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FCC divided on how many players needed in US wireless market

As the Federal Communications Commission prepares to review the proposed merger of T-Mobile US Inc. and Sprint Corp., comments from current and former commissioners indicate stark divisions over how to think about wireless competition.

Under former President Barack Obama, regulators at both the U.S. Justice Department and the FCC made clear their view that a four-player market is best for competition. However, members of today's Republican-led FCC, including Chairman Ajit Pai, have said that they may be open to consolidating the No. 3 and No. 4 top U.S. wireless companies.

Speaking during a press conference after the FCC's May 10 open meeting, Republican FCC Commissioner Michael O'Rielly said he does not have "an artificial limitation" on the number of players that are required for the wireless market to remain competitive.

"The previous administration had a viewpoint. I do not," he said.

Chairman Pai has previously said he would be open to considering a three-player market. "I don't claim to know in a vacuum what the optimal market structure of any particular marketplace is, what the right number of competitors should be," Pai said at an event in May 2017.

Commissioner Jessica Rosenworcel, a Democrat, said during the May 10, 2018, press conference that "going from four to three is a hard case."

"Someone is going to have to explain to me how this transaction benefits consumers, how it will not result in increased prices and decreased innovation," she said of the T-Mobile/Sprint merger proposal.

While Pai, O'Rielly, and Rosenworcel were all on the commission under the Obama administration, the balance of power has shifted since then, with Pai and O'Rielly in the majority and Rosenworcel in the minority.

In an interview for C-SPAN (US)'s "The Communicators" series, Gigi Sohn, a former top adviser to former FCC Chair Tom Wheeler, a Democrat, and former Commissioner Robert McDowell, a Republican, discussed some of the factors the commission will have to weigh as they consider the Sprint/T-Mobile deal, including 5G investment needs and new wireless competition from legacy cable providers.

McDowell called the Sprint/T-Mobile transaction a "great idea," saying it would help speed the deployment of a next-generation 5G network. He noted the two companies, if allowed to combine, plan to invest up to $40 billion in their new network and business over three years, 46% more than T-Mobile and Sprint spent cumulatively in the past three years.

McDowell also noted that competition in the wireless market has changed in recent years.

"Cable is quickly trying to get into the wireless market," he said. He reiterated an argument previously made by T-Mobile that the cable giant Comcast Corp. added more wireless phone customers in 2017 than AT&T Inc. and Verizon Communications Inc. combined.

McDowell also noted that Charter Communications Inc. has announced plans to launch a wireless offering, while DISH Network Corp. is busy building a network to support the internet of things.

Sohn rejected these points. On the 5G front, she said Sprint and T-Mobile had already separately announced 5G buildout plans prior to striking their merger agreement.

"This [5G] promise is something that is going to happen regardless of whether this merger happens. In the parlance of antitrust … this benefit of a 5G network is not merger-specific," she said.

As for the question of new competitors entering the wireless space, she said it was premature to dub Comcast, Charter or DISH a true competitor to the four nationwide wireless operators. She noted Comcast's Xfinity Mobile ended the first quarter with 577,000 customer lines, while neither Charter nor DISH has commercially launched their own wireless offerings. By comparison, AT&T, T-Mobile and Sprint each have tens of millions of U.S. wireless customers, while Verizon has more than 100 million.

"It may be the case that one day that they are competitors," Sohn said of the pay TV players who are moving into wireless. "Maybe one day they build their own networks … but that is not the case today and you don't allow a merger like this that will have such a severe impact on consumers on what may be."

T-Mobile and Sprint agreed on April 29 to merge the No. 3 and No. 4 U.S. wireless operators. The combined company would have a total implied enterprise value of about $146 billion.