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The court let T-Mobile buy Sprint because Sprint completely sucks


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The court let T-Mobile buy Sprint because Sprint completely sucks

After a lengthy trial, a federal court ruled in favor of allowing T-Mobile and Sprint to merge yesterday, along with a complicated scheme to turn Dish Network into the fourth national wireless carrier over several years. The decision is not necessarily surprising: even though antitrust scrutiny of big tech platforms like Google and Facebook is…

The court let T-Mobile buy Sprint because Sprint completely sucks

After a lengthy trial, a federal court ruled in favor of allowing T-Mobile and Sprint to merge yesterday, along with a complicated scheme to turn Dish Network into the fourth national wireless carrier over several years.

The decision is not necessarily surprising: even though antitrust scrutiny of big tech platforms like Google and Facebook is heating up, giant telecom mergers are still sailing through. But the decision itself is extremely surprising: Judge Victor Marrero of the United States District Court for the Southern District of New York basically decided that the various data and experts put forward by the 10 state attorneys general who sued to stop the merger weren’t worth taking seriously and that he would decide for himself whether T-Mobile and Dish seemed like cool companies worth trusting.

And… it turns out that Judge Marrero thinks CEO John Legere and the rest of T-Mobile’s executives are extremely cool and smart and that Dish Network is definitely trustworthy and that everything is going to work out great.

Also, the judge thinks that Sprint sucks. Really, if there’s one major takeaway here, it’s that Victor Marrero, a federal judge selected by Bill Clinton for a lifetime appointment on the federal judiciary, thinks that Sprint is a bad company with a crap network run by dummies. This is the law now.

Let’s go through the decision. You can download the original PDF version here, but we’ve made a messier searchable text version because Judge Marrero thought issuing a monumental 173-page decision in the form of scanned images was the right call. This is going to be a lot of long block quotes; I’ve bolded the important bits for emphasis. Also, the court refers to carriers as “the RMWTS industry.” I’ve replaced that with [wireless] for readability throughout.

INTRODUCTION

It’s worth calling out Judge Marrero’s introduction to this whole thing because it is… extremely emo.

Adjudication of antitrust disputes virtually turns the judge into a fortuneteller. Deciding such cases typically calls for a judicial reading of the future.

Who is to say what the future holds? Should we talk to experts and decide who is making a more credible argument based on data and economic modeling?

Accordingly, the parties’ costly and conflicting engineering, economic, and scholarly business models, along with the incompatible visions of the competitive future their experts’ shades-of­ gray forecasts portray, essentially cancel each other out as helpful evidence the Court could comfortably endorse as decidedly affirming one side rather than the other.

Guess not. Hey, have you ever seen a federal judge write a freshman year AIM status message?

How the future manifests itself and brings to pass what it holds is a multifaceted phenomenon that is not necessarily guided by theoretical forces or mathematical models.

Okay. Look, this is a very serious multibillion-dollar telecom merger, so before we get into it, we’re going to need to talk about how important it is for the judge to skip the hard part and just go with his gut instincts to, uh, peer into a crystal ball.

Confronted by such challenges, courts acting as fact-finders ordinarily turn to traditional judicial methods and guidance more aptly fitted for the task. Specifically, they resort to their own tried and tested version of peering into a crystal ball.they apply the judge’s own skills and frontline experience in weighing, predicting, and judging complex and often conflicting accounts of human conduct, those actions and inactions drawn from the factual evidence.

In performing that function, courts employ various behavioral measures that even the most exhaustive and authoritative technical expert study could not adequately capture or gauge as a reliable prognosticator of likely events set in motion fundamentally by business decisions made by various live sources: relevant market competitors, other market participants, public agencies, and even consumers.

Indeed, faced with the challenge of poring through economic data, market history, and expert testimony, Judge Marrero decided to go full Goop and really just look into everyone’s hearts. And… he really wants you to know that this is what he did.

