Three years ago, Sprint CEO Dan Hesse became the public face of opposition to an AT&T acquisition of T-Mobile, arguing that "the wireless industry would regress toward a 1980s-style duopoly” and the merger “should be stopped” because "Sprint believes in competition, which goes hand-in-hand with innovation."
Hesse’s comments, even when valid, may have been a bit self-serving. Hesse slid between calling the U.S. the "most competitive wireless market in the world” in 2010 to warning of “too much concentration” in 2011 to arguing that "The industry would be healthier, and competition would be better if there was some consolidation and number three was closer in size to (number) one and two” in 2013. Regardless, Hesse ultimately won the battle when the DOJ threatened to block the AT&T/T-Mobile merger, effectively killing it.
That victory came at a price for Sprint. The anti-consolidation positions staked out by the FCC and DOJ in 2011 may now make it difficult for them to approve a “4-to-3” merger. Meanwhile, Dan Hesse’s role as a very public critic of wireless industry consolidation may make him a less-than-ideal face for Softbank-owned Sprint’s desire to acquire T-Mobile.
Enter Softbank CEO Masayoshi Son, who has less anti-merger baggage. Masayoshi Son comes to the U.S. Chamber on Tuesday to speak on "The Promise of Mobile Internet in Driving American Innovation, the Economy and Education” … and presumably on how a Sprint/T-Mobile merger can make all of that happen.
Masayoshi Son has a difficult play to make here, given that FCC Chairman Tom Wheeler has said, “The mobile business is today, with four carriers, a competitive business, and it's important it stay that way.” DISH’s recent acquisition of the H-Block could mean that another wireless network is on the way, though regulators might be unwilling to count their carriers before the networks have hatched, given that the same seemed true of Lightsquared in 2011. Nevertheless, the U.S. wireless market is a widely envied global leader in advanced wireless services precisely because regulators have largely allowed the market to function. It was, for example, the relatively unrestricted 2008 spectrum auction that led to the rapid U.S. development of 4G services.
That market-based approach is not written it stone, though. Sprint’s play is a potentially dangerous invitation to regulators. As Hesse said in 2011 "With the elimination of competition, we will ironically return to more government regulation…”
Hesse’s words did not fall on deaf ears. As one knowledgeable observer said at the time, a wireless merger would give the FCC "the opportunity to establish terms and conditions which could become the Wireless Age equivalent to the Kingsbury Commitment” and the Communications Act does not “prohibit the FCC from imposing merger terms and spectrum auction rules that might seem to be regulation in another guise.” Merger conditions, he wrote "would not only establish rules for Ma Bell, but would then expand from the largest carrier to all others” in a kind of “regulatory contagion.”
That knowledgeable observer is now the Chairman of the FCC, Tom Wheeler.
We may be heading for a complex and colorful fight, something for which Softbank’s Masayoshi Son appears well-suited. Once, when a Japanese competitor was awarded 2.5GHz spectrum that Softbank wanted, Masayoshi Son lodged a complaint, got into a "50-minute shouting match,” and said, "I’m fully prepared to die if necessary to say this.”
In the U.S., comments, press releases and ex parte filings rarely lead to death — though the poor lawyers who have to read all of them may sometimes wish it — but Softbank and Sprint will have to say a great deal to overcome the concerns expressed in the past by the FCC… and Sprint itself.
Meanwhile, those of us who are generally skeptical of FCC regulations should worry just how much freedom Sprint might sacrifice for their own short-term benefit, and whether that “regulatory contagion” will end up capturing the entire industry. If the FCC uses this deal as a pretext for imposing new regulatory burdens on wireless, they could, ironically, discourage both new entry and overall investment — while also failing to focus on the real problem the FCC identified years ago: the need to open up more spectrum.
Henke is strategic director for TechFreedom, a technology policy think tank.