track record, we
have no reason to believe that it will do so.
I am going to run through four areas of concern. First,
roaming. Roaming arrangements are important to rural Americans.
Roaming keeps urban, suburban, and rural Americans connected.
Sprint has historically worked with rural carriers to ensure
rural Americans have robust wireless service. T-Mobile has not.
According to our Members, T-Mobile's roaming rates are 20
times higher than Sprint's and T-Mobile's existing roaming
agreements are one-sided. T-Mobile will frequently enter into
unilateral agreements under which rural carrier subscribers can
roam on T-Mobile's network with no possibility of T-Mobile
subscribers roaming on the rural carriers' networks.
In such cases, T-Mobile has simply chosen to deprive T-
Mobile's own customers of coverage in rural areas rather than
pay the rural carrier for the network access. This means that
in those areas T-Mobile's customers cannot be reached and are
basically off the grid.
Do we really want new T-Mobile's 100 million plus
subscribers, more than one-third of the market, to be denied
service in rural America?
Second, 5G build-out in rural America. T-Mobile's repeated
claims about new T-Mobile's future 5G rural build-out are
unfounded. When it comes to 5G networks and some of the
potential rural applications, like precision agriculture and
remote health care, low latency is a must.
The facilities needed for 5G technology cannot rely on
satellite and microwave due to their high latency. Fiber must
be deployed and deploying fiber takes time and money. Neither
T-Mobile nor Sprint have expended resources to build out fiber
in rural America.
Without a commitment to lay fiber in these undeveloped
areas, their claims of building out future 5G broadband
networks ring hollow.
Acquiring Sprint does not give New T-Mobile the fiber it
needs to serve rural America with 5G or in-home broadband.
Disallowing the merger will enable hundreds of rural broadband
providers across America to work with both Sprint and T-Mobile
to build out broadband more quickly.
Third, rural call completion. Less than a year ago, the FCC
found that T-Mobile failed to correct ongoing problems with
delivery of calls to rural consumers. In fact, T-Mobile
admittedly inserted false ring tones into these calls so that
the caller believed the call was ringing on the other end when
it wasn't.
Aside from blatantly breaking the law, T-Mobile severely
hindered rural consumers from running their businesses,
communicating critical information to family and friends, and
reaching emergency service personnel. This callous behavior in
an effort to save money has harmed rural Americans and we
believe that T-Mobile's destructive behavior will continue,
perhaps even more aggressively, once its rival Sprint is
eliminated.
Finally, false broadband mapping claims. Our Members have
serious concerns about T-Mobile's broadband maps submitted in
the FCC's Mobility Fund proceeding. That fund was created to
provide $4.5 billion to mobile carriers to help better connect
rural Americans.
To make sure it knows where the money is needed the most,
the FCC asked wireless carriers to submit maps indicating where
each carrier offers qualifying 4G broadband coverage.
According to testing done by our Members, when T-Mobile
submitted its data, the company vastly overstated its rural
coverage to make its reach seem bigger than it is. When rural
carriers went to test T-Mobile's claims, 95.8 percent of the
tests showed speeds below the threshold demanded by the FCC or
no 4G broadband service at all, and many of the places where T-
Mobile certified it had coverage cell sites had not even been
put into operation. If not corrected, funding will not be
available in these rural areas.
As part of its public interest review, the FCC must
determine whether T-Mobile has been honest in its dealings with
the FCC. Our member's drive tests strongly suggested it has
not.
In sum, a string of broken promises does not bode well for
rural Americans and this deal should be denied.
Thank you, and I look forward to your questions.
[The statement of Ms. Bennet follows:]
STATEMENT BY MS. BENNET
Introduction and Summary
Chairmen Nadler and Cicilline, Ranking Members Collins and
Sensenbrenner, and Members of the Subcommittee, thank you for
this opportunity to testify today to discuss the impact that
the proposed T-Mobile/Sprint merger will have on rural America.
I am here on behalf of the Rural Wireless Association, Inc.
(RWA), which represents about 50 rural wireless carriers, each
with fewer than 100,000 subscribers and the majority with less
than 10,000 subscribers.\1\
---------------------------------------------------------------------------
\1\ See Rural Wireless Ass'n, https://ruralwireless.org/.
---------------------------------------------------------------------------
RWA's Members consist of both independent wireless carriers
and wireless carriers that are affiliated with rural telephone
and broadband companies. RWA Members have provided wireless
services in their respective rural communities for more than 50
years. Our Members live and work in rural America, and they
make sure that rural America is not left behind.
Small, rural-based wireless service providers offer low-
cost wireless plans to rural Americans and operate networks
which promote public safety, encourage innovation and economic
development, enable more efficient energy and agriculture
production, and support telehealth and distance learning
applications.
RWA opposes the proposed merger of T-Mobile and Sprint. If
approved, this horizontal merger would eliminate one of only
four nationwide competitors, leaving only three nationwide,
facilities-based wireless carriers. This consolidation will
force rural Americans to pay more money for wireless services.
In addition, it will undermine the system of roaming that is a
key component of telecommunications and broadband access in
rural communities and degrade service quality. In short, this
merger will do nothing to help rural Americans or those
traveling in rural America, but it will do much to hurt them.
The Proposed Transaction Will Raise Prices for Rural Americans
The primary question facing the Department of Justice (DOJ)
and Federal Communications Commission (FCC or Commission) is
whether the elimination of Sprint as an independent, nationwide
carrier will hurt competition and lead to increased prices,
thereby harming the public interest. The answer is an
unqualified yes. Such price increases will be acutely felt by
rural consumers and those traveling in rural America. The
elimination of Sprint will not only remove a facilities-based
carrier that supports its own well-known Sprint and Boost
retail operations, it will completely remove a nationwide
roaming option for small rural carriers, as well as a wholesale
network option for mobile virtual network operators (MVNOs),
machine-to-machine (M2M) service providers, and other Internet
of Things (IoT) service providers.
Recently, in an attempt to counter evidence showing that
this transaction will increase prices for American consumers,
T-Mobile CEO John Legere promised that ``T-Mobile and Sprint
legacy rate plans will continue as New T-Mobile plans for three
years after the merger or until better plans that offer a lower
price or more data are made available.'' \2\ In general, this
self-imposed behavioral remedy is cold comfort for millions of
Americans because there are countless ways New T-Mobile can
raise prices while still complying with this supposed ``rate
plan'' freeze.
---------------------------------------------------------------------------
\2\ Letter from John Legere, CEO, T-Mobile, to Ajit Pai, Chairman,
FCC, WT Docket No. 18-197 (Feb. 4, 2019).
---------------------------------------------------------------------------
Worse still, the commitment does nothing to protect rural
Americans who purchase wireless plans from the MVNOs that
currently rely on Sprint for wholesale service. Mr. Legere
makes no commitment to maintain existing prices paid by MVNOs
to Sprint.\3\ If anything, the promise to freeze rate plans for
New T-Mobile customers only increases the combinedvcompany's
incentive to raise prices for New T-Mobile's MVNO wholesale
customers. Of course, those increased costs to these MVNOs
would have to be passed on to rural Americans. As discussed
below, T-Mobile has not--and will not--commit to extending
Sprint's wholesale roaming agreements with rural carriers,
leaving them vulnerable to ever-increasing rate hikes.
---------------------------------------------------------------------------
\3\ See Id. at 7.
---------------------------------------------------------------------------
The Proposed Transaction Will Harm Rural America by Eliminating
a Critical Roaming Partner
The merger will result in particular harm to Americans who
travel, work, or reside within rural areas. Sprint has
historically worked with rural carriers to ensure rural
Americans have access to robust mobile wireless service. Sprint
has offered rural carriers, including RWA Members, reciprocal,
strategic roaming agreements at commercially reasonable rates,
providing rural carriers important pro-consumer benefits and
significant flexibility. In doing so, Sprint has been an
exception; the other nationwide carriers have not demonstrated
a willingness to engage in such commercially reasonable
arrangements. While carriers cannot publicly disclose agreement
specifics, RWA understands from its Members that the Sprint
agreements do not incentivize Sprint or RWA Members to throttle
data usage because the agreed-upon roaming rates are
commercially reasonable, thereby providing a better experience
for their respective customer bases. In fact, according to our
Members, Sprint's roaming rates are 20 times lower than T-
Mobile's.
RWA Members are concerned that the terms in their roaming
agreements with Sprint will not be included in any roaming
agreements with New T-Mobile, and that New T-Mobile has no
plans to allow its customers to roam on rural carrier
networks--even in areas where its own network is substandard or
nonexistent.
Absent a guarantee that favorable Sprint roaming terms will
continue, RWA Members will be forced to accept T-Mobile's
existing one-sided roaming agreements. While T-Mobile is
required by the Commission's rules to allow the customers of
other carriers to roam on its network, T-Mobile is not required
to allow its customers to roam on other carriers' networks,
even where its own network is substandard or non-existent. T-
Mobile will frequently enter into unilateral roaming agreements
under which the rural carrier's subscribers can roam on T-
Mobile's network, but with no possibility of T-Mobile's
subscribers roaming on the rural carrier's network. In such
cases, T-Mobile has simply determined that it is better for its
business for its customers to do without any coverage in rural
areas, rather than pay the rural carrier for network access. As
discussed below, the cost of accessing the rural carrier's
network is determined by T-Mobile, so T-Mobile's argument that
the cost to use a rural carrier's network is too expensive is
baseless and self-serving. This means T-Mobile's customers
cannot access wireless services when traveling in rural areas.
The result? They cannot be reached and are basically off the
grid, all because T-Mobile chooses to restrict access to the
rural carriers' networks.
Roaming arrangements are particularly important to rural
Americans who depend upon reliable access to advanced mobile
services in order to communicate with others. This need to
access 4G (and soon 5G) services does not end when a rural
consumer leaves her home or job in rural America. Rural
consumers still need the capability to access mobile wireless
services in non-rural U.S. markets where their local hometown
carrier does not provide service. Likewise, wireless customers
in urban and suburban U.S. markets should have access to the
critical coverage provided by RWA member carriers, who in many
cases operate the only network in a rural area. This mutual
dependency makes bilateral, inter-carrier voice and data
roaming critical from both a commercial and public safety
perspective. Reciprocal roaming keeps urban, suburban, and
rural America connected. Sprint has been a valuable partner in
this system, while T-Mobile has consistently refused to enter
into reciprocal roaming agreements with RWA Members.
What does this mean? If this merger is approved, rural
consumers and consumers traveling through rural America will
pay higher rates due to the increased roaming rates set by New
T-Mobile. Of the four nationwide carriers, Sprint is the only
one that offers anything approximating commercially reasonable
roaming rates, terms, and conditions to rural carriers. T-
Mobile has not shown that it wants rural carriers to have
affordable access to its nationwide network. If a rural carrier
had such access, the rural carrier could offer its rural
customers not only robust rural coverage on its network, but
also affordable coverage when the rural customer chooses to
travel outside the rural carrier network (i.e., affordable
nationwide service). When a rural carrier's customer regularly
travels outside a rural area, the cost to support that customer
accessing T-Mobile's network through a roaming agreement can be
astronomical. Similarly, if a rural customer purchases a T-
Mobile handset and plan, T-Mobile denies access to the rural
carrier's network so that the device does not work when the T-
Mobile customer is in the rural carrier's service area. Do we
really want to force rural Americans to buy two plans--one from
a rural carrier and one from New T-Mobile--just to get
consistent coverage? That would double the monthly price a
consumer would pay for service.
Sprint, on the other hand, has not blocked access,
throttled data usage, or established unreasonable commercial
roaming rates. In fact, RWA Members have reported that the
voice and data roaming rates they currently pay to Sprint are
one-twentieth (1/20th) of what they pay T-Mobile for comparable
coverage and service. If Sprint disappears and T-Mobile's rates
are adopted, roaming costs could go up by 1,900 percent,
jeopardizing the ability of rural carriers to offer outbound
roaming to their consumers. Without outbound roaming, rural
carriers cannot offer a compelling retail product to rural
consumers. Absent that capability, they will be forced to exit
the business, leaving an untold number of Americans without any
access to mobile wireless communications in rural America.
Obviously, loss of coverage in rural America is not in the
public interest and is one of the many harmful anticompetitive
effects of this proposed merger.
New T-Mobile will have zero incentive to provide
commercially reasonable roaming rates, terms, and conditions to
RWA Members. Without access to nationwide roaming (at per-
megabyte or per-minute bilateral rates that are lower than each
carrier's existing retail rates, or even each carrier's
wholesale/MVNO rates), rural carriers cannot offer nationwide
rate plans at levels that are competitive with the nationwide
carriers. This puts rural carriers at a competitive
disadvantage. Specifically, because the flow of roaming traffic
is one-way (i.e., only rural to T-Mobile), the wholesale
roaming rates paid by rural carriers are often inflated. This
is because T-Mobile entered into negotiations knowing that it
would never allow outbound (i.e., T-Mobile to rural) roaming.
Higher roaming rates mean that rural carriers are either forced
to raise their own retail rates or absorb the roaming charges,
which comes out of the rural carrier's profits. When rural
carriers pay higher roaming rates, they are forced to reduce
the extent of network buildout and reduce the funds available
for other operating expenses, resulting in denigrated service
in rural areas. In these instances, rural consumers and rural
carriers lose.
In addition, T-Mobile's preclusion of its own customers
from accessing rural carriers' networks--either by blocking by
location area codes (LAC) or denying the exchange of reciprocal
roaming traffic--makes rural carriers more reliant on Universal
Service Fund (USF) subsidies. RWA emphasizes that many of these
LAC restrictions and roaming denials are not in markets where
T-Mobile has its own network--they are in markets where T-
Mobile has no reliable coverage of its own. If T-Mobile allowed
its customers to access those networks and paid rural carriers
for use of their networks, the rural carriers would have
revenue to support their networks, reducing reliance on USF
funding. RWA notes that T-Mobile collects a universal service
fee from its own customers to support these high cost networks
and then turns around and denies its customers access to those
very same networks T-Mobile's customers subsidize.