During the two-week trial of this action the Court had ample occasion to observe the witnesses and assess their credibility and demeanor on the witness stand, and to consider the weight their testimony warranted in the light of the pointers referred to here and articulated below.

Alright, so Judge Marrero is just wingin’ it. Let’s see if he falls for some nonsense about 5G.

Although the full impact of 5G remains to be seen, it promises significant increases in the speeds available to consumers, lower consumption of mobile devices’ batteries, and reduced latency, or the time required for a mobile device and mobile network to communicate with each other. 5G will likely enable consumers to use augmented reality (“AR”) or virtual reality (“VR”) applications and to stream video at a significantly higher picture quality referred to as 4K.

Oh boy.

Because this process takes time, prominent experts in the [wireless] industry have expressed concerns that other countries like China or South Korea may fully implement 5G first and dominate the market for innovative applications made possible through 5G.

We regret to inform you that Nilay Patel has died of embarrassment caused by race-to-5G rhetoric. The rest of this piece will be directed by his ghost.

AT&T AND VERIZON

After all that setup, Judge Marrero moves on to discuss the current state of the US wireless industry, starting with the two big carriers.

The representations of both sides and the evidence developed at trial suggest that while Verizon and AT&T have high quality networks, neither [carrier] is distinguished for innovation of beneficial consumer services, such as unlimited data plans or the bundling of services such as Netflix with their mobile wireless services.

Hi. A couple of notes here: both Verizon and AT&T offer unlimited data plans. Verizon is bundling Disney Plus, and AT&T bought a little company called Time Warner and is busily turning HBO into some sort of teen-oriented streaming service with an interface that looks like Snapchat.

To the extent Verizon and AT&T have implemented measures such as these, those moves have frequently been reactions to innovations first made by T-Mobile or Sprint.

That “or Sprint” is actually quite important, as it happens. It implies that Sprint was a competitor to AT&T and Verizon. More competitors are generally good. But Judge Marrero is way more interested in the fact that T-Mobile is run by John Legere. And Judge Marrero thinks John Legere is just the best.

T-Mobile’s success may be attributed in significant part to its negotiation of a “break fee” that it would receive if AT&T did not acquire it during a proposed merger in 2011. Because regulatory challenges prevented AT&T from completing the merger, T-Mobile acquired approximately $3 billion in cash, $3 billion worth of spectrum, and a roaming agreement that allowed T-Mobile customers to use AT&T’s network in areas that T-Mobile’ s network did not reach at the time.

At roughly the same time, in 2012, T-Mobile hired a new executive team led by current Chief Executive Officer John Legere and current Chief Operating Officer Michael Sievert . This new leadership team instituted an innovative strategy and culture referred to as the “Un-carrier.” Under this strategy, T-Mobile would identify features of the [wireless industry] relationship between carriers and consumers that consumers disliked and then remove those features from its offerings to differentiate itself from the other major carriers such as AT&T and Verizon.

So T-Mobile didn’t merge with AT&T, got an infusion of cash and spectrum, and then hired new management to compete more effectively, resulting in better offerings for consumers from all the major carriers. It seems like Sprint could probably try a similar approach — especially since it’s owned by SoftBank, which… isn’t shy about spending money, to put it lightly.

SPRINT: DOES IT SUCK OR SUCK THE MOST? A LEGAL CONCLUSION

There’s only one problem with the idea that Sprint can turn things around on its own, according to Judge Marrero: he thinks Sprint sucks. I mean, dude really, really thinks Sprint is bad. This whole thing is entirely too long already, and I had to cut some of the random Sprint dunks that pepper this opinion because there were too many to fit. And these are deep cuts — I mean, here’s a jab at picking WiMAX over LTE. WiMAX!

Due in part to several questionable technological choices, Sprint’s network is poorer in quality than those of its competitors and its brand image is correspondingly poor. Sprint has also struggled financially, failing to earn net income for eleven straight years until 2017.

Hey, Judge Marrero: what do you think of Sprint’s network?

