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TECH LAB

T-Mobile/Sprint merger: Good for them, probably bad for us

Sprint used to be number three in the US market but lost that distinction to T-Mobile.

JOHN G. MABANGLO/European Pressphoto Agency/File 2017

Sprint used to be number three in the US market but lost that distinction to T-Mobile.

I found one of the year’s best tech innovations at an AT&T store the other day. It wasn’t a new iPhone; it was a cheaper service plan for my old one. It saves about $14 a month, or $168 a year.

There’s a lot of that going around. The nation’s four major phone carriers are slashing prices in a bid to attract new customers in a saturated market. Yet it could all come to an end soon, as two of the companies, Sprint Corp. and T-Mobile US Inc., work out a merger deal. It’s a great idea for Sprint and T-Mobile shareholders, and it could even lead to better service for consumers.

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Still, I hope the deal doesn’t go through, and it won’t, if the government is consistent in its approach to wireless mergers. In 2011, the Justice Department sued to keep T-Mobile from hooking up with AT&T. And in 2014, it warned they wouldn’t accept a T-Mobile-Sprint combination at the time.

Now, though, with a pro-business Republican in the White House, there’s a better chance that the deal gets done. Too bad. Those earlier rejections turned the wireless market into a competitive free-fire zone, with lower prices and better service.

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That free-for-all has been a disaster for Sprint. Majority-owned by the Japanese conglomerate SoftBank, Sprint alone among the big four wireless carriers has been losing subscribers the last few years and is down to about 53 million. It used to be number three in the US market, but lost that distinction to T-Mobile, which is mostly owned by the German company Deutsche Telekom.

Sprint made a profit last quarter — its first in three years. This summer, the company began offering one year of free service to new customers, but even that hasn’t jump-started growth.

Meanwhile, T-Mobile has rocked the industry with lower prices and a series of attractive promotions. It pays the early termination fees of customers switching from other carriers, offers a music- and video-streaming service that doesn’t count against the user’s data cap, and provides free access to the video-streaming service Netflix. T-Mobile has also spent billions on upgrading its network. Once the market weakling, T-Mobile now has 70 million subscribers.

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Neither company on its own can match the might of Verizon Wireless, with 147 million customers, or AT&T, with 136.5 million. But a Sprint-T-Mobile merger would put them in the same ballpark.

Indeed, a merger is the only way these companies get much bigger. The big four cellular carriers have over 406 million subscriber lines between them, according to the industry newsletter Fierce Wireless. That’s more phones than there are Americans. From now on, cellular companies can grow only by stealing each other’s customers, or by combining.

There might be something in it for consumers, too. By sharing the radio frequencies that each company has licensed from the Federal Communications Commission, a merged T-Mobile-Sprint network could deliver better service in much of the United States.

But what happens to competition and innovation if there are just three national carriers of roughly equal size? T-Mobile became the most aggressive competitor because the failure of previous merger plans left it no choice. If this deal goes through, the merged company could become just another stodgy behemoth, with little incentive to rock the boat.

Indeed, Craig Moffett of the telecom research firm MoffettNathanson in New York said the merger would encourage the three surviving wireless companies to cut back on promotions and end price wars. That would mean more profits and higher stock prices. Indeed, Moffet told me that shares of AT&T and Verizon are already on the upswing in anticipation of a T-Mobile-Sprint merger being approved.

But consumers, meanwhile, are likely to pay more than we otherwise might, and get less for it.

It’s not a done deal. Even a menacing word from the Trump administration might scuttle the negotiations, as similar warnings from Obama’s Justice Department and FCC shattered the 2014 merger plan. Failing that, the Justice Department could challenge the proposal in court.

Could it happen? During the presidential campaign, Trump made populist noises about barring another big telecom merger, between AT&T and the giant media company Time Warner. But based on the signals coming out of Washington and the companies recently, this deal looks like it’s on track.

I’m agnostic on AT&T-Time Warner. A similar hookup between cable company Comcast and media titan NBC Universal seems to have done consumers no harm. But a T-Mobile-Sprint deal will surely dial back the competitive pressure that’s given us free video and audio streaming, even as we save big money on our cellular bills.

As a stand-alone company, T-Mobile has generated more wireless innovation in recent years than Apple and Samsung combined. Don’t mess with success.

Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.
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