Sprint, on the other hand, has been willing to allow its
customers to roam off-network. Accordingly, if T-Mobile is
allowed to merge with Sprint and continues to block access to
rural carriers' networks, then tens of millions of existing
Sprint customers will experience a reduction in roaming
coverage availability, another major public interest harm.
Furthermore, Sprint has leased its spectrum to rural
carriers in rural areas to enable them to build out networks
that serve both rural Americans and those traveling in rural
America. Given the difficulty that rural carriers often have in
accessing spectrum, these lease agreements are critical. There
is no reason to believe they will continue if the proposed
merger is consummated. Specifically, RWA Members are concerned
that their spectrum leases with Sprint will not be renewed by
New T-Mobile, which would cause rural carriers to lose coverage
and force even more consumers to go without service.
Despite T-Mobile's claims that it will expand service to
underserved communities post-merger, the reality is clear: T-
Mobile has neglected rural America for over 20 years. T-Mobile
has focused most of its energy on urban areas. Indeed, T-
Mobile's retail presence in rural America is virtually non-
existent, presumably because it has little or no coverage in
rural America. After all, there is no point in having a rural
retail store if there is no coverage in the area.
The lack of retail stores came to light during the FCC's
Mobility Fund Phase II challenge process when rural carriers
sought to obtain T-Mobile devices to challenge alleged 4G LTE
coverage in rural areas. To participate in the challenge
process, RWA Members often had to drive two or more hours each
way (over 250 miles round trip) to purchase T-Mobile devices at
the closest T-Mobile retail store. The experience of RWA
Members is that when T-Mobile does extend service to a ``rural
county,'' it typically builds a cell in the county seat, covers
major State and federal roadways, and ignores the rest of the
county. In short, T-Mobile is not focused on rural Americans,
and there is no reason to believe that will change if this
merger is approved.
5G Needs Fiber--An Input Both T-Mobile and Sprint Lack in Rural
America
The repeated claims about the extent of New T-Mobile's
future 5G rural buildout are unfounded. Rural areas are
difficult to serve, and the proposed transaction does nothing
to improve the challenging economics of undertaking a 5G
greenfield build in rural areas. While Sprint and T-Mobile each
have ample spectrum today to initiate facilities-based service
in rural markets, both have elected to focus their attention on
urban and suburban portions of the country. The proposed merger
will not change their major market focus. Moreover, both
companies lack fiber deployment in rural areas, a critical
input for 5G services.
When it comes to 5G networks and some of their potential
applications - autonomous vehicles, precision technology and
remote health care--lowering latency is a must. The backhaul
facilities needed for 5G technology cannot rely on satellite
and microwave backhaul technology due to their high latency. 5G
wireless cells must be placed in close proximity (300 to 500
feet) to consumers,\4\ and fiber optic backhaul must be present
nearby each of those cell sites. Deploying fiber takes time and
money. Google, one of the best financed companies in the United
States, exited the fiber business after realizing that building
fiber networks is not for the faint of heart. Building fiber
networks that support both wireless and wireline networks is a
capital intensive and costly undertaking--one that rural
telephone companies have assumed across the United States by
banding together in statewide consortia to connect rural areas
of their individual states. Because neither T-Mobile nor Sprint
have expended resources to build out fiber networks in rural
America, T-Mobile's claims of building out future 5G wireless
broadband networks in rural America is without foundation
absent a commitment to lay fiber in these greenfield areas.
---------------------------------------------------------------------------
\4\ Vantage Point, White Paper: Evaluating 5G Technology (rel. July
10, 2017).
---------------------------------------------------------------------------
In short, T-Mobile's acquisition of Sprint is not going to
change the fact that both companies lack the fiber buildout
they need to serve rural America with 5G. By keeping both T-
Mobile and Sprint separate and competing, hundreds of rural
broadband providers across rural America will be able to work
with both to more quickly build out LTE and 5G by leveraging
and expanding the rural fiber networks.
T-Mobile Has a Poor Track Record of Rural Call Completion
The harm T-Mobile has inflicted on its own customers is not
restricted to denying them access to rural wireless networks--
it extends to denying those same customers access to rural
landline telephone networks as well. Less than a year ago--on
April 16, 2018--the FCC announced that it had ``reached a
settlement concluding its investigation into whether T-Mobile
USA, Inc. violated the Communications Act when it failed to
correct ongoing problems with delivery of calls to rural
consumers and whether it violated the FCC Rule that prohibits
providers from inserting false ringtones with respect to
hundreds of millions of calls.'' \5\ That same day, the FCC
released a Settlement Order,\6\ which adopted a Consent Decree
\7\ entered into between the FCC and T-Mobile. In the Consent
Decree, the FCC determined that T-Mobile inserted false
ringtones into hundreds of millions of telephone calls placed
by T-Mobile customers each year. The FCC's investigation
revealed a pattern of this illegal practice impacting customers
of rural local exchange carriers (LECs). Instead of terminating
these calls, T-Mobile injected false ringtones, leading the T-
Mobile customer to think that the rural LEC customers were not
picking up their landline telephones. In reality, the call was
passed to an intermediate provider, where it was then either
placed in a never-ending loop or transferred to one or more
additional intermediate providers. Eventually, the calls either
dropped or the T-Mobile customers hung up. T-Mobile admitted in
the Consent Decree that it violated the FCC's 2014 prohibition
against the insertion of false ringtones and failed to correct
problems with its intermediate providers' completion of calls
to customers of rural LECs. T-Mobile's actions were extremely
harmful to both its own wireless customers and landline
customers served by rural LECs across the country. And, despite
the FCC informing T-Mobile of numerous customer complaints and
expressly prohibiting the practice, T-Mobile engaged in the
illegal practice of inserting false ringtones into calls
destined for rural consumers for four years.
---------------------------------------------------------------------------
\5\ Press Release, FCC Reaches $40 Million Settlement With T-Mobile
for Rural Call Completion Violations (rel. Apr. 16, 2018).
\6\ T-Mobile USA, Inc., File No.: EB-IHD-16-00023247, Order, DA 18-
373 (rel. April 16, 2018).
\7\ T-Mobile USA, Inc., File No.: EB-IHD-16-00023247, Consent
Decree, DA 18-373 (released April 16, 2018).
---------------------------------------------------------------------------
Aside from blatantly breaking the law, T-Mobile severely
hindered rural consumers seeking to run their businesses;
communicate important and critical information to family and
friends; and reach emergency service personnel, medical
professionals, and law enforcement in affected rural areas. The
callous behavior T-Mobile engaged in to save money on
terminating rural calls underscores the fact that T-Mobile's
attitude toward rural consumers is egregiously anticompetitive.
T-Mobile's actions with respect to rural call completion,
combined with its behavior in the context of roaming and
spectrum management, demonstrate that T-Mobile has a general
disregard for rural consumers and rural carriers. RWA believes
that T-Mobile's anti-rural consumer behavior will continue,
perhaps even more aggressively, once its rival Sprint is
eliminated.
The FCC Should Investigate T-Mobile's 4G LTE Coverage Claims
Before It Approves the Merger
The FCC's Mobility Fund was created to provide $4.5 billion
to mobile carriers over the next 10 years to help connect rural
Americans who lack quality wireless service. To make sure it
knows where the money is most needed, the FCC has asked
wireless carriers to submit maps indicating where each carrier
offers 4G LTE coverage with speeds of 5 megabits per second
download or faster. According to a study done by RWA, when T-
Mobile submitted its data, the company vastly overstated its
rural coverage to make its reach seem bigger than it is. When
rural carriers went to test T-Mobile's claims, 95.8 percent of
their tests showed speeds below the threshold demanded by the
FCC--or no 4G LTE service at all. In many of the places where
T-Mobile certified it had coverage, cell sites had not even
been put into operation. FCC acceptance of the faulty T-Mobile
coverage data would mean that rural carriers who serve rural
consumers would be denied funds, even though no alternative
sources of service exist, causing a loss of service to
customers of rural carriers who rely on this funding.
The FCC is currently investigating this issue. But, before
the FCC can make a public interest determination regarding this
proposed merger, it must first know that T-Mobile has been
honest in its dealings with the Commission. Our Members' drive
tests strongly suggest that it has not. The Commission cannot
approve a merger when there is an unresolved enforcement
proceeding pending against the merging parties.
Conclusion
This merger is bad for competition. It is bad for
consumers, especially in rural areas, who will experience
higher rates and lower quality service. It will degrade the
quality of telephone service in rural areas. It should not be
denied.
Mr. Cicilline. Thank you, Ms. Bennet.
Mr. Wallsten is now recognized for five minutes.
TESTIMONY OF SCOTT WALLSTEN
Mr. Wallsten. Chair Cicilline, Ranking Member
Sensenbrenner, and Members of the Subcommittee, thank you for
the opportunity to testify on the pending merger between T-
Mobile and Sprint.
My name is Scott Wallsten. I am an economist and President
and Senior Fellow at the Technology Policy Institute. TPI is a
nonprofit/nonpartisan think tank that focuses on the economics
of innovation, technological change, and related regulation.
TPI takes no institutional position, so this testimony
reflects only my views.
The key question when reviewing the pending merger is
whether the expected efficiencies gained from combining the
third and fourth largest wireless firms outweigh the
possibility that the combined firm could harm competition.
To address this question, I make four points. First, this
merger involves more than the usual level of uncertainty
because it involves the nascent technology just beginning to be
deployed. Because we know so little about 5G, claims regarding
optimum market structure are speculative and difficult to
evaluate.
Second, the empirical literature evaluating four to three
wireless mergers is inconclusive. Some studies find that prices
increased after such mergers, some find that prices decreased
after such mergers, and some find that prices did not change.
Third, the uncertainty about new technology and the lack of
evidence that four to three mergers necessarily lead to
competitive harms mean the government has little basis for
blocking the merger.
Fourth, because T-Mobile and Sprint may serve more than 50
percent of wholesale and low-income consumers, antitrust
authorities should carefully consider the potential effects of
the merger on those groups.
T-Mobile and Sprint argue that combining their resources,
particularly spectrum, will allow them to build a higher-
quality, more robust 5G network more quickly than either firm
could on its own. Opponents contest this assertion.
Evaluating this claim and whether it would benefit
consumers, if true, is difficult because we know little about
5G supply and almost nothing about demand. A market with more
firms experimenting with different technological approaches and
business models may yield better social outcomes.
On the other hand, given the risky nature of investing in a
new technology and likelihood of making mistakes, a market with
fewer but stronger firms may yield better social outcomes.
Real-world evidence of the effects of previous four to
three wireless mergers finds that even with the current
technology, mergers did not consistently lead to one particular
outcome. One paper that reviewed 13 studies of four to three
mergers found no consistent effect on prices.
In short, real-world experience provides little reason to
believe one outcome is more likely than the other. That also
means we do not have consistent evidence that the merger would
necessarily harm consumers or competition overall. Without such
evidence, the government has little reason to block the merger.
Opponents, however, have also raised concerns about low-
income and wholesale consumers and the horizontal merger
guidelines note that the government should consider how a
merger might affect different groups of customers.
While T-Mobile and Sprint serve about 30 percent of all
subscribers, available public data suggests they serve far
larger shares of wholesale and low-income subscribers.
Wholesale and low-income service overlap but are not identical.
Facilities-based providers sell wholesale network access to
other companies who resell it under their own brands. Resellers
offer traditional wireless services, often prepaid, and
internet of things connectivity.
Estimates suggest that T-Mobile and Sprint currently
provide more than half of all wholesale connections and their
annual reports show increasing number of wholesale subscribers.
Low-income subscribers probably rely disproportionately on
prepaid plans but not all prepaid plans rely on wholesale
networks and not all wholesale-based plans are prepaid. Low-
income and wholesale services are therefore related but
different.
One survey suggests that T-Mobile and Sprint directly serve
almost half of consumers of annual incomes of less than
$50,000. The true number is probably higher when also
considering wholesale.
The combined T-Mobile/Sprint holding more than 50 percent
of subscribers in these segments is not necessarily a problem.
Whether it is depends on whether they could profitably raise
prices without encouraging more entry by AT&T, Verizon, or
others.
Antitrust authorities who presumably have access to the
actual data, the proprietary data, should study these segments
carefully and evaluate whether some conditions may be
necessary.
The government can do a lot to promote competition. The FCC
and NTIA should continue making flexible use spectrum
available. The FCC should continue removing obstacles to
hopeful entrants, like Low-Earth Orbit satellite broadband
companies, OneWeb, SpaceX, and Telesat, and IOT wholesale
Ligado.
We do not know what the 5G world will look like. That is
the nature of innovation. Without evidence that the merger is
likely to lead to bad outcomes, there is little reason for the
government to oppose it. It should carefully consider low-
income and wholesale segments where the merging companies have
a particularly strong presence.
Thank you for your time. I am happy to answer questions.
[The statement of Mr. Wallsten follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you, Mr. Wallsten.
I now recognize Mr. Yoo for five minutes.
TESTIMONY OF CHRISTOPHER S. YOO
Mr. Chair, Ranking Member Sensenbrenner, Members of the
Subcommittee, I am grateful for the opportunity to testify here
today.
At the subcommittee's request, my remarks will focus on the
proposed merger's likely impact on rural consumers.
The key to my analysis is the growth in the demand for
wireless broadband and the resulting increase in the need for
wireless spectrum. Spectrum can be divided into three basic
types, low band, mid band, and high band, each of which
operates in a different frequency band and each one serves a
different role.
