Sprint, T-Mobile Antitrust Probe Could Focus on Prepaid Phones

Stay current on the latest developments from agencies including the CFPB, Federal Reserve, FDIC, and OCC to advise clients on real-life regulatory situations.

By Liz Crampton

Sprint Corp. and T-Mobile US Inc.’s overlapping business in the prepaid phone market could draw the attention of Justice Department officials examining their merger, industry analysts and antitrust attorneys told Bloomberg Law.

Officials could zero in on how a Sprint and T-Mobile combination would affect customers buying preset data plans. Enforcers will look broadly at how the proposed merger would shift the landscape of national carriers from four major players to three, with AT&T Inc. and Verizon Communications Inc. in the top two spots. The prepaid market is a narrower market that has been a particular focus for Sprint. The merger is expected to be announced in the coming weeks.

Antitrust officials examining a merger’s impact look at how it would affect different types of customers. If there is a risk of harm to any distinct consumer group, the government can step in to block the deal. That was the case in 2011 when the Justice Department sued to block AT&T Inc. and T-Mobile’s proposed merger. The government identified two markets where it said competition would be harmed — mobile wireless telecommunications services generally and mobile wireless telecommunications services provided to businesses and government customers.

When it comes to Sprint and T-Mobile, regulators “could very well view the prepaid phone plan customers as a separate market in this case,” said Jennifer Rie, a Bloomberg Intelligence analyst. “It would depend on whether the evidence and their economic analyses support this segment as a separate market,” she told Bloomberg Law. “I certainly think this could be an issue.”

The prepaid cellphone is a good deal for people who don’t have much money or established credit. Customers pay a set rate for a certain amount of data, and the phone dies when they reach the limit. The sector has become more competitive in recent years, dominated by Sprint, T-Mobile, and AT&T. It’s difficult to break out the customer numbers, but analysts interviewed by Bloomberg Law estimated that a combined Sprint and T-Mobile would own more than half the prepaid market.

T-Mobile announced in an Oct. 23 earnings report that it added 226,000 new prepaid customers, “led by the success of MetroPCS.” The carrier counts about 29 percent of its approximately 70.9 million monthly customers as prepaid buyers.

Sprint has about 8.7 million prepaid customers, which make up 21 percent of its total subscribers, according to the company’s most recent earnings report.

A Separate Market?

Stephen Calkins, an antitrust law professor at Wayne State University, said the prepaid market “was not a big factor” in the AT&T-T-Mobile complaint, but the market has shifted since them. “That’s a separate issue that would have to be looked at today,” he told Bloomberg Law.

The antitrust division will have to make an “empirical inquiry” into whether the prepaid market can be considered a separate market, James Cooper, an antitrust law professor at George Mason University, told Bloomberg Law. The division’s teams of economists and lawyers will examine company and industry data to make that determination.

Much of Sprint and T-Mobile’s business strategy centers on the typical subscriber market because that’s where it draws most of its profits. But over the last year, Sprint has eyed the prepaid market for growth after it saw losses in that space the year before. In response, Sprint beefed up its prepaid offerings with the relaunch of Virgin Mobile in June to compete with T-Mobile’s MetroPCS and AT&T’s Cricket. Sprint also owns the Boost Mobile prepaid brand.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Antitrust on Bloomberg Law