Sprint has struggled to retain the customers it initially attracted with its aggressive offers, due in large part to its underlying poor network quality.

Hm, can you add to that?

The mobile wireless network is the foundation of mobile wireless telecommunications services, and Sprint’s network and product offerings have been distinguished for years for poor operational quality and negative customer perception.

Got it. Would you like to dunk on WiMAX again?

For roughly the past 15 years, Sprint has made multiple ill-advised technological and business decisions which resulted in a chronically underdeveloped network that is inconvenient for consumers to use.

And let’s pour some salt in that Nextel wound, shall we?

Sprint also did not realize anticipated technological and financial benefits from its merger with market competitor Nextel, which further set back its attempts to build a strong network.

And what do you think of former Sprint CEO Marcelo Claure’s efforts to fix things before he left to, you know, fix WeWork?

Claure to propose a less-expensive, non­ traditional plan to increase Sprint’s network coverage at minimal cost by deploying numerous small cells hung on utility poles and low-rent alternatives to cell towers called monopoles. This plan failed massively; Sprint installed only 2,000 of its projected 75,000 small cells and only one of its projected 35,000 monopoles, which was also removed in short order.

Moreover, Sprint’s half-off offer was designed to increase in price after one or two years, and many customers initially attracted by the offer switched carriers shortly after realizing they would ultimately have to pay higher prices for a lower-quality network.

I cannot emphasize enough how much Judge Marrero thinks Sprint sucks. Even his compliments are qualified by the fact that Sprint sucks.

Sprint’s offers deserve some consideration for their pro-consumer posture. But in retrospect, they reflect a desperate and ultimately unsuccessful effort to stay relevant rather than a sustainable long-term business strategy.

If Sprint’s ability to briefly achieve profitability deserves some recognition, the company is at best struggling to even tread water while its competitors continue to grow the revenues that will allow them to keep pace in the race to next generation wireless networks.

In the end, Judge Marrero says, he is convinced that Sprint sucks.

The Court is thus substantially persuaded that Sprint does not have a sustainable long-term competitive strategy and will in fact cease to be a truly national [wireless carrier].

DISH NETWORK: DEFINITELY GOING TO BUILD A NETWORK, WE THINK

A huge part of the argument for the merger is that the Department of Justice brokered a deal by which Dish Network will take control of Boost Wireless from Sprint along with some spectrum and then use those assets along with its current stockpile of spectrum to build a new 5G network. While it’s doing that, it will have access to T-Mobile’s network so it can immediately begin signing up customers.

This is a complicated plan, and one of the arguments in the case was that Dish wouldn’t actually go through with it. It’s a lot cheaper to just hoard the spectrum and sell it at a premium to one of the bigger players later. But Judge Marrero looked into Dish chairman Charlie Ergen’s ~vibes~ and decided to roll the dice on the ol’ maverick.

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DISH’s track record and numerous awards for innovation and customer experience, as well as evidence of the currently confidential and creative strategic partnerships that DISH is planning, suggest that DISH would compete as a disruptive “maverick” in the [wireless] Markets, offering low prices for innovative and high- quality services.

But what if Dish doesn’t keep its promises or T-Mobile does some shady tricks to limit access to its network? Don’t worry, says Judge Marrero. A DOJ-appointed monitor will keep everyone in line!

The DOJ has already prepared multiple means to mitigate this potential conflict. It has appointed a monitor to ensure that New T-Mobile does not limit DISH’s ability to use the New T-Mobile network, and it has established a formula that provides the wholesale price to DISH will never increase… Moreover, DOJ remedies provide that New T-Mobile cannot cap the extent to which DISH uses its network over the first three years.

It’s honestly a little cute and heartwarming that Judge Marrero thinks a government lawyer will be able to police how well T-Mobile treats Dish Network as an MVNO customer.

These arrangements all ensure that DISH could compete with New T­-Mobile and other market incumbents on highly advantageous terms upon entry, and that the MVNO agreement will inure far more to DISH’s benefit than New T-Mobile’s.