Low band spectrum is typically defined as those bands found
below one gigahertz. Low band signals propagate very well,
typically reaching a distance of 18 miles. In addition, low
band spectrum is more able to penetrate buildings than other
types of spectrum and does not require direct line of sight.
Mid band spectrum consists of bands ranging from one to six
gigahertz. Mid band signals typically cover a range of four
miles and mid band spectrum typically requires line of sight
transmission but can penetrate buildings.
High band spectrum includes frequencies higher than 20
gigahertz that have long been regarded as unusable but are now
being unlocked by improvements to technology. The range of high
band spectrum is quite limited, typically propagating roughly
half a mile. In addition, high band spectrum requires both line
of sight and does not penetrate buildings well, although higher
frequencies do provide more bandwidth.
The engineering community has long recognized the
deployment of 5G will depend on a mix of both low-band and mid-
band and high-band macro cells and high-band and mid-band micro
cells. This is particularly important in rural areas.
The 14-mile service range and good propagation
characteristics of low band spectrum make it ideal for
providing basic coverage for rural areas.
The problem is that because low bad spectrum covers such
large areas, the bandwidth that it provides can be quickly
exhausted. Although these shortages can be addressed by adding
lower band spectrum, because these additional bandwidth would
be needed only in population clusters within rural areas, much
of that additional low band spectrum would be wasted.
The generally accepted technical solution is to meet the
growing demand for bandwidth by adding small cells that will
rely on higher band spectrum in those areas where they are
needed.
The four-mile service range of mid band spectrum allows it
to be targeted efficiently at those areas that need additional
bandwidth the most. Not only does the addition of these micro
cells expand the bandwidth available in the population clusters
within rural areas, using micro cells to satisfy the demand
generated by those clusters frees up macro cell capacity for
the most remote customers for whom macro cell service is the
only viable option.
The foregoing underscores the reality that successful
deployment of 5G depends upon having a mix of low band and
higher band spectrum. Sprint lacks the low band spectrum to be
able to provide 5G in rural areas as a stand-alone company.
Sprint holds three to four times less low band spectrum than
other national wireless providers, as reflected in its weak
coverage and performance of its current LTE network.
The lack of low band spectrum leaves Sprint in a
particularly poor position to serve rural customers as a stand-
alone company. The low population density of rural areas makes
it unlikely that the limited geographic range of Sprint's mid
band service will reach enough customers to be financially
viable.
The company resulting from the proposed T-Mobile/Sprint
merger is planning a very different strategy from those being
pursued by other national wireless providers.
T-Mobile is already using its 600-megahertz spectrum to
deploy LTE and if the merger is approved, the merged company
plans to use the low band spectrum that T-Mobile obtained in
the recent incentive auction to provide the macro cell
foundation for its 5G service.
Because this spectrum is newly deployed, the company will
be able to convert these macro cells to 5G merely by
reconfiguring the relevant software, and its mid-band micro
cells do not need spectrum assignments, while the other
national wireless providers are following a strategy relying on
high band spectrum that has not yet been allocated by the
Federal Communications Commission.
Sprint's inability to provide service and 5G service in
rural areas explains why a bipartisan group of 13 House Members
has signed a letter supporting the transaction and makes the
presence of respected advocates for rural consumers, such as
the National Grange and the Attorneys General for New Mexico
and Utah, supporting the merger significant. I find those
gestures particularly meaningful.
I would be happy to answer any questions you have.
[The statement of Mr. Yoo follows:]
STATEMENT OF MR. YOO
Mr. Chairman and Members of the Subcommittee, I am grateful
for the opportunity to testify here today. At the
Subcommittee's request, my remarks will focus on the proposed
merger's likely impact on rural consumers. The key issue will
be the impact that spectrum holdings have on the growing demand
for mobile broadband and the deployment of 5G.
The Basic Principles of Low-, Mid-, and High-Band Spectrum
A key input to meeting the growing demand for wireless
broadband services is spectrum. Spectrum can be divided into
three basic types--low-, mid-, and high-band--each of which
operates in different frequency bands and serves a different
role.
Low-band spectrum is typically defined as those bands
falling below 1 GHz. Low-band signals propagate very strongly,
typically reaching a distance of 18 miles. In addition, low-
band spectrum is less prone to environmental interference and
is more able to penetrate buildings than other types of
spectrum and does not require direct line of sight. Because of
these attractive characteristics, the original cellular
telephone service was deployed in low-band spectrum. Low-band
spectrum does have some drawbacks: It does require larger
antennas and provides less bandwidth than other types of
spectrum. Its strong propagation characteristics make it less
useful for adding capacity on a localized basis.
Mid-band spectrum consists of bands ranging from 1 GHz to 6
GHz. Base stations operating in the mid-band typically cover a
radius of four miles. Mid-band spectrum typically requires
line-of-sight transmission, but can penetrate buildings. It
does support more bandwidth than low-band spectrum and can
utilize smaller antennas.
High-band spectrum is generally regarded as including
frequencies higher than 20 GHz that had long been regarded as
unusable, but are not being unlocked by improvements in
technology. The range of high-band spectrum is quite limited,
typically propagating roughly half a mile. In addition, high-
band spectrum both requires direct line of sight and does not
penetrate buildings well. It does provide the highest bandwidth
and permits the use of the smallest antennas.
The engineering community has long recognized that the
deployment of 5G will depend on a mix of both low-band
macrocells and mid- and high-band microcells.\1\ This is
particularly important in rural areas. The fourteen-mile
service range and good propagation characteristics of low-band
spectrum makes it ideal for supporting basic coverage for rural
areas.
---------------------------------------------------------------------------
\1\ See, e.g., Jeffrey G. Andrews et al., What Will 5G Be?, 32 IEEE
J. on Selected Areas in Comm. 1065, 1066-68 (2014).
---------------------------------------------------------------------------
The problem is that because low-band spectrum covers such
large areas and accordingly a relatively large number of users,
the bandwidth that it can provide can quickly become exhausted.
Although these shortages can be addressed by adding more low-
band spectrum, the fact that the additional bandwidth would be
needed by only in population clusters within rural areas, much
of that additional low-band spectrum would be wasted.
The generally accepted technical solution is to meet the
growing demand for bandwidth by adding smaller cells that rely
on mid-band spectrum. The four-mile service range of mid-band
spectrum allows it to be targeted efficiently at those areas
that need the additional bandwidth the most. Not only does the
addition of these microcells expand the bandwidth available in
population clusters; diverting the demand generated by those
clusters to microcells frees up macrocell capacity for the most
remote customers for whom macrocell service is the only viable
option.
Implications for the Proposed Merger
The foregoing underscores the reality that successful
deployment of 5G depends on having a mix of low-band and
higher-band spectrum. This fact underscores two realities.
The first is that Sprint lacks the low-band spectrum to be
able to provide 5G in rural areas as a standalone company. As
the FCC's most recent Wireless Competition Report demonstrated,
Sprint holds no spectrum in the traditional cellular blocks
(850 MHz), the spectrum auctioned following the digital
television transition (700 MHz), or the spectrum distributed in
the recent incentive auction (600 MHz). Its only low-band
spectrum is a small sliver of Specialized Mobile Radio (SMR)
spectrum that is three to four times smaller than the low-band
holdings of the other national wireless providers.\2\
---------------------------------------------------------------------------
\2\ Annual Report and Analysis of Competitive Market Conditions
with Respect to Mobile Wireless, Including Commercial Mobile Services,
Twentieth Report, 32 FCC Rcd. 8968, 8996-97 (2017) [hereinafter 2017
Wireless Competition Report].
---------------------------------------------------------------------------
Sprint's lack of low-band spectrum has manifested itself in
the mounting indicators of its weak operational performance.
Information provided to regulators as part of the merger have
revealed that Sprint's reliance on mid-band spectrum has given
it a much smaller LTE coverage area than the other national
wireless providers.\3\ In addition, measures of bandwidth
performance surveyed by the FCC reveal that Sprint's LTE
networks consistently deliver significantly lower bandwidth
than do other national wireless providers.\4\ Although Sprint's
financial condition is no longer in free fall, its current
spectrum holdings make it unlikely to be able to address these
shortcomings should it remain as a standalone company. The lack
of low-band spectrum leaves Sprint particularly poorly
positioned to serve rural consumers. The low population density
of rural areas makes it unlikely that the limited geographic
range of mid-band service will reach enough customers in order
to be financially viable.
---------------------------------------------------------------------------
\3\ Ex Parte Notice on Behalf of Sprint, Applications of T-Mobile
US, Inc., and Sprint Corporation for Consent to Transfer Control of
Licenses and Authorizations, att. C, slide 4 (Sept. 25, 2018) (WT
Docket No. 18-197), https://ecfsapi.fcc.gov/file/10926182275583/
Sprint%20Ex %20Parte%20-%20Doc%20Prod.%20-%2009.26.2018%20FINAL%20-
%20REDACTED.pdf; Chaim Gartenberg, Sprint points out its LTE network
is, in fact, trash, The Verge (Sept. 28, 2018, 1:11 p.m. EDT), https://
www.theverge.com/2018/9/28/17914230/sprint-lte-network-coverage-bad-
tmobile-merger.
\4\ 2017 Wireless Competition Report, supra note 2, at 9035-37.
---------------------------------------------------------------------------
The second is that the company resulting from the proposed
T-Mobile/Sprint merger is planning a very different strategy
from that being pursued by the other national providers. The
company resulting from the proposed merger plans to use the
low-band 600 MHz spectrum that T-Mobile obtained in the recent
incentive auction to provide the macrocell foundation for its
service. Because this spectrum is not currently in use for
mobile wireless services, the company will be able to deploy 5G
technologies in its macrocells as well as its microcells
without any concerns about cannibalizing its existing
businesses. More rapid deployment of 5G in low-band spectrum
can only benefit rural consumers. The addition of Sprint's
underutilized mid-band spectrum would allow the merged company
to deploy microcells without having to wait for additional
high-band allocations. The other national wireless providers
can follow the same strategy, but having largely sat out the
incentive auction, they would have to repurpose low-band
spectrum currently devoted to LTE to provide the base-level
macrocell coverage. Their public announcements indicate that
they are focusing on future releases of high-band spectrum for
microcells, which remain uncertain, instead of relying on mid-
band spectrum to support their microcells.
Closing Thoughts
Sprint's limited low-band spectrum holdings leave it poorly
positioned to provide rural service as a standalone company in
a 5G world. In addition, the fact that the company resulting
from the proposed merger appears poised to follow a business
model that is quite different from the one embraced by the
other national wireless providers raises strong potential
benefits for consumers generally and rural consumers in
particular. That is why a bipartisan group of thirteen House
Members have signed a letter supporting the transaction.\5\
---------------------------------------------------------------------------
\5\ Letter from 13 Members of the House of Representatives to Ajit
Pai, Chainman, Fed. Commc'ns Comm'n, and Makan Delrahim, Assistant
Attorney General, Antitrust Division, U.S. Dept. of Justice (Jan. 25,
2019), https://assets.documentcloud.org/documents/5699740/Sprobile
.pdf.
---------------------------------------------------------------------------
The Subcommittee should also bear in mind that the nature
of competition in the telecommunications industry has changed.
Instead of simply engaging in price competition on facilities
that already exist, the modern industry now competes by
focusing on investments in newer, higher quality facilities.
This replaces the thin price competition based on the resale of
existing facilities that proved so unsuccessful under the
Telecommunications Act of 1996 with one that benefits consumers
by incentivizing investments in improved capacity and services.
Lastly, policymakers should always remember that market
developments that improve efficiency, quality, or innovation
create benefits for consumers while leaving direct competitors
worse off. That is why antitrust law has long viewed competitor
complaints with a skeptical eye and emphasized that importance
of focusing on mergers' impact on consumers, not competitors.
This makes the presence of respected advocates for rural
consumers supporting the merger, including Betsy Huber of the
National Grange (with whom I have the privilege of serving on
the FCC's Broadband Deployment Advisory Committee) \6\ as well
as the Attorneys General for New Mexico and Utah \7\
particularly meaningful.
---------------------------------------------------------------------------
\6\ Letter from Betsy E. Huber, President, National Grange, to
Marlene Dortch, Secretary, Federal Communications Commission, WT Dkt.
No. 18-197 (Sept. 12, 2018), https://ecfsapi.fcc.gov/file/
109130913822630/T-Mobile-Sprint-Grange%20Letter%20to%20FCC-Final%209-
12-18.pdf.
\7\ Letter from Hector Balderas, New Mexico Attorney General, and
Sean Reyes, Utah Attorney General, to Marlene Dortch, Secretary,
Federal Communications Commission, WT Dkt. No. 18-197 (Aug. 24, 2018),
https://ecfsapi.fcc.gov/file/1082488029914/2018-08-24%20Joint%20AG%
20Ltr%20FCC.pdf.
Mr. Cicilline. Thank you very much, Mr. Yoo.
Thank you all for your opening statements. We will now
proceed on the five-minute Rule with questioning, and we will
begin with the gentleman from Georgia, Mr. Johnson, for five
minutes.
Mr. Johnson of Georgia. Thank you, Mr. Chair, and thank the
panelists for being here today.
Mr. Legere, the day after the T-Mobile/Sprint merger was
announced, nine top T-Mobile execs checked into Trump Hotel, is
that correct?
Mr. Legere. Thank you, Congressman, for the question. We
announced our deal on April 29th, and on April 30th, we came to
Washington, DC, as a leadership team for two things. One is to
meet the FCC and the DOJ. The second is to announce our
quarterly earnings, and that was the reason for the large
group.
Mr. Johnson of Georgia. I understand there was a purpose in
coming, but the very next day, nine top execs checked into the
Trump Hotel after the announcement, correct?
