Busting Myths Part 4:
The Wolf That Cried Wolf

Posted by: Joan Marsh on May 23, 2011 at 3:09 pm

Since the day we announced our proposed acquisition of T-Mobile USA, Sprint has been alleging that the deal should be blocked because, as a result of the combination, consumer prices will go up.  Sprint’s CEO, Dan Hesse, repeated this claim at the Senate Judiciary hearing on May 11.  

For Sprint, which is coming off a quarter where it added 1.1 million customers, this argument is simply not credible for the following three reasons: 

First, the argument is contradictory.  Outside the Washington Beltway, Dan Hesse has been publicly voicing concern about downward pressure on consumer pricing.  Last January, at a Citi Global Telecom Conference, he worried that “pricing is getting much more aggressive” and about having to price aggressively to gain marketshare.  Just last fall, Mr. Hesse noted that making progress in the “hyper-competitive [wireless] industry” is tough.  In short, in the real world, Mr. Hesse worries most about how robust competition in the U.S. wireless landscape is driving tough pricing competition.  I searched comments from Sprint’s last three quarterly earnings calls in vain for any mention of concern about rising prices.  It doesn’t exist, for good reason, which leads me to my next point . . . 

The argument is wrong.  Mr. Hesse has good reason to worry about falling consumer prices in the U.S. wireless marketplace.  Wireless prices have been falling across the board for years.  Over the past 10 years – a period in which there were several significant wireless mergers to gain efficiencies and scale – wireless minute-of-use prices have dropped by over 50%, showing that transaction efficiencies historically have flowed through to consumers.

Wireless data prices are now following the same trend, with AT&T’s revenue per megabyte of data dropping approximately 90% since 2007.  There is simply no credible evidence that this deal will change those trends.  One clear thinking Sprint executive mistakenly admitted this when he said that the deal could make AT&T “more aggressive in marking down its prices” and, as a result, Sprint would have to reduce prices as well, hurting its profitability.  Which brings me to my next point . . .

The argument is disingenuous.  What is most striking about Sprint’s assertions that prices are going to rise is that they are making these claims against our transaction while they are, in fact, raising prices – and bragging about it to Wall Street.  During Sprint’s first quarter earnings call, Mr. Hesse boasted that Sprint had been able to increase its price for data on smart devices on the resurgent strength of its brand, even in the face of Verizon’s introduction of the iPhone and “widespread industry price pressure.”  Now, I don’t blame or begrudge Sprint for charging its customers a price it thinks is appropriate for an award-winning wireless service being provided by an ever stronger competitive brand, but I do fault Sprint for making consumer pricing concerns a touchstone of its opposition to our deal when Sprint is, in fact, raising consumer prices.  And thus the wolf cries wolf. 

In the end, it should be clear that Sprint’s motives for making this argument – and raising false alarms – have very little to do with a real fear of rising prices or alleged consumer protection.  As Mr. Hesse noted just a few weeks ago, for the fourth consecutive quarter, the Sprint brand was the fastest growing national post-paid wireless brand in the country as measured by net subscriber growth. The Sprint brand added 310,000 net post-paid subscribers in the first quarter, and Sprint’s entire post-paid business was net port positive versus its competition for the second consecutive quarter.  

Sprint should stop complaining and keep competing, something they’ve been quite successful at as of late.  And given the nature of this hyper-competitive industry, consumer benefits will naturally follow.

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