LOS ANGELES, May 21, 2018 (GLOBE NEWSWIRE) -- Peter Adderton, founder and former CEO of Boost Mobile USA, joins the growing list of industry experts, consumer advocates and lawmakers raising concerns about the proposed merger of Sprint and T-Mobile. Adderton’s concern is about a critical, but overlooked, problem from the two monolithic brands’ convergence: the impact it will have on a key subset of the market—the over 30 million prepaid subscribers who would be consolidated under this deal.
As currently proposed, along with the merger of the Sprint and T-Mobile, other brands owned by the two companies would also be centralized under the ownership of the new T-Mobile brand. These include Boost Mobile and Virgin Mobile USA—currently owned by Sprint, and MetroPCS—currently owned by T-Mobile. Combined, these three companies command over 40-percent share of the prepaid wireless market.
“These prepaid brands serve an extremely valuable need for a tremendous number of wireless consumers,” said Adderton. “They’re the challenger brands in the space, and they have the lowest rates, simply because they’re competing with each other so aggressively for prepaid customers. So, the current level of competition is a win for consumers. In fact, just recently, Boost offered two months of free service for any MetroPCS customer who switched. Only hours later, MetroPCS came out with the same offer. But clearly, these types of deals go away if all the challenger brands serve the same master.”
“I founded Boost Mobile in 2001 to bring high-quality, yet affordable, prepaid wireless service specifically to the youth market and credit-challenged consumers,” stated Adderton. “Prepaid allowed people who haven’t yet established credit to get access to the same wireless service we’ve all come to rely on. And it’s just as important, if not more so, to that segment of consumer today. So, I’m naturally concerned that this proposed merger could lead to higher prices for the people who are actually the most cost-sensitive.”
“If this merger is approved without the divesture of Boost Mobile and/or MetroPCS, the new combined entity will hold a 40-percent market share in the prepaid segment—which I would argue has the effect of being a monopoly or extreme dominance in the category,” stated Adderton. “This level of market domination virtually always leads to rising prices, more onerous terms and conditions and lower service quality, and young and credit-challenged prepaid subscribers simply can’t afford that.”
Additionally, the Sprint/T-Mobile Merger Will be Detrimental to the MVNO Model
Mobile Virtual Network Operators, or MVNOs, are mobile service providers who don’t own their own physical network infrastructure, but rather negotiate wholesale rates with the network operators, including Sprint, T-Mobile, AT&T and Verizon—then resell mobile plans under their own brand. There are a multitude of MVNOs in the U.S. today, most of which serve a very specific market niche, and many of which buy at a 25-35-percent discount off retail pricing. Virtually all those service providers buy wholesale services from Sprint or T-Mobile, and many of them buy from both.
“Given that Sprint and T-Mobile are a dominant force in prepaid, they will have significant incentive to restrict network access to competing MVNOs. What’s more, if the merger goes through without formal wholesale pricing protections in place and we end up with only three carrier networks instead of four, it’s only logical to assume the new T-Mobile entity will raise wholesale rates to these MVNO competitors. This creates a pricing ceiling under which the remaining two networks can also raise rates. If that happens, MVNOs, who already run on extremely tight margins, have little or no opportunity to make a profit, and we can expect many of them to close their doors,” said Adderton.
“When you factor in the MVNOs and their tens of millions of subscribers, the Sprint/T-Mobile proposed merger is not just about losing one of our four primary carriers,” stated Adderton. “Without wholesale pricing protections in place, this deal stands to put most MVNOs out of business, many of which offer highly competitive rates and serve very important market needs. And ultimately this all trickles down to the hundreds of thousands of independent wireless dealers that dot the country. MVNO prepaid offerings are their bread and butter, so I am very concerned about the impact this could have for these folks at the local level.”
“If the Boost Mobile and MetroPCS brands are included in this merger, it would be bad for the overall competitive landscape, bad for the prepaid market, bad for our country’s MVNOs, and bad for the economy. Therefore, I’m contacting regulators and lawmakers, asking that they give specific consideration to the ramifications of this merger on prepaid wireless consumers. And I’m asking for formal regulation of wholesale pricing for MVNOs so that these important industry players can compete fairly and generate a reasonable profit,” concluded Adderton.
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