Mr. Legere. Yes, sir, and very importantly, if I may add, I
made the decision. I am a long-time Trump Hotel stayer, way
before this transaction. For example,--
Mr. Johnson of Georgia. Okay. But the company had not paid
for more than two nights at Trump Hotel prior to the
announcement, correct?
Mr. Legere. Sir, the Trump Hotel is only in existence for
about a year and, frankly,--
Mr. Johnson of Georgia. So, yes,--
Mr. Legere. --we had no reason--
Mr. Johnson of Georgia. --the bottom line, though, is that
only two nights had been paid for by T-Mobile prior to the
announcement, correct?
Mr. Legere. At the Trump DC but not counting--
Mr. Johnson of Georgia. Trump DC.
Mr. Legere. --tons of other hotels.
Mr. Johnson of Georgia. Trump DC.
Mr. Legere. Sir,--
Mr. Johnson of Georgia. Now let me--because I am running
out of time now. Since the announcement, $195,000 has been
spent by T-Mobile at Trump Hotel Washington, is that true?
Mr. Legere. That number is approximately true, and it is
also--
Mr. Johnson of Georgia. Let me ask you--
Mr. Legere. --roughly ten percent of our spend in
Washington, DC.
Mr. Johnson of Georgia. Okay. I understand, I understand.
But now prior--yeah. Do you see how that looks? In other words,
you don't spend any money at Trump Hotel two nights and then
after the merger, you spend $195,000 at Trump Hotel?
Mr. Legere. Sir, that is not on that night and I would
say--
Mr. Johnson of Georgia. No, I am saying over the last 11
months, you have spent 195,000. Do you understand the optics of
that, what it looks like? It looks like what is happening is
that T-Mobile is trying to curry favor with the White House.
Did it occur to you that Members of the public, Members of
Congress, the FCC, and President Trump himself, did it occur
that we would all see that expenditure as an attempt by T-
Mobile to gain acceptance by Donald Trump and his
Administration?
Mr. Legere. Congressman, I was, and I am a hundred percent
sure that this deal will be judged by the FCC and the DOJ.
Mr. Johnson of Georgia. Okay. I am just talking about the
optics of what happened.
Mr. Legere. The optics of me staying at the Trump Hotel
haven't changed for 10 years.
Mr. Johnson of Georgia. Well, I appreciate that. It kind of
doesn't pass the smell test with the American public. It looks
like you are trying to purchase influence. It looks like it
could be a violation of the Emoluments Clause of the United
States Constitution.
Let me ask you this question. Do you know if the Trump
Organization or the Trump Campaign or the Trump Administration
has attempted to contact the Justice Department to talk about
this merger?
Mr. Legere. Sir, I have no information of that at all.
Mr. Johnson of Georgia. Do you know, has T-Mobile had any
discussions with the Trump Organization, the Trump Campaign, or
the Trump Administration about approving this merger?
Mr. Legere. I have not, and I am not aware of any
discussions by my organization.
Mr. Johnson of Georgia. Mr. Claure, your company contracts
with broadband providers, isn't that true?
Mr. Claure. I don't understand your question.
Mr. Johnson of Georgia. Okay. The Rural Wireless
Association contracts with Sprint and T-Mobile for the use of
their towers when rural wireless customers are roaming, is that
correct?
Mr. Cicilline. The member's time has expired but the
witness may answer the question.
Mr. Claure. That is correct. We provide service to rural
carriers.
Mr. Johnson of Georgia. Those contracts will soon be
expiring with those rural carriers, is that correct?
Mr. Claure. That is incorrect. Most of the contracts have
self-renewal and they are in different timelines.
Mr. Johnson of Georgia. All right. Thank you.
Mr. Claure. Thank you.
Mr. Cicilline. The chair now recognizes the Ranking Member,
Mr. Sensenbrenner, for five minutes.
Mr. Sensenbrenner. Thank you very much, Mr. Chair.
Where Mr. Legere and T-Mobile employees stay when they come
to Washington really has no relationship whatsoever to whether
this proposed merger is in the public interest or is not, and
let me say I am kind of embarrassed, sitting here listening to
the gentleman from Georgia's line of questions, particularly
since the FCC is an independent agency.
It is not a part of the Administration, and the
Commissioners of the FCC are supposed to Act independently
based upon the data and the information and the testimony that
is presented to them.
Now, having said that and I certainly will stand up for the
independence of the FCC and these other independent agencies.
Let's get down to whether this merger is in the public interest
or not.
So, I want to ask the two CEOs, particularly Mr. Legere. I
have been on this Committee for as long as I have been in
Congress, which is 40 years. I have worked on antitrust
questions, you know, including the mixed-up AT&T divestiture of
the early '80s, which was supposed to divide things up and
ended up putting things more back together than they were
beforehand.
I conclude European countries tend to put much more
emphasis on whether a company is too big and stifles
competition whereas here we focus on what is best for the
consumer.
So obviously going to four to three may stifle competition,
it may not, but that is not what American antitrust law has
been about. So, anybody that talks about four to three mergers
and things like that, in Europe it is an entirely different
law, and we ought to realize that.
So, I would like Mr. Legere and Mr. Claure to say what can
consumers expect out of this and you say that prices will
decrease as coverage, speed, and capacity continue to improve.
In some ways, it looks like it is mutually exclusive, that you
get a better product and you pay less for it.
It seems to me that certain mergers might deal, Number 1,
with the economics of scale and Number 2, allow each of the
partners of the merger who will be able to benefit from the
strengths of the other and get rid of the weaknesses that they
have.
So, can our two CEOs answer that in the two minutes I have
left?
Mr. Legere. Yes, thank you, sir. The transaction will
provide a 5G network capability that the United States
desperately needs. The 40 billion dollars will be invested by
coming together of these two companies.
A merger usually is fearful. Airlines are used many times:
Where airline mergers got us less supply, less leg room, more
fees, higher prices. But, iIn this case, supply will go up
dramatically. Prices will go down. Services will expand. In-
home broadband competition will be growing. Rural coverage will
expand. Rural competition will expand, and jobs will go up.
So, every piece of what is good for consumers happens in
this transaction.
Mr. Sensenbrenner. Can you tell me what all these things
have to do with where you stay when you come to DC?
Mr. Legere. They don't, sir.
Mr. Sensenbrenner. Thank you.
Mr. Claure. Thank you. So, I think a good way to portray
this is many times we try to compare this merger to others.
There has never been a merger in wireless where, by mixing
two companies, because of our unique spectrum position, that
you are going to create eight times the capacity. So therefore,
nobody can stand here and say that we are going to increase
prices.
When you have anything that you increase the capacity by
eight times, we have an economic interest to basically fill
that capacity and the only way the American consumer will move,
AT&T and Verizon customers will move is by us lowering prices.
It is that simple.
It is not what John or what I say. It is we have an
economic necessity as part of our business plan to lower
prices, to fill that capacity, which is going to be eight times
what we will have if we were to stand alone, and the reason why
it is that is because our spectrum holdings are able when put
together to create eight times the capacity.
Mr. Cicilline. You have three seconds.
Mr. Sensenbrenner. I yield back.
Mr. Cicilline. I thank the gentleman for yielding back.
I now recognize the gentle lady from Washington.
Ms. Jayapal. Thank you, Mr. Chair, and thank you to our
panelists for being here today.
I have been following this proposed merger closely because
T-Mobile is just outside of my district and many of the workers
are in my district and I know, Mr. Legere, that you have
requested a meeting with my office, and we have reached out and
we hope to do that next week.
I do want to say to the gentleman from Wisconsin that there
is actually reason to look at this question of what happened at
the Trump Hotels because it has been clear from quite a bit of
reporting that President Trump appears to have involved himself
in the AT&T/Time-Warner merger and we want to make sure that
this is not happening today.
So, I do want to refer to the letter that Senator Warren
and I sent to you, Mr. Legere, and also to thank you for your
very prompt response to that letter and so let me just run
through this quickly and give you a chance to just give me
quick answers on this because I want to turn to the content of
the merger after this.
In 2015, you had a public Twitter dispute with now
President Trump regarding the quality of Mr. Trump's hotels in
New York that ended with you tweeting, and this is a quote, ``I
am so happy to wake up in a hotel where every single item isn't
labeled Trump and all the books and TV is about him,'' is that
correct? Just a yes or no.
Mr. Legere. That is correct.
Ms. Jayapal. Thank you. Then in August of 2017, though, you
did stay at Mr. Trump's Washington, DC, hotel, correct?
Mr. Legere. That is correct, and many times in between, as
well.
Ms. Jayapal. Then last April, you announced the merger. It
was actually just once, according to your letter that you
responded to me. It was once between then and April when you
announced the merger with Sprint and you knew that the merger
couldn't go forward without approval and so you stayed there
one time, according to this letter you sent me, between August
and April, is that correct?
Mr. Legere. Yes, that is true. I had much less reason to be
coming to Washington. I hope that time returns at some point.
Ms. Jayapal. Great. Thank you. The very day after the
merger was announced, you and eight of your top executives were
on a list of VIP arrivals at the Trump Hotel in DC, correct?
Mr. Legere. I am not aware of that.
Ms. Jayapal. Okay. That is per a January 16th Washington
Post article that has the details of that and so in my letter,
one of my questions was how much T-Mobile spent at the Trump
International Hotel and you very kindly gave me that number.
Can you just please tell the Committee what that number was?
Mr. Legere. We spent $194,000 out of $1.7 million spent at
hotels in DC during that period.
Ms. Jayapal. Understood. I appreciate you have a big
budget. You have to travel around, and this was relatively
small in the grand scheme of things. However, were you at all
concerned that staying at the Trump Hotel so soon after the
merger was announced and then again according to reporting, you
hired Corey Lewandowski to consult with you, is that correct?
Mr. Legere. Can I answer both of those questions?
Ms. Jayapal. You can answer both of those questions.
Mr. Legere. Every consultant that we hire is completely
disclosed, and we had hired Turnberry, an organization that he
has been affiliated with or not affiliated with, but we have
not hired Corey Lewandowski directly.
The decision to stay at the Trump Hotel again was my
decision, and it was consistent with where I have stayed and
how I chose hotels in the past.
Ms. Jayapal. Except that in 2015, you said you were never
going to stay there and so, we are relying on what you have
said and so I only raise this because we unfortunately have a
situation where the President has not disclosed his business
interests and when he has a business interest, and it appears
that you might be trying to influence the President to get
involved in something he really should not be involved in, that
causes concern for this committee, which is the Judiciary
Committee, and so I would just say to you that if you do want
this to be judged on the merits of the merger, which I think
you want, we would expect that there would be concern around
anything that might shed a light of impropriety on the merits
of the merger.
So, now let me turn to the merger itself. There are
currently four big companies in the telecommunications space.
Verizon has 34 percent of the market, AT&T has 33 percent, T-
Mobile has 18 percent, and Sprint has 14 percent.
Mr. Legere, and I think both of you testified that critics
who say that prices will go up and that jobs will be lost are
wrong and so let me turn to you, Ms. Sohn.
You used to work for the FCC. You are an expert on
antitrust policy, and I would like to ask you, is it your
opinion that moving from four companies to three will make the
telecommunications market more competitive?
Ms. Sohn. No, it will make it less competitive, and it will
raise prices on consumers, as the FCC's record shows. Mr.
Legere makes a lot of promises but, as the Senate says, nine
Senators said in an 18-page single-spaced letter, a dynamic CEO
is not a legal commitment.
Mr. Legere. Congresswoman, that is just false.
Ms. Jayapal. I am sorry, Mr. Legere. It is my time.
Mr. Legere. That is just false.
Ms. Jayapal. It is my time. I just wanted to end my
testimony by saying that both the Netherlands and Austria
underwent four to three mergers in the mobile wireless space.
Both saw price increases.
Mr. Chair, I ask for unanimous consent to enter into the
record both my letter with Senator Warren to Mr. Legere and his
response back to us.
Mr. Cicilline. Without objection.
Ms. Jayapal. Thank you.
[The information follows:]
MS. JAYAPAL FOR THE RECORD
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. The chair now recognizes the gentleman from
Florida, Mr. Gaetz, for five minutes.
Mr. Gaetz. Thank you, Mr. Chair.
I just cannot believe what we are watching. The gentle lady
from Washington just talked about how the substance of this
merger is critically important to her constituents because it
is so nearby and then only reserved the remaining 50 seconds of
her time to ask questions about the substance of the merger
because we must go into what kind of hotel towels you like. I
guess I should confess I once said I would never stay in a La
Quinta again, and I have stayed in La Quintas subsequently. So
presumably that is of some relevance.
I would like to spend the lion's share of the time on the
actual substance. A Huawei employee entered T-Mobile, into a
testing lab, put a proprietary robot arm into a laptop bag and
then walked out.
With this in mind, Mr. Legere, does T-Mobile currently have
any Chinese equipment in its existing network? Do you plan to
use Huawei in the new T-Mobile 5G network, and what is T-Mobile
itself doing to secure its network?
Mr. Legere. Yes, thank you for the question, sir. T-Mobile
has no Huawei or ZTE in the core of its network. We have no
Huawei or ZTE plans. They will not be in our network now or
ever.
There was a robotic arm that was stolen in a lawsuit that
we filed with Huawei, and we are very pleased by the things
that the government is doing to ensure the safety around
Huawei.
Mr. Gaetz. Ms. Bennet, do your Members contain Huawei or
ZTE equipment?
Ms. Bennet. Yes, we have about 25 percent of our Members
that have those two Chinese vendors in their networks. They did
it because they had universal service funds to spend. They were
trying to look for a low-cost economical way to spend their
money and they did deploy those back in 2010-2011, before it
became known that it was a problem, and our Members--
Mr. Gaetz. So, for the sake of cost, your Members do have
Huawei and ZTE parts. Does Huawei sit on your board?
