How the T-Mobile-Sprint Merger Legitimizes Monopoly

A federal judge has just deepened America’s corporate concentration crisis.

by Sandeep Vaheesan

February 11, 2020

iStock

Judge Victor Marrero’s Tuesday ruling that let T-Mobile take over Sprint just deepened America’s already dire corporate concentration crisis. By allowing the nation’s third- and fourth-largest wireless carriers to combine, Marrero has dealt a clear blow to competition in the wireless market and empowered all corporations seeking dominance through mergers and acquisitions.

The Obama administration wisely said no to consolidation that would reduce the number of national wireless carriers to just three. Indeed, the deal will effectively create a new carrier with more than 100 million users. As the states in the case argued, that will likely cost subscribers roughly $4.5 billion annually, as the market will effectively be concentrated between just T-Mobile, AT&T, and Verizon.

Nevertheless, the Trump administration—and now a federal judge—have rejected the Obama-era policy and permitted a dangerous new level of concentration. Tuesday’s decision underscores the need for bright-line rules that deter harmful mergers and acquisitions and instead direct business strategies toward product improvement and investment in new capacity.

Equally disconcerting, the judge’s decision subverts the Clayton Act, the principal federal anti-merger statute. Passed in 1914 and strengthened in 1950, the law expanded the scope of business activities covered by the Sherman Antitrust Act and outlawed mergers that threaten to reduce competition or tend to create a monopoly.

Judge Marrero’s ruling permits otherwise illegal mergers if the merging corporations can establish productive efficiencies or show that one of the corporations involved is a “weakened competitor.”

But the Supreme Court clearly rejected these defenses in a series of rulings in the 1960s because they are contrary to the text and purpose of the Clayton Act. While there is a limited “failing firm defense”—which allows a merger that would create a less competitive market if the company is in danger imminent business failure—Sprint didn’t satisfy its requirements, nor did Marrero purport to apply it. Sprint may not be doing as well as its executives and shareholders would like, but it is not on the verge of collapse or insolvency.

Marrero’s ruling, therefore, leaves it to state attorneys general to keep anti-merger law alive and protect the public. They’re now the best positioned to take a stand and appeal this decision to the Second Circuit—the most important thing they can do. It is critical they send a strong message to all corporations that they will uphold the law. Powerful firms in concentrated markets shouldn’t be allowed to consolidate even further.

Sandeep Vaheesan

Sandeep Vaheesan, legal director at the Open Markets Institute, has published widely on the political economy of antitrust law, including its misapplication to workers.