This is the purest example of the judge just falling for it: does anyone really think that John Legere made a deal that works out more to Dish’s benefit than T-Mobile’s? Or that T-Mobile won’t work the edges of the deal to protect itself? It’s bizarre.

Judge Marrero also seemed wowed by Dish Network’s 5G buildout plan, which he thinks does not require “large amounts of hardware” because, um, Amazon will be involved.

DISH’s innovative network plans also demonstrate that construction of its mobile wireless network will be less costly and time-intensive than might normally be expected. While the mobile cores of traditional networks require large amounts of hardware that are costly to install and maintain, DISH plans to construct a “virtualized network” that relies more heavily on software and cloud-hosting services provided by potential partners like Amazon.

It is true that Dish has grand plans for a software-defined network, which has been a holy grail for a long time. But it is also true that there are literally no vendors for such a network right now, and the strategy is so unproven that experts in wireless industry trade pubs are saying Dish’s plan might actually cost more money to build because so many new and disparate pieces will have to be integrated. And Dish chairman Charlie Ergen has flatly admitted that this approach might entirely fail because it’s so new. It’s mystifying why the court decided to just accept the hype as reality here, except that Judge Marrero was taken by Ergen’s confidence on the stand.

It’s the same with Dish’s plan to use something called ORAN, an open standard that’s gaining traction as the tension around Huawei supplying 5G equipment heats up. ORAN is designed to let multiple vendors supply radio equipment for wireless networks, and Judge Marrero thinks that is just great:

Relatedly, DISH plans to operate an Open Radio Access Network (“ORAN”), which refers to a RAN that does not require one vendor’s proprietary hardware and software throughout the network. As this arrangement would enable DISH to solicit bids from competing vendors for various aspects of the network, construction costs could also decrease correspondingly. Even traditional RAN vendors indicated to DISH that they could support an ORAN within the next eighteen months.

Once again, though, Judge Marrero is simply accepting the hype uncritically. ORANs sound great, but they only exist in the “we formed an industry committee” stage so far. In fact, the entire ORAN plan is so hazy that Attorney General William Barr has proposed that the US government take a controlling stake in Nokia and / or Ericsson to control a traditional RAN vendor. Why? Because Barr thinks ORAN is stupid:

“‘This is just pie in the sky,’ he said. ‘This approach is completely untested and would take many years to get off the ground, and would not be ready for prime time for a decade, if ever.’”

I love an open standard, and I hope ORAN works, but I think it’s a huge mistake for Judge Marrero to simply assume it’s all going to work out. And what’s more troublesome is that the judge simply discounted all of the evidence and arguments that Dish isn’t going to go to all the trouble of building a network.

Throughout trial, Plaintiff States cast doubt on DISH’s intent to seriously compete in the [wireless] Market or comply in good faith with its commitments to the DOJ and FCC. They cited several statements made over time by executives of Defendants for the broad point that building a mobile wireless network would be one of many “stupid bluffs” by Ergen, and that he would merely build a “meaningless thin network so that he doesn’t get in trouble with the FCC.”

Combining these statements regarding DISH’s behavior and history with the fact that developing a mobile wireless network is generally a time- and capital-intensive effort, Plaintiff States suggested that DISH’s network would be, in the words of one DT official, “something the lawyers can use, but not something customers can use.”

The Court is not persuaded that this evidence carries the weight that Plaintiff States ascribe to it. On the contrary, the DOJ and FCC have strongly supported DISH’s entry into the market despite being fully aware of these concerns.

Again, it seems like Judge Marrero was more convinced by Charlie Ergen’s charisma on the stand than anything else — a pattern we’ll see repeated in the decision when it comes to T-Mobile.

Unlike Sprint, DISH is acquiring spectrum at auction, hiring employees, and significantly investing in its network. And whereas Sprint would likely diminish from a national competitor to a regional one, DISH is obligated to expand from a regional competitor to a national one. As DISH’s chairman aptly stated at trial, “Sprint doesn’t want to be in the business. We do.”