Ms. Bennet. We do have a member, a Huawei representative on
our board in a non-voting capacity and has no influence over
our Public Policy Committee or our board.
Mr. Gaetz. It has come to my attention that some of your
member companies also use Huawei equipment and have sites or
towers in close proximity to military bases, is that correct?
Ms. Bennet. I believe that that is correct, yes.
Mr. Gaetz. So, as we move to 5G, what plans do your member
companies have to remove Huawei equipment and how quickly do
you plan to address the national security concerns that these
questions raise going forward?
Ms. Bennet. It is a very good question and thank you. We
plan to do what the Federal Government says that we should do.
To the extent that that equipment needs to be replaced, we plan
to replace it. Of course, we are going to need funding to do
that, and we have been in discussions with both Members of
Congress, the FCC, and the Administration on how to go about
that without harming the rural Americans that live in that area
by having them have no access to public safety services by
putting the equipment out of order.
Mr. Gaetz. Mr. Legere, will T-Mobile be requesting any
additional government assistance to accommodate your plans to
not use the lower cost Huawei and ZTE equipment?
Mr. Legere. No, sir, we wouldn't, and frankly, I think we
have even offered to play a role with the Rural Wireless
Association to help them possibly use some of our pricing power
to purchase alternative equipment.
Mr. Gaetz. So, as I understand it, some of the rural
providers oppose the merger. If the merger were to take place,
there would be more connectivity that would come not from their
providers but from T-Mobile in that circumstance and that would
result in not having as much ZTE and Huawei equipment utilized
in our technology transfers of information and you wouldn't
require any additional government assistance, like the rural
carriers have just said they would require?
Mr. Legere. Right. The existence of it in their networks
concerns us.
Mr. Gaetz. Mr. Chair, I seek unanimous consent to enter
into the record a CNN article, March 11th, 2019, entitled
Huawei Connects Rural America: Could It Threaten the Country's
Most Sensitive Military Sites?''
Mr. Cicilline. Without objection.
[The information follows:]
MR. GAETZ FOR THE RECORD
=======================================================================
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Gaetz. I want to also ask about emergency response. I
come from North Florida. We have been dealing with the
aftermath of Hurricane Michael, and I have seen in trips that
we have taken, bipartisan trips, where cities that have 5G
technology have amazing capabilities in the event of disasters,
especially for vulnerable populations, like people in hospitals
and nursing homes.
Can you speak specifically to how 5G will help our local
communities respond to disasters?
Mr. Legere. Yes, Congressman, that is a very, very
important question. Resiliency is a combination of backhaul
power, tower design, and restoration capability, and we have
significantly invested in those areas to now, and that is a
core part of the deployment of the New T-Mobile 5G Network.
In fact, in Hurricane Michael, the restoration capability
and the power investments we made allowed us to virtually have
our entire network up throughout the disaster. That is a core
principle of the design of the New T-Mobile network.
Mr. Gaetz. What would be an example of how 5G could save
lives in a disaster?
Mr. Legere. The 5G network, most importantly, the reach and
the breadth, and the coverage will provide capabilities that
are far more resilient and far more pervasive than their
coverage.
Mr. Gaetz. Thank you, Mr. Chair. Yield back.
Mr. Cicilline. Thank you.
The chair now recognizes the gentleman from Maryland, Mr.
Raskin, for five minutes.
Mr. Raskin. Mr. Chair, thank you very much.
I am going to start with you, Ms. Sohn. Mr. Legere said
that 16 of 19 State agencies reviewing the merger have already
approved the transaction, but I know there are still ongoing
State AG investigations.
Are those 16 agencies that Mr. Legere cited as having
approved the merger, are they responsible for determining if
the merger violates antitrust laws related to the question
before the FTC and the Justice Department?
Ms. Sohn. Yeah. When the PUCs, the Public Utilities
Commissions, and the State Public Service Commission's review
this merger, they are not actually looking at the mobile
wireless market. That is not in their jurisdiction.
Mr. Raskin. What are they looking at?
Ms. Sohn. They are looking at wire line, the small amount
of wire line capacity that is involved in this merger.
Mr. Raskin. Under State antitrust principles?
Ms. Sohn. That is correct, but they do not look at what is
the main event in this merger, which is the mobile wireless
market. So, with all due respect to State PUCs and PSCs, the
review is kind of irrelevant.
Mr. Raskin. Okay. Ms. Bennet, let me ask you. You are my
constituent, I think. You live in Carroll County?
Ms. Bennet. That is correct.
Mr. Raskin. Which is the most rural part of my district and
a beautiful part of my district, and you are here on behalf of
the Rural Wireless Association, representing 50 or more
wireless carriers, right?
Would this merger lower prices or increase prices and why
and what would the impact be in the rural areas, such as where
you live?
Ms. Bennet. From a rural American's perspective, it will
increase prices and the reason is because of the roaming
agreements. Each carrier has in a rural market, we only serve
the very small areas that are little islands in rural America.
When rural Americans leave those areas to go travel to cities,
they have to use a bigger carrier's network.
In the case of Sprint, my Members have reported that their
roaming arrangements with Sprint are often 20 times lower than
those with T-Mobile. So, the fear is that if the merger takes
place and the agreements that are in a place right now that
some of them, contrary to what Mr. Claure said earlier, they
are starting to expire, they don't automatically renew, and T-
Mobile has not indicated that they will renew those agreements.
They have said that we can select those agreements but if they
are going to expire in a couple months, we are very concerned
about that.
The pricing would go up--
Mr. Legere. Sir, for the record,--
Ms. Bennet. Please let me finish. The pricing would go up
for those rural consumers. So, we are going to have a situation
we fear where rural consumers will have really good service at
home with their local carrier and use the phone there for that
service, but when they travel, they will have to purchase
another phone which means rural consumers will end up paying
double, one for their local home service and one for their
travel service, so two phones to carry around.
Mr. Raskin. Thanks. Mr. Legere, can you respond to that?
Mr. Legere. Yeah. Just for the record, several times now
people are referring to what is going to happen to my prices. I
am going to be the CEO of the New T-Mobile. I have already
taken a business plan to the rating agencies and the financial
markets. Prices are going down. It is in my business plan. It
is also promised in the commitments that I made to the FCC.
From a roaming standpoint, we have made it very clear that
we will honor the agreements that both Sprint and T-Mobile
have. Remember, 70 percent of all the roaming agreements T-
Mobile has are reciprocal and we are a $25 million net payer.
Anybody that wants a roaming agreement that is reciprocal
at zero, we will sign that right now. Whether the rural
carriers pass those prices on to their customers, that is a
different story. But, Ninety-six percent of rural America will
be covered by the New T-Mobile network, which is significant,
contrary to the point that Mr. Shelton made.
Mr. Raskin. Mr. Shelton also testified that the transaction
would result in lower wages and thousands or tens of thousands
of layoffs, perhaps hundreds of millions of dollars lost to CWA
workers.
Are you willing to make the same promises to the workers
that you are making to the customers? When you say prices are
going to go down, are you promising that those workers are not
going to lose their jobs, or do you concede that they will?
Mr. Legere. Thank you, sir. I mean, I would just have to
categorize everything Mr. Shelton said as bad assumptions, bad
math. The last time we were here in a hearing, Mr. Shelton said
wages would go down but when asked what the wages were at T-
Mobile and Sprint, he said, ``I don't know. We don't have an
agreement with them.'' So, he has no--
Mr. Raskin. Can you just explain?
Mr. Legere. Wages did not go down.
Mr. Raskin. Can you explain as a matter of economic theory
that if you have the two businesses across the street from each
other and you take over the other business, why doesn't it
logically follow that half of the people are going to lose
their jobs?
Mr. Legere. If there is a Sprint and a T-Mobile store in
close proximity to each other, even if we take one of the
geographies and close the real estate, it is highly likely that
we will need both sets of employees because of our foot traffic
and share of gross ad requirements.
The other thing I would tell you is that we are offering a
job to every T-Mobile and Sprint employee. We also have at
Sprint retail stores, a 60 percent attrition rate annually and
a 19 percent attrition rate at T-Mobile. So, this is something
that we can take into consideration--
Mr. Raskin. Thank you.
Mr. Legere. --and handle without--
Ms. Raskin. Mr. Chair, could I give Mr. Shelton just a
chance to respond, just in fairness to him?
Mr. Cicilline. Your time has expired, but if Mr. Shelton
wants to answer the question.
Mr. Shelton. As far as promising employees a job, there are
so many loopholes there, it is amazing, but when you look at
what those stores are actually, 84 percent of them are
authorized dealers who are not employees of T-Mobile and have
no promise even from Mr. Legere that will not be kept with
authorized dealers because they are not T-Mobile employees.
That is some 88,000 people in the United States.
Mr. Legere. With all due respect, sir, when Metro-PCS was
acquired, Mr. Shelton said we would decline 10,000 jobs. I
added 23,000 jobs, and in my tenure as CEO, I have added 75,000
jobs, in addition to the 16,000 from Metro-PCS. So, my track
record speaks for itself.
Mr. Cicilline. Thank you.
The Chair now recognizes Mr. Buck--
Mr. Buck. Before my--
Mr. Cicilline. --and I'll actually give you an extra
minute, if you need to, since the witness on this side took an
extra minute.
Mr. Buck. Actually, I just wanted a ruling from the chair,
if I may. I had dinner at the Trump Hotel three weeks ago. My
steak wasn't cooked properly, and I sent it back and it was
then returned cooked really well and I am just wondering if I
have a conflict of interest.
Mr. Cicilline. I think only if you are involved in a merger
of two large companies.
Mr. Buck. Okay.
Mr. Cicilline. If you are not, I think you are safe.
Mr. Nadler. Wait a minute, Mr. Chair.
Mr. Cicilline. Yes.
Mr. Nadler. That means he cannot speak at this hearing.
Mr. Cicilline. Yes, that is true. I think they are trying
to say perhaps you shouldn't speak during the hearing. No.
[Laughter.]
Mr. Cicilline. Mr. Buck is recognized.
Mr. Buck. Thank you very much. I appreciate that.
First, Mr. Chair, I would like to introduce a letter for
the record from a constituent of mine, Frank DiRico, who is the
CEO of Viareo Wireless and writes about the effect of this
merger on rural broadband and he is very excited about this
merger and continuing to work with T-Mobile. Mr. Chair, is
there any objection to entering this?
Mr. Cicilline. Without objection.
[The information follows:]
MR. BUCK FOR THE RECORD
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Buck. Thank you.
Then I wanted to just comment, Ms. Sohn, that between the
two of you, I am going with T-Mobile just because he has better
shoes. I don't know if you have seen them but those--
Mr. Cicilline. He is counting on that.
Ms. Sohn. I have better glasses, though.
[Laughter.]
Mr. Buck. They are cool glasses, I give you. If they were a
little pinker. I wanted to ask the two gentlemen from T-Mobile
and Sprint whether you are planning on buying more spectrum as
a result of this merger.
Mr. Legere. The answer is yes. Currently, we are
participating in a millimeter wave spectrum auction as we speak
and there will be a lot more spectrum that is needed, in
addition to what we are going to get together with these two
coming together, these two companies.
Mr. Buck. Do you plan on buying that from current holders
of spectrum or in the market, other areas of the marketplace?
Mr. Legere. Yeah. The significant amount of the spectrum
that we need to run this new company will come from the
integration of the low-band, mid-band, and high-band spectrum
portfolios that we have. There will continually, as 5G
advances, be a need to buy and there are government auctions
that we are involved in.
Mr. Buck. You have made promises about pricing and I am
wondering, based on those promises, do you believe that there
is any role for any government agency in the pricing that you
will be setting?
Mr. Legere. I believe my commitments are enforceable, and I
have made it clear. Two things: I have a business plan that has
prices declining. I have supply going up significantly. I have
an 87 percent reduction in the unit cost of a gigabit of data
that is being sold. So, I have huge supply. I have a
significant price decline capability, and I committed that to
the FCC in writing for the first three years.
Mr. Buck. Okay. So, I took an economics class in college
and I immediately went into law.
[Laughter.]
Mr. Buck. I wanted to just ask you to explain to the
American public why three big companies makes for better
competition in the marketplace than two big companies and two
small companies.
Mr. Legere. Right. Thank you, sir. I think you categorized
that well. Amongst the ways that I look at this merger is going
from two to three and, by the way, after the Number 3 and
Number 4 players come together, we will still be a much smaller
Number 3 to the economic power of AT&T and Verizon. Why this
makes sense is that we will be able to significantly increase
supply and bring competition greatly to those other two.
The last thing I would also say, we continue to ignore that
the cable monopolists are in wireless. Comcast added more phone
customers in the last year than AT&T and Verizon together.
Comcast, Charter, now Altice. DISH owns a massive amount of
spectrum that will come in, and Tracfone happens to be largest
prepaid player in the market.
So, there are more than just the three players but going
from two to three makes more sense than just having two.
Mr. Buck. Do you agree with that?
Mr. Claure. One hundred percent. We talk about the U.S.
market being a competitive market. It is not. AT&T and Verizon
today have over 70 percent market share, but what is worse is
they control over 93 percent of the cash flow in this industry.
So, think about it. How could you compete when you are
competing against two companies that are generating 93 cents of
every dollar of profit? So, the only way we are going to be
able to compete is when we put our two companies together, we
build a better product, we lower our prices, we cover every
corner in America, and this is the first time that AT&T,
Verizon, Comcast, and Charter are really going to feel the
competition.
So, we are going to make this market more competitive, and
this merger is pro-consumer because everybody benefits, whether
you are postpaid customer or whether you are prepaid customer.
Better product at lower prices, that is the basics of business.
Mr. Buck. So, have the two of you put your head together
and figured out which color this new entity will go with?
Mr. Legere. That would be magenta.
Mr. Buck. I yield back. Thank you.
Mr. Cicilline. Thank you.
The chair recognizes the Chair of the Full Committee, Mr.
Nadler, for five minutes.
Mr. Nadler. Thank you. Before I start my questions, Ms.
Sohn, you look very eager to respond to the last question. So,
could you take just a moment to do that?
Ms. Sohn. I am very eager. So, Mr. Legere keeps talking
about unit price and I think that is really important because
what he is saying is the New T-Mobile will give you more. He is
not saying what they are not going to do, but on a per unit
price, you will either pay the same or less. So, you will get
faster speeds, better quality, but in absolute terms, you are
going to pay more, but on a per unit, that is the words you
just used. Okay.
Number 2, if I hear excess capacity, excess capacity one
more time, I think my head is going to explode. Okay. That is
seldom the primary, the only determinant of a pricing decision.
A market-dominating entity can reduce output because it is more
profitable to do so.
Carnegie owned all the railroads. He had lots of capacity,
but he was still a monopolist. So, the capacity is meaningless
when it comes to setting prices.
Mr. Nadler. Thank you. Okay. Now the questions that I have
for Mr. Shelton.
Economic concentration in every sector of the economy
almost has reached historic levels. Last week, Professor John
Kwoka of Northeastern testified in front of the Senate that
concentration has been steadily rising and competition
declining in a great many sectors of the economy, raising
``legitimate concerns about increasing market power in large
swaths of the U.S. economy.''
What effect has decades of consolidation, rising employer
market power, and declining organization rates had on workers?
Mr. Cicilline. Please use your microphone, Mr. Shelton.
Mr. Shelton. Obviously, it has put a downward spiral on
wages. The loss of unions has put probably a bigger downward
spiral on--
Mr. Nadler. The loss of unions aside, you think the
concentration has put a downward spiral?
Mr. Shelton. Right. It has increased competition for labor
and when you increase competition for labor, the labor prices
go down and that is what--
Mr. Nadler. You mean decreased competition for labor?
Mr. Shelton. Increased. I am sorry. Did I say decreased?
Increased.
Mr. Nadler. It has increased competition for labor?
Mr. Shelton. No, decreased. I am sorry.
Mr. Nadler. Okay. Then the prices go down is what you are
saying?
Mr. Shelton. Right.
Mr. Nadler. As you note in your written, you discuss both
T-Mobile's and Sprint's ``long history of ignoring workers'
rights in violating federal labor laws,'' noting that T-Mobile
in particular has been the subject of more unfair labor
practice charges per employee than any other big business in
the United States. That is a quote from you.
How could the Sprint and T-Mobile merger affect New T-
Mobile's ability to engage in unfair labor practices?
Mr. Shelton. They will become much more powerful. This is a
company that has been found guilty by various and sundry courts
and the NLRB on already doing unfair labor practices and if you
put them together, they will be more powerful and they will do
everything they can to try to take unions out and they will
continue to.
Mr. Nadler. They will have more power, and if you put them
together, albeit they are more powerful, they would not have
less desire to do so?
Mr. Shelton. I don't think they would have more desire
because they want to keep unions out. The only way that their
employees have a voice is through collective bargaining and
they don't want any part of collective bargaining.
Mr. Nadler. That wouldn't change?
Mr. Shelton. No.
Mr. Legere. Mr. Chair, could I comment?
Mr. Nadler. I have one more question for someone else. Then
if we have time.
Ms. Scurato, in your testimony, you note that the proposed
Sprint/T-Mobile merger would disproportionately cause harm to
low-income communities and people of color. What are the harms
that low-income communities and people of color are likely to
experience as a result of the Sprint/T-Mobile merger and why do
you think that they would experience those harms?
Ms. Scurato. Thank you for the question. They are going to
experience higher prices. If you look at the FCC record and
these companies' economic studies, they actually show that
prices are going to increase, and I am going to quote here--
Mr. Nadler. They show the prices are going to increase
because of consolidation?
Ms. Scurato. Yes, absolutely, and actually DISH economics
have concluded that T-Mobile and Sprint's own economists
predict significant price increases, the harms of which are
going to disproportionately fall on lower-income subscribers.
Mr. Nadler. Who did you say predicted that?
Ms. Scurato. Yes, their own economists, and this is--
Mr. Nadler. T-Mobile's economists?
Ms. Scurato. Absolutely.
Mr. Legere. DISH, one of the objectors.
Mr. Nadler. Okay. DISH's economists?
Ms. Scurato. DISH's economists concluded that Sprint and T-
Mobile's own economists predicted that, and that is what is in
the FCC's record.
Mr. Nadler. Okay. Thank you.
Mr. Claure. Let me just intercede once. I am Mr. Claure.
Mr. Nadler. Who wanted time to reply? Mr. Legere asked for
time to reply, too.
Mr. Legere. I cede to Marcelo.
Mr. Cicilline. He is ceding his authority. Okay.
Mr. Claure. So--
Mr. Nadler. Would you reply to both those questions, what
you wanted to reply to and what Mr. Legere wanted to reply to?
Mr. Claure. We cannot understand why when we are here under
oath and somebody says that we have said we are going to get
higher prices--
Mr. Nadler. No, I think she said that--she quoted DISH's
economists as quoting your economists.
Mr. Claure. Correct. So, let's make sure that we are very
clear. We have made a commitment that we are going to lower
prices. We went above and beyond. In other mergers, people go
and make a filing with the FCC. We did that voluntarily. Nobody
asked us to do that. We are making a commitment because we have
eight times the capacity, which is something substantial.
Just remember one thing. We are going to lower the price or
the cost of our product by 87 percent of the manufacturing cost
of a gig. Of course, we are going to lower prices. If any
industry in the world where you lower the cost, you lower your
cost by 87 percent, therefore, we have excess capacity and we
made a commitment to have lower prices.
Mr. Cicilline. Okay. Thank you.
Mr. Nadler. Thank you. My time has expired.
Mr. Gaetz. Mr. Chair?
Mr. Cicilline. Yes, I recognize the gentleman from Florida
for unanimous consent request.
Mr. Gaetz. Thank you, Mr. Chair. Seek unanimous consent to
enter into the record a letter from Northeast Colorado
Cellular, Inc., directed to you and Mr. Sensenbrenner.
Mr. Cicilline. Without objection.
[The information follows:]
MR. GAETZ FOR THE RECORD
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[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. I now recognize the gentle lady from
Florida, Ms. Demings, for five minutes.
Mrs. Demings. Thank you so much, Mr. Chair. Thank you to
all our witnesses for being here with you.
As I sit here and listen to all my colleagues, I guess it
is necessary for some to try to find humor when we are talking
about American workers potentially losing their jobs and people
of color once again potentially being taken advantage of and
persons who live in rural communities potentially losing
adequate coverage.
For some reason, I am struggling to find the humor in that
and with all due respect to my colleagues who feel like where
you stay is irrelevant, I do associate myself back to the
comments originally made by my colleague from Georgia because
when we are talking about mergers that cost millions of
dollars, billions of dollars, excuse me, I do believe a
compromise or the appearance of compromise or undue influence
is relevant to this conversation.
Mr. Legere, I am going to start with you. In your
testimony, you said that this proposed merger would, and we
referred to this quite a bit, lead to lower costs, it would be
a tremendous job creator and would create thousands of more
jobs.
So, under those circumstances, when I hear what you say and
what I hear what Mr. Shelton says, it appears to me that that
would be a marriage made in heaven but apparently obviously the
workers do not feel that way.
So, if you would just please, if you have already done it,
do it again for me because I don't see it quite yet and I am
really struggling to see it, how does the merger actually lower
costs? How does it become a tremendous job creator, and how
will you create thousands of jobs that should make American
workers, and the unions that represent them, extremely happy
but they're not?
Mr. Legere. Thank you very much, Congresswoman. I am sure
the topics that you outlined, that you said we're finding humor
in, I find no humor. We are the largest provider to people of
color in low-income and will be, and they will be top
beneficiaries of this transaction. Rural America will be, as
well.
Jobs, we are going to create 5,000 new retail jobs. We are
going to onshore 5,600 customer care jobs. We are going to have
1,800 network integration jobs, and we are going to have 11,000
new positions. We will have 3,600 more employees in the first
year than the two separate companies combined and 11,000 by
2024. So, jobs are going up.
Again, Mr. Shelton's track record is when AT&T tried to buy
T-Mobile, he predicted it would increase jobs 96,000. When T-
Mobile bought Metro-PCS, he said it would decrease 10,000. I
would submit that those are related to whether he has a union
agreement, and he would be very happy in this job creation if,
in fact, we were a union-created organization. Jobs will go up
every single day of this new company.
Mrs. Demings. Mr. Shelton, would you respond to that,
please?
Mr. Shelton. Yes. Mr. Legere is talking about jobs going up
5,500 or 5,000 call center jobs. Right now, T-Mobile ships call
center jobs overseas every moment of every day. There is a tape
wandering around the internet where his vice President of
something is telling the people in the Philippines that work
for T-Mobile in call centers that they are doing a great job
because a year ago, there was none of them and now there is a
thousand of them.
Mrs. Demings. Mr. Legere, is the merger an American job
creator or an American job destroyer?
Mr. Legere. It is a significant American job creator, and I
would just say to Mr. Shelton, I do have some offshore jobs,
and I will have some--
Mrs. Demings. Do you ship American jobs overseas every day
as he indicated?
Mr. Legere. That is absolutely not true. Jobs in America
are going up significantly every day in the New T-Mobile.
Mr. Shelton. If I may, when you consider that 84 percent of
the stores that are operated by authorized dealers, not
employees of T-Mobile but authorized dealers, and then you
consider that after this merger, if this merger goes through,
T-Mobile/Sprint will have twice the number of stores that
either AT&T or Verizon has, what do you think is going to
happen to those stores?
Mrs. Demings. I know exactly what I think. Thank you. Ms.
Sohn, would you please go ahead with the last few seconds?
Ms. Sohn. Thank you so much. I just want to list the
promises I have heard today.
On wholesale access, prices, Lifeline, in-home broadband,
and jobs, like every day there is a new promise, but my
question is who is going to enforce these vague promises? I
agree with the Assistant Attorney General Makan Delrahim that
behavioral remedies don't work. They didn't work in the
Comcast/NBC merger. They didn't work in other mergers. Who is
going to enforce all these promises? That is the problem.
Nobody is the answer, and nobody is equipped.
Mrs. Demings. Thank you so much, Mr. Chair. I yield back.
Mr. Cicilline. Thank you.
The chair now recognizes the gentleman from North Dakota,
Mr. Armstrong, for five minutes.
Mr. Armstrong. Thank you, Mr. Chair.
Mr. Legere, we talk a lot about the race to 5G and we have
talked about it today and we all recognize that when we are
competing in this, we are competing with China and there is no
real private business in China and they have a sense and a
unity of purpose as a country in these types of scenarios that
we don't.
My question is, what does it mean for the U.S. to win the
race to 5G? I mean, we are talking about short-term in jobs and
those types of things but a longer view of economics of what
this means and that is before we get into national security
questions.
Mr. Legere. Thank you very much, sir. The statistics from
CTIA suggest that there are three million American jobs at
stake with 5G leadership. That being that if we don't retain
and take leadership in 5G, as we did with 4G, we can lose those
jobs. It would be $350 billion of investment and a half a
trillion of economic impact.
Right now, the U.S. is behind China and South Korea in the
deployment of 5G, as you say, heavily because the country of
China has a massive state-run budget to deploy 5G as a critical
national priority. With what we are going to do with the New T-
Mobile--the $40 billion worth of investment, the creation of
the new network, and forcing AT&T and Verizon to not just have
short-term focus on millimeter wave and small geographies--
together we can lead the country to 5G and attain that critical
position.
Mr. Armstrong. When we get into this technology, I think it
is important to recognize, too, we will pay $800 for a phone
but not if there is one available for $740. I mean that is the
nature of the American consumer.
So when we start talking about where these processes are
made and those types of things, but basic economics tells us
more capacity should relate to lower prices, but the 5G dates
are 2021, 2024, and those dates--I mean for everybody, those
dates seem like a long way off, but can we expect to see
improvements in speed and performance and I suppose most
critically capacity before then?
Mr. Legere. Yes, the New T-Mobile's network is going to
have median speeds by 2024, 450 Mbps. By 2021, it will be a 150
Mbps median speeds across the whole country, and as I said, we
are aspiring to cover 96 percent of all rural America.
The promise of 5G, by the way, is a hundred times the speed
and a hundred times the number of devices and 10 times better
latency. So, it is a major transformational step but even as we
migrate to it, the New T-Mobile speeds are going to be 15 times
faster.
Mr. Armstrong. In my never-ending quest to educate people
about North Dakota, we have the best rural broadband in the
entire country and when you deal with the success story for
that, North Dakota is it, but we do recognize that rural
America is significantly underserved across the entire country.
So, I guess my question for Mr. Claure would be, do you
think Sprint can no longer continue viably as a nationwide
competitor, especially as we transition to 5G, under the
current structure?
Mr. Claure. There will be a different Sprint. For Sprint to
be able to offer 5G in our current coverage, which is about
half of AT&T's and Verizon's coverage, we will have to spend
close to $25 billion.
As you know, Sprint already has $40 billion in debt and we
don't make any money. We barely break even. We will basically
have to borrow that money from the bank and potentially must
increase prices and we would only be to offer 5G in selected
areas. The promise of 5G needs to be coverage end to end, so we
can enable the new technology that would come with 5G. So,
Sprint will be a very different company.