T-MOBILE IS THE BEST, AND JOHN LEGERE IS A DREAMBOAT

This brings us to Judge Marrero’s assessment of T-Mobile, which is where things truly enter the realm of essential oils and crystal energy pyramids. Judge Marrero thinks T-Mobile is great. So, so great that even confronted with emails and text messages from T-Mobile, Sprint, and Deutsche Telekom executives discussing the idea of raising prices after a merger, he disregards it because he just doesn’t want to believe it.

The main evidence that Plaintiff States cite for the potential of coordination are statements from DT executives suggesting that they supported a “4-to-3” merger of MNOs in the United States because they believed a consolidated market would be more profitable.

Plaintiff States also cite some documentary evidence from Sprint suggesting this potential; for example, Sprint’s Chief Marketing Officer Roger Sole- Rafols suggested to Claure that the Proposed Merger could “end up accommodating plus $5 ARPU in a three-player scenario [including AT&T and Verizon]” and that this demonstrated “the benefit of a consolidated market.” Plaintiff States additionally cite multiple T-Mobile and Sprint communications for the proposition that anticompetitive price signaling is already occurring in the [wireless] Market.

No, this can’t be true, says the judge. Why? Because T-Mobile is so edgy and cool!

T-Mobile has built its identity and business strategy on insulting, antagonizing, and otherwise challenging AT&T and Verizon to offer pro-consumer packages and lower pricing, and the Court finds it highly unlikely that New T-Mobile will simply rest satisfied with its increased market share after the intense regulatory and public scrutiny of this transaction. As Legere and other T-Mobile executives noted at trial, doing so would essentially repudiate T-Mobile’ s entire public image.

The evidence indicated that the same executive team that has brought T-Mobile success will continue to lead New T-Mobile, and the merger will provide T-Mobile with the increased capacity that enabled it to pursue the Un-carrier strategy in the first place. Having heard Defendants emphasize the asymmetric capacity advantage that New T-Mobile would have over AT&T and Verizon, the Court concludes that New T-Mobile would likely make use of that advantage by cutting prices to take market share from its biggest competitors.

This is truly remarkable. The judge has decided that T-Mobile is going to stay aggressive and keep prices low to take market share, even though its own executives have discussed the merger in terms of raising prices. And this is all because the judge watched Legere and the other T-Mobile execs and decided he loved them. Seriously! Here’s Judge Marrero talking about how he evaluated Legere on the stand to see if he would do anti-competitive things:

During the trial the Court heard and read testimony of several corporate executives from various telecommunications companies. The Court focused attention on that evidence and assessed the credibility of the witnesses. From this evaluation the Court culled a number of telltale patterns of conduct business managers manifest that could serve as persuasive predictors of whether or not commercial firms are likely to engage in anticompetitive actions potentially yielding higher prices or lower quality under particular market conditions.

Specifically, the list of the behavioral clues the Court gleaned and examined includes: manifested personal and commercial ambition and aggressiveness by company executives in pursuit of business goals; concerns over the individual’s and the business’s reputation in the industry; responsiveness to professional and corporate peer pressure; strength of character brought to bear upon company policies and operations; level of commitment to business objectives and resourcefulness and creativity in securing and managing the means to carry them out; impulse to prevail in competitive settings and to exercise will power directed to that end; motivation to achieve marketing targets surpassing competitors; inducement to strive harder impelled by the prospect of promotion and rise of standing within a corporation or industry; resort to disruptive or contrarian ways to gain competitive ends and demonstrable success in doing so; and patterns of past conduct and duration and consistency of openly known identification with and adherence to a recognized professional or business culture.

Having observed the presentations of the T-Mobile executives at the trial, watched their demeanor, assessed their credibility, and weighed their testimony in its totality in the light of the behavioral guides the Court articulated above, the Court finds that the portrayal of the likely post-merger competitive posture New T-Mobile would adopt warrants credit as believable and consistent with the realities of competition in the [wireless] market.