Now, why this is extremely relevant is today, AT&T and
Verizon, again like I said before, they have 93 percent of the
profit generated and 70 percent of the market. If you shrink
Sprint to be a smaller company, then basically the market share
of AT&T and Verizon will grow more and the market dominance or
the market abuse that they have will eventually grow.
So, the way to make this market more competitive is by
allowing Sprint and T-Mobile to merge, to create one third
viable competitor that will bring competition to America.
Mr. Armstrong. Thank you, and I think you and I can
probably have a longer conversation than 20 seconds will allow
about what happens, what potential pitfalls exists if Sprint
does shrink and raise prices and how that looks to your current
economic outlook. The type of company you are now versus the
type of company you'd foresee in four years.
Mr. Claure. It will be a smaller company, as I said, and,
more importantly, it will make the other two much, much
stronger. As we talk about market dominance, they will actually
become a lot more dominant if that would be the case.
Mr. Armstrong. Thank you.
Mr. Cicilline. Thank the gentleman.
I now recognize the gentle lady from Pennsylvania, Ms.
Scanlon, for five minutes.
Ms. Scanlon. Thank you. So, the major purpose of our
antitrust laws is to address the impact of corporate
consolidation on the public. So, I wanted to try to focus my
time on the impact of the proposed merger on the consumers and
workers in my district, which is Pennsylvania 5. It is South
Philadelphia, all of Delaware County and part of Montgomery
County, Pennsylvania.
So, Ms. Scurato, and I note that you are a Villanova Law
grad, which is in my district, your testimony that you
submitted talks about the harm to price-conscious customers in
low-income communities and communities of color. Would that
also include seniors?
Ms. Scurato. Yes, to the extent that they are price-
conscious customers, it would include seniors.
Ms. Scanlon. Okay. You talk about--I am sorry. Losing my
place here. You have got a chart on Page 11 of your testimony
that looks at major markets and the percentage of market held
by Sprint and T-Mobile.
Can you explain the significance of that chart with respect
to the Philadelphia region?
Ms. Scurato. Sure, absolutely. So, this is a percent of the
market that Sprint and T-Mobile owned as a company or they own
as a wholesale partner. It actually shows what percentage of
the market they actually have in that district, in
Philadelphia.
Ms. Scanlon. What is the impact of a merger on the
Philadelphia region if they have, what did you say, 40-46
percent of the market?
Ms. Scurato. So, the impact is that the price-conscious
customer doesn't have that robust competition between Sprint
and T-Mobile in order to keep prices low.
Ms. Scanlon. Is this what you would describe as a highly-
concentrated market?
Ms. Scurato. Absolutely.
Ms. Scanlon. Okay. As I understand it, your testimony is
that in a highly-concentrated market, that elimination of
choices is what tends to drive prices up?
Ms. Scurato. Correct.
Ms. Scanlon. Okay. Mr. Shelton, you kindly attached Exhibit
A to your testimony that has the distribution of Sprint and T-
Mobile's postpaid and prepaid stores in various regions and one
of them that you have highlighted there is Philadelphia.
Mr. Shelton. Yes.
Ms. Scanlon. You have that? Does that also show there is
fairly highly-concentrated Sprint and T-Mobile coverage and
retail stores there?
Mr. Shelton. Excuse me. I didn't hear you.
Ms. Scanlon. Does your graph indicate with respect to the
Philadelphia region and the concentration of T-Mobile and
Sprint retail stores?
Mr. Shelton. Yes.
Ms. Scanlon. What is the impact in your estimation of the
merger on retail workers if the merger goes through?
Mr. Shelton. Well, obviously, as you can see, these stores
are very close together in most of these places. Not only that,
but as I said before, 84 percent of all their stores are owned
by authorized dealers, owned, and operated by authorized
dealers. So, when T-Mobile says that they are going to offer a
job to employees, that doesn't mean anything to authorized
dealers' employees and when you have this many stores, as I
also said before, twice what AT&T or Verizon would have if this
merger goes through, obviously they are going to get rid of
some of those stores and those stores are probably going to be
authorized dealer stores and the employees in those stores.
Ms. Scanlon. Okay. Thank you. So, we do have these concerns
about the impact on consumers that less competition could lead
to higher prices and consolidation of stores could lead to less
jobs.
So, Mr. Legere, how are these four to three mergers so
different from traditional mergers where we have the concern
about lessening competition?
Mr. Legere. Thank you very much for the question. I think I
have tried to be very clear that going from two to three is
going to increase competition. In cities that have a high
concentration of share, we run this business on nationwide
advertising, nationwide pricing. We don't price particularly
down to a neighborhood and in the lower end of the market, when
we bought Metro-PCS, where the main concern was the same,
Metro-PCS customers had 12 times increase in the data usage and
a four percent decline in price. So, the low end of the market
has been a high beneficiary and we would expect that to be
here.
Mr. Shelton keeps talking about the authorized dealers.
Boost, Virgin, and Metro are pretty much heavily concentrated
in authorized dealers, and we have made it clear we are going
to run these brands as businesses as the way they are now. We
can't make job offers to employees that aren't ours, but we can
run these businesses. We can segment the market so that Metro
and Boost and Virgin all have a clear role to play, and with
Sprint and T-Mobile stores, we can offer jobs to every person.
Ms. Scanlon. I think Ms. Sohn was looking to respond.
Ms. Sohn. Yes, this is not a two to three merger. This is a
four to three merger. We don't have to have three equal-sized
players to compete. A Sprint and T-Mobile--by the way, T-Mobile
became T-Mobile after the Justice Department blocked the merger
of AT&T and T-Mobile. That is when they became the un-carrier
and wisely hired this man to my right.
You know, they are mavericks. They not only compete with
AT&T and Verizon, but they also compete with each other, and as
we have seen not only in Europe and I don't know why Europe is
different, it is actually smaller, so I would think that if you
are shrinking from four to three in Europe and it is bad and
you have double digit price raises, it is going to be worse in
the United States.
There is no Rule that says that everybody has got to be the
same size and, in fact, three is an invitation to collude
rather than compete.
Mr. Legere. Can I make one final comment since the word
``collude'' was used?
Mr. Cicilline. The time has expired, but we are going to
get back to you.
I am going to go to Mr. Neguse from the great State of
Colorado for five minutes.
Mr. Neguse. Thank you, Mr. Chair.
Mr. Claure, I want to talk a little bit about Mobile
Virtual Network Operators. So, you can kind of correct me if I
am wrong here. My understanding is that Sprint is one of the
largest providers of roaming contracts in rural America. Is
that a fair characterization?
Mr. Claure. We provide it to both mobile--as you call it,
MVNOs and to rural America. They are our customers.
Mr. Neguse. So, I represent a district that is both urban
and rural, quite a few rural counties in my district in the
Second District in Colorado, and while I understand that T-
Mobile has made a commitment with respect to legacy rate plans
for the New T-Mobile in terms of maintaining those plans for
three years after the merger, am I correct that that commitment
does not extend to MVNOs that currently rely on Sprint for
wholesale service?
Mr. Claure. So, I would let Mr. Legere answer that since he
is going to be running the new company, but there is one
enormous MVNO in the United States and that is a company called
Tracfone. I think they have something liked 20 something
million customers. Tracfone basically has endorsed this merger.
They sent a letter saying this merger is good for consumers.
Mr. Neguse. I understand that. I don't mean to interrupt
you, Mr. Claure, but I guess I will just give it to Mr. Legere.
I am trying to get to this question of whether that price
commitment will extend to this piece of the market, since that
piece is such a huge component of the ability for folks in
rural America to be able to access.
Mr. Legere. Thank you, Congressman. I will go even one step
further.
Not only will we honor the agreements that both Sprint and
T-Mobile have, if there is any MVNO that is concerned about
them not having the ability to get the rates that they have
now, I will lock in a contract with any one of them that wants
to take their rates now and lock it in for as long as they
want.
Prices are going to go down in that market, as well,
especially since I can't think of an MVNO agreement where
prices ever went up or stayed flat. For somebody who wants to
lock it in, I am your guy. I will meet right out in the hallway
here.
Mr. Neguse. Thank you for your answer, Mr. Legere.
Mr. Claure, I want to follow up--use the remaining time I
must follow up on a question that my friend from North Dakota
posed around kind of the reasoning for this merger,
particularly as it relates to Sprint's standing in the market.
My sense, based off what I have read, is you have made
statements previously that the path that Sprint is on, is not
sustainable in terms of the path forward. I think you
referenced to the gentleman from North Dakota that Sprint would
have to be a smaller company. Am I characterizing your
statements accurately?
Mr. Claure. That is correct.
Mr. Neguse. Okay. So, what I am struggling to reconcile is
from your January 31st, 2019, press release detailing the first
quarter results in 2018 of Sprint, and I will just go through
some of these.
Postpaid service revenue grew year over year for the first
time in five years. Prepaid service revenue grew year over year
for the fifth consecutive year. Net operating income of 479
million, 12th consecutive quarter of operating income, sixth
consecutive quarter of net additions, 10th consecutive quarter
of net additions in the business market.
I mean, those don't sound like metrics of a company that
would be getting smaller. It sounds like a company that is
getting larger and maybe you can adduce.
Mr. Claure. Sir, with all due respect, the only metric that
matters in business is whether a business has the ability to
generate cash or not and if you continue reading the press
release, Sprint is expected to generate a negative free cash
flow of a billion dollars this year.
A company that doesn't generate free cash flow doesn't have
the ability to invest. A company like Sprint has $40 billion in
debt and the only way we can continue to invest is if we borrow
more money and if we borrow more money, the only way to pay for
it is we are going to have to increase prices and I have said
that prior to this merger, the only way Sprint will continue is
basically by increasing its prices.
Mr. Neguse. Well,--
Mr. Claure. Now just to finish, we do not--as I said, we
are generating negative free cash flow. That means we spend
more money than money that is coming into the company.
Mr. Neguse. I am going to give the witness a chance to
respond to that, but I would just follow up to say--and again
part of this is just reconciling the statements that the
company has made with respect to its financials with the
justifications for the merger, because what I am trying to
glean from your written testimony focused on the need to be
able to make more capital investments, and yet in your press
release, you talk about the fact that network investments year
to year have doubled, which I understand were reduced
drastically in the years prior, but nonetheless, are now on the
rise.
There has been a lot of conversation about 5G. I read a
letter that Sprint issued in the New York Times just yesterday
essentially to customers far and wide with respect to one of
your competitors and in that letter, it made clear to me that
the Sprint--its plan is to be the first carrier in the United
States that has mobile 5G later this year. So, again, I am
trying to understand that difference between the position of
the company and your testimony.
So, if you will indulge me to give the witness a chance to
respond to that.
Mr. Cicilline. The gentleman's time has expired, but the
witness may answer the question.
Mr. Claure. Great. So, we do plan to deploy 5G in a very
limited area. We said it. It is specific cities around the
country, but we do not have the capability to offer a true
nationwide 5G because we lack low band spectrum to do it
throughout the country.
Now when you see the metrics that you see, yes, Sprint has
been getting better. When we started Sprint in 2014, we used to
lose $5 billion. Today's company is barely break even and
generating minus $1 billion. So that limits our ability to
invest going forward.
Mr. Cicilline. Thank you.
The chair now recognizes the gentle lady from Georgia, Ms.
McBath, for five minutes.
Mrs. McBath. Thank you and thank you to all that are here
sharing your views on this proposed merger.
We have heard a lot of talk today about the potential
effects of this deal and obviously I am not an antitrust
lawyer, but it doesn't take an antitrust lawyer to see that
there are real reasons to be concerned about how this proposed
merger might harm consumers and workers.
Our economy relies on robust competition and my
constituents in Georgia don't need a law degree to tell them
the difference between having four phone plans to choose from
or just three. You don't need an economist to tell you that a
company doesn't need two phone stores on the same block or that
if you work at one of those stores, it is about to close and
that you are going to need a job, and as it was stated here
earlier by the Communication Workers of America, they project
that 28,900 jobs would be lost due to this merger.
So, my question for you, Mr. Legere, is, on February 4th,
T-Mobile committed to make available the same or better rate
plans as those offered by T-Mobile or Sprint for three years.
So why not four or five years, and why do we need this promise
if this deal is to be such a good deal to consumers?
Mr. Legere. Thank you very much for the question, and I am
happy to explain that. My business plan has prices going down
the whole time. The panel has said several times that our own
modeling showed prices going up in the first three years. That
is not true.
What happened is the build-out of the network takes three
years. An economist inserted price pressure in the first three
years as a theory as to what could happen before the capacity
would go up. That is not my business plan. So, what I decided
to do is make the commitment to the FCC. I will keep every rate
plan that everybody has and keep it for three years because at
the three-year point when the capacity is significantly built,
there was no question from all the theoretical economists about
what would happen to price.
Mrs. McBath. Ms. Sohn, do you have any response to that
answer?
Ms. Sohn. I want to repeat what I said earlier in my
testimony, that this pricing commitment, which, as you
mentioned, is good for a limited time only, is an admission
that post-merger, there is not going to be enough competition
in the wireless market to constrain price increases. He is
basically saying I have got to do this. I have got to make this
promise and I will get back to promises, promises. Who is going
to enforce these vague promises?
I will also make another point. After the February 4th
letter several people filed with the FCC showing how many
loopholes there were in this pricing commitment and T-Mobile
had to file an eight-page letter explaining why this was simple
and ironclad.
Now if you have got to take eight pages to explain why your
pricing commitment is ironclad, it ain't ironclad.
Mrs. McBath. Thank you. Mr. Shelton, Sprint and T-Mobile
have promised to offer employees new jobs if they are affected
by a store closure.
What kinds of jobs might those be and tell us from your
research, what kinds of jobs would those individuals be asked
to take?
Mr. Shelton. There is no way to tell what kind of jobs they
might be. There is no way to tell what kind of wages they might
make. There is no way to tell where they are going to work.
There is no way to tell where they will be forced to transfer
to go to work, and we still have 88,000 people who work for
authorized dealers that haven't been promised anything and
those stores are going to close, mark my words.
Mrs. McBath. Thank you so much. I would like to yield the
rest of my time to Mr. Neguse.
Mr. Neguse. I thank the gentle lady from Georgia.
Ms. Sohn, if you care to opine on the kind of colloquy Mr.
Claure and I had previously, I just wanted to give you a chance
to be able to.
Ms. Sohn. Thank you so much. So, it is true that in the
third quarter of 2018, Sprint had negative cash flow of $908
million but that is because they built up a large reserve of
cash and now they are spending it on CAP-X. They spent $1.4
billion in the immediate prior quarter--oh, excuse me. They
spent $1.4 billion on their network in the third quarter. That
is why they had negative cash flow. In fact, in the prior
quarter, so Q2, Sprint had positive cash flow of $525 million.
Let me say one other thing. Nobody has talked about
SoftBank. SoftBank is like overflowing with money. It has got
$31 billion in cash and cash equivalence across its portfolio.
Its Vision Fund has more than $90 billion in capital which it
invests in cutting edge technology companies and there is more
on the way. They are going to have an IPO of their Japanese
Mobile Division and they are listing the offering at $30
billion. So, there is money there. It just needs to be spent.
Mr. Neguse. I yield back.
Mr. Legere. Can I reply now?
Mr. Cicilline. The time of the gentleman has expired. I am
going to recognize myself for five minutes.
So, I want to start with, there has been a suggestion
somehow, and I wasn't good in math, but there has been a
suggestion that we are going from two to three, which just
seems to me a really silly claim.
I mean, T-Mobile currently represents 18 percent of the
market and Sprint represents 14 percent of the market. That,
going from two to three, acts as if those are non-existent
players in the market and it seems to me that this is clearly
not true. This is a very substantial part of the market and so
I think you need to be honest.
This is a transaction that takes four companies and makes
it three, and the other question is, what is the impact on
consumers and workers and costs, from my perspective.
So, I want to start with, first, there has been a lot of
discussion about the projected impact on consumers in terms of
costs, and I take Mr. Legere at his word that he intends as CEO
to keep costs down for the first three years, but, of course,
this is not just something decided by a single individual.
There is a market that will have some impact on whether that
happens or not.
You have shareholders that you are responsible to and you
simply can't say, look, I am just going to keep my prices
lower, and we are going to lose money because I want to do that
personally. There are a bunch of duties you have, fiduciary
duties, and market conditions, and what I really want to focus
on is the testimony of Ms. Scurato, who references testimony
from T-Mobile's economist, a firm called Cornerstone, that
acknowledged that price increases are likely and that that was
referenced in the DISH filing.
So, I want to start really with you, Ms. Scurato. It seems
like that was a conclusion that is consistent with other
history in this sector and the reduction from four to three.
Would you just explain a little bit about their response, and
then I want to ask Mr. Legere to respond?
Ms. Scurato. Sure. Thank you. So, in the Cornerstone study,
it actually speculates that lower-income customers may be more
willing to pay for better service than higher-income customers
because they rely on smart phones for their only access to the
internet. So that is part of the Cornerstone study, and again,
DISH's economist, when looking at this study, they have
concluded that Sprint and T-Mobile's own economists have
predicted significant price increases and that those harms are
going to disproportionately impact low-income consumers.
Mr. Cicilline. So, Mr. Legere, I applaud both T-Mobile and
Sprint have been, most people would recognize, scrappy,
aggressive players in this market and it has resulted in maybe
not better experiences for workers, according to Mr. Shelton,
but at least better experiences for consumers, lower costs,
more innovation, more choices. That is what competition is
intended to promote.
So, it is hard to understand, both in terms of your own
economic conclusions of your economists that prices are going
to go up and what we know about antitrust law and competition
broadly, that less companies is less competition which produces
higher prices. Why isn't this presumptively anticompetitive and
not in the best interests of consumers, American jobs, or
prices? It seems kind of--
Mr. Legere. Thank you, Mr. Chair. Several things. You did
refer in the beginning in your comments about being a CEO with
a fiduciary obligation to shareholders, and I made it very
clear that the business plan that I have shown to shareholders,
that I have taken to rating agencies, has price declines from
day one down.
Not what we keep hearing about here is giving credence to
DISH doing economic modeling.
Mr. Cicilline. It is not--I am sorry to interrupt, but it
is not DISH doing it. It is your economists, a firm called
Cornerstone.
Mr. Legere. DISH's interpretation. I will tell you one of
the reasons that the FCC shot clock is currently stopped is
that we provided tremendous amount more information about the
years '19 to '21 because this was such a question.
Prices are going down and, sir, if you will give me that
chance on the collusion comment because she made it, if I can
just make this comment,--
Mr. Cicilline. Sure.
Mr. Legere. --which was, T-Mobile's done a great job as a
young carrier, but it didn't just come with hard work. We got
$3 billion worth of cash and spectrum from the AT&T breakup and
we did a merger with Metro-PCS. So sometimes those things are
required.
The un-carrier's brand is all about taking it to AT&T and
Verizon. Those two wouldn't even speak to me if I was in a dark
room alone with them and the whole brand--
Mr. Cicilline. Mr. Legere, I understand that. Our goal here
is not whether you get to take it to AT&T and Verizon. Our goal
in deciding whether this merger makes sense, is in the public
interests, is if it is good for consumers, it is good for
American jobs, and whether it will result in more choice and
lower prices. So, I get the sort of competition view as the CEO
of the company, but that is actually not part of the equation.
The equation really from my view is does it produce more
choice, more competition, and lower prices for consumers?
Mr. Legere. Which it has, sir, in the years that I have
been CEO of the 75,000 jobs--
Mr. Cicilline. No, I understand. I guess the other thing I
want to ask is you keep saying this three-year window. So, I
take it that even you aren't able to make a representation that
after this three years--
Mr. Legere. Prices are going down.
Mr. Cicilline. Forever?
Mr. Legere. Prices are going down.
Mr. Cicilline. But forever.
Mr. Legere. Business plan for the entirety of this plan.
Mr. Cicilline. Forever?
Okay. That doesn't seem credible to me. Forever, you are
not going to be there forever. I guess that is what was
worrisome to me, is I don't think we should be looking at
transactions like this and basing an approval or disapproval on
your personal judgment or assessment that you are going to
behave in a certain way as--
Mr. Legere. From here to 2024, there is going to be an
eight-fold increase in capacity. There is going to be an 87
percent decline, and the unit cost is going to go up.
Mr. Cicilline. I got that.
Mr. Legere. They are going to have 10 times more data, six
percent decline.
Mr. Cicilline. So, I am going to just indulge myself for a
couple minutes.
Ms. Sohn, could you respond to this idea? I know in your
testimony you spoke about the representations that were made by
T-Mobile and Sprint to Wall Street and how that ought to be
relied upon, but also how it conflicts with your own analysis
of this, and then I have one final question for Mr. Shelton.
Ms. Sohn. Yes, thank you. I mean, look, it is axiomatic
that companies seeking to merge will tell Wall Street that
everything is wonderful and tell DC that everything is falling
apart, and we talked about that specifically with Sprint and
Mr. Neguse which did a really great job of talking about how
2018 was a banner year and the third quarter we delivered solid
financials.
Mr. Legere. That would be a leap.
Ms. Sohn. That is just one example, also, we didn't talk
about the 5G because the promise of 5G, which both companies
have been making, that is not merger-specific.
Both companies have been promising pre-merger a nationwide
5G network. That is what they have been telling Wall Street.
Now they are going to tell you it is deeper, stronger, bigger
use your adjective, but that is what they have been telling
Wall Street before this merger was concerned.
Mr. Legere. Both totally false.
Ms. Sohn. If I could, Mr. Legere , I wouldn't mind just
finishing. I think it is important to note that both are
putting their money where their mouths are.
They are committing $5 to $6 billion annually until 2020.
That pretty much equals--comes pretty damn close to the $$0
billion that they talk about if this merger is consummated.
One last point, if I could. There is so much talk about the
race to 5G, the race to 5G. Well, ask AT&T, ask Chair Pai, who
I rarely agree with, and ask ABI Research, which is a leading
research company in this space, and they all say the U.S. is
winning. They are going to win, and they are going to be
winning it at least for the next two years.
So, I would not worry, Mr. Armstrong, about losing a race
to 5G because we are winning because these companies are
investing boatloads of money.
Mr. Legere. Mr. Chair, I just have to say I find the
comments that were made about public company CEOs saying
whatever they need to say to Wall Street markets being
insulting. It is a legal obligation we have to say exactly what
is taking place in the business, and the 5G integration of the
two companies is dramatically different than what--
Mr. Cicilline. I understand that. I think we are trying to
reconcile two very different presentations.
I want to just ask Mr. Shelton. You have made reference to
the impact of this transaction on jobs and particularly you
made reference to people being unrepresented in these
companies, and I will disclose my own bias, that I think we can
see clearly, that when people are represented by a union, they
earn better wages and better benefits, and we don't want to
just preserve jobs. We want to preserve good-paying family-
supporting jobs.
So, I wonder if you would just, as my final question, talk
about what is the impact on jobs and your assessment--I know
there is an assessment that was done by economists for CWA that
demonstrates significant job loss and that the aggregate may be
as much as $543 million in losses to workers.
I think one of the big priorities of this Committee and
this Congress is doing everything we can to protect good-paying
American jobs, and if you could speak a little bit on that, I
will give Mr. Legere an opportunity to respond.
Mr. Shelton. First, on the jobs, we believe that there will
be 30,000 jobs lost if this merger goes through. We are not
alone in that. There are some Wall Street firms that maybe not
30,000 but 20,000 jobs will be lost if this merger goes
through.
The merger is based on $43 billion in synergies. Synergies,
as everybody knows, is a euphemism for job cuts and what is
going to happen in these stores if this merger goes through is
absolutely job cuts, because they are not going to be able to
live with stores across the street from each other all over the
country when they will have twice the stores that AT&T or
Verizon has. It is just not going to happen and to believe that
it is going to happen, I have a nice bridge I would like to
sell you in New York.
Mr. Cicilline. Thank you. Mr. Legere.
Mr. Legere. Yeah. Thank you. Again, as it has been all day,
bad assumptions, bad math.
Mr. Shelton should be ashamed of himself with some of
these--
Mr. Cicilline. I will ask you to refrain from comments like
that.
Mr. Legere. Yeah. I withdraw that statement, but I would
say T-Mobile, every single employee is a shareholder. I give
them stock every year. They are all owners. We have won every
award as the top places to work in America and that is because
of the way we treat our employees.
Our employees have the right to unionize if they choose
and, in fact, one of our stores has, but the rest have
significantly found that the relationship with--
Mr. Cicilline. So, Mr. Legere, as you sit here today, Mr.
Claure, would you be willing to commit as part of this
transaction to not interfere with efforts by your employees to
organize?
Mr. Legere. We don't interfere.
Mr. Claure. We don't do it today. Our employees have made
their choice that they don't want to be part of a union, but
that has always been an option.
I want to add one last thing since I have not had a chance.
It is crazy to say that we are going to fire 30,000 people.
Sprint has 28,000 people. Do the math.
Number 1, It is absolutely impossible.
Number 2, the gentleman to my left, I appreciate what you
do in terms of protecting the American workers. You are
contractually obligated to support AT&T, and it is AT&T behind
this to try to block this merger because they know what is
going to come.
Third, I don't appreciate the comments, the bullying
intimidation tactics, what you said. We don't. When employees
come to work, they like working for Sprint and T-Mobile, and
what John said is perfectly fine. Talk to employers in America.
So, that is pretty much the fact. But saying that we are going
to take out 28,000 employees or 30,000 employees, that is
irresponsible because this causes fear among our employees who
are watching right now, who know that it is absolutely not
true.
Mr. Cicilline. Mr. Shelton, you want to respond before I
ask my very last question?
Mr. Shelton. Thank you, Mr. Cicilline. They keep using the
word ``employees'' and they are going to--there is no doubt--
there can't be any doubt in anybody's mind they are going to
take these authorized dealers and they are going to slash and
burn and those are American jobs that they are going to cut and
they are going to cut 30,000 of those jobs and as far as Sprint
and T-Mobile employees or at least T-Mobile employees being
able to join unions, because that is what Mr. Legere just said,
they went as far and have been found guilty of forming a
company union to stop the union from organizing people at T-
Mobile and that hasn't been done in this country since the
1930s. So, that is how much they are against their employees
becoming unionized.
Mr. Cicilline. Thank you, Mr. Shelton.
I am going to ask unanimous consent that a number of
letters, both in support and opposition to the merger, be made
a part of this record, and also a letter that I received and
Ranking Member received from freeconferencecall.com, Mr.
Erikson.
[The information follows:]
MR. CICILLINE FOR THE RECORD
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Mr. Cicilline. Mr. Legere, I have actually heard this
concern from a number of people about whether or not these free
conference call programs are still going to be available
because, I guess, currently they are considered out of plan
with T-Mobile, and there is a lot of anxiety about whether in a
merged company that kind of service would still be available. I
don't know if you are in a position to answer that, but--
Mr. Legere. I will follow up.
Mr. Cicilline. Great. I will be sure to provide you a copy
of the correspondence we got.
Thank you all. I know this has been a long hearing, but it
has been incredibly informative, and I think particularly
helpful to Members of the committee. You have nothing else, Mr.
Armstrong? With that, we will adjourn the hearing and again
thank you to the witnesses.
[Whereupon, at 5:24 p.m., the Subcommittee was adjourned.]
APPENDIX
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QUESTIONS AND ANSWERS FOR THE RECORD
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