I know that’s a lot, but in the end, the judge made up a list of things a cool CEO would do and decided John Legere would do those things. And he really, really believes it — to the point that he writes what is basically T-Mobile’s own marketing copy for the deal in his decision.

What the Court observed at trial in the testimony and documentary evidence credibly presented by T-Mobile executives revealed a different image: a company reinforced with a massive infusion of spectrum, capacity, capital, and other resources, and chomping to take on its new market peers and rivals in head-on competition.

And what of the idea that T-Mobile will raise prices once it doesn’t have a lower-cost national competitor in Sprint? Well, Judge Marrero just doesn’t see it because, well, he thinks telecom execs are sane, rational decision-makers.

As the Court discussed above, against a backdrop of T-Mobile’s longstanding business strategy as the self-styled maverick and disruptive Un-carrier, it would be counter-productive, even self-defeating, for New T-Mobile soon after the merger to fail to invest, innovate, and improve network speed, capacity, and quality, or to refrain from offering products incorporating the most advanced technologies, enhanced content, and improved service plans, and ultimately to lower prices, as market dynamism would demand and more reliably predict. By embarking on the polar course Plaintiff States foresee, New T-Mobile would effectively imperil its own future.

The Court cannot accept the premise that under the competitive circumstances presented here, responsible business executives of major publicly-traded corporations will likely act irrationally in directing the affairs of the company they manage.

A reminder that the former CEO of Sprint is now in charge of WeWork.

Marrero’s love letter to T-Mobile continues:

T­ Mobile has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes. The Proposed Merger would allow the merged company to continue T-Mobile’ s undeniably successful business strategy for the foreseeable future.

If you’ll recall, Marrero started this entire decision with a bunch of emo poetry about how the future is unknowable and the testimony of competing experts cancels itself out. He’s ending by saying that he’s looked into the souls of T-Mobile’s executives and believes them. And maybe he’s right! But it is also true that federal judges don’t often just admit that they’re going with the cool kids because they’re so cool.

(Fun fact: Marrero uses the word “maverick” 16 times in his decision.)

That’s the heart of the decision, but I want to end with something that I think is important: Judge Marrero talking about why he thinks the wireless broadband industry is so different than other markets. He starts by comparing it to, um, milk:

To buy a container of milk, the retail consumer need not purchase a cow, and so also pay for the cattle’s full value and content of beef.

Retail mobile wireless telecommunications services, by contrast, illustrate a prototypical complex market. As furnished to and acquired by consumers, wireless service does not stand alone, but comes integrally connected with several goods and services furnished by other interrelated industries. Specifically, the product comes inextricably tied to the electronic hardware devices supplied by the cellular phone and computer industries that consumers use for voice and non-voice communication, as well as for imaging, messaging, data transmission and storage, and internet access. Moreover, the cellular hardware carries the operational material created by providers of software content such as video and audio programing and data accessed by phones and similar devices.

To put it simply, this is some deep bullshit that broadband providers want you to believe but is absolutely not true.

Consumers do not love carrier bloatware. T-Mobile did not invent the iPhone or Pixel cameras. Verizon did not invent Instagram. Hell, there’s no bigger red flag in tech than “the carriers made software.”

Major handset vendors like Apple and Samsung are happy to sell unlocked phones that work across networks, and most of the biggest successes in mobile software have happened despite interference from carriers. They’re not even good at things they should be good at: it has been a decade since WhatsApp and iMessage revolutionized phone messaging, and the carriers still have not come up with a reliable upgrade to SMS. These companies are terrible at anything other than delivering service and getting out of the way. It’s bizarre that this is not obvious to everyone at this point.

All the crap that mobile have tied into their networks and pricing plans since net neutrality was abolished has only created a mess that distracts from a simple truth: internet access is a commodity and should be provisioned and priced like one. It is, in fact, exactly like milk.

Let’s hope the courts figure that out someday.

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