New CWA analysis shows T-Mobile-Sprint merger fails public interest test

The Communications Workers of America (CWA) filed comments to the FCC analyzing the November econometric study submitted by Cornerstone Research on behalf of T-Mobile and Sprint’s proposed merger.

The new CWA comments and accompanying analysis, available in full here, highlight inconsistencies and gaps in the companies’ latest filing, concluding that the “Cornerstone Report diverges sharply from the major claims [T-Mobile and Sprint] have been making over the past five months, contains modeling decisions that likely overestimate the merger’s benefits, ignores actual data that is readily available to the [companies], jettisons their own engineering model, and imports speculative efficiencies claims.”

CWA’s new comments also underscore the companies’ continued failure to prove any of the four major claims they made in their Public Interest Statement: “The merger will not increase employment, will not result in better service to rural America, is not justified by Sprint’s alleged competitive weakness, and is not necessary for the rollout of advanced 5G services.”

The companies’ have failed in their attempt to hit the reset button on the merger by introducing a new line of reasoning. The new econometric study changes nothing. The proposed merger, as currently structured, does not serve the public interest.

Below, find key excerpts of the new CWA comments to the FCC. The full comments and analysis are available online here.

“Five months after their Public Interest Statement was filed and subsequent to the end of the comment cycle in this proceeding, the Applicants now have come forward with a completely new merger simulation model prepared by a new group of economists. In doing so, they have presented the Commission and third-parties with a moving target as they continue to attempt to sell the benefits of this anticompetitive merger.

Applicants, however, are not writing on a clean slate. Over the past five months, starting with the Public Interest Statement and continuing through the comment period, Applicants and their many outside consultants have made numerous sworn and unsworn statements about the proposed transaction. These assertions, to the extent they are inconsistent with Applicants’ latest effort, should not simply be disregarded by the Commission. There is a record here, and inconsistency matters.

As we showed in our prior comments, nothing so far in the record supports the four major claims made in the Public Interest Statement. The merger will not increase employment, will not result in better service to rural America, is not justified by Sprint’s alleged competitive weakness, and is not necessary for the rollout of advanced 5G services. The only consistency among Applicants’ army of economists to date is that they are willing to make whatever assumptions that will lead them to the results Applicants are seeking. In this respect, the latest effort, which the Commission has characterized as “a substantial body of new material,” which relies on “a newly submitted data set and new methodologies,” is no different.

The new economic model prepared by John Asker, Timothy Bresnahan, and Kostis Hatzitaskos of Cornerstone Research (the “Cornerstone Report”) directionally overstates the alleged merger benefits through various assumptions and omissions. For example, the discussion of consumer behavior relegates price sensitivity to a footnote. The model assigns a single price to each brand, which does not reflect the fact that consumers actually face a variety of prices and terms. It ignores potentially important determinants of consumer choice such the location of stores. And it makes assumptions which suggest that consumers may be more sensitive to small changes in quality than they really are. These and other modelling decisions in the Cornerstone Report are likely to have led to overestimates of the benefits of the proposed merger … Significantly, the Cornerstone Report also does not make use of the parties’ own engineering model despite Neville Ray’s sworn statement that “[a]ny other approach would be highly misleading and provide outcomes that are not factually based.” Nor does it make use actual network performance data (or pricing data, switching data or demographic data) even though such data is readily available to the Applicants and could provide relevant inputs as well as a means to check the model’s results. At the same time, however, the Cornerstone Report simply imports Compass Lexecon’s earlier 5G efficiency analysis into Cornerstone’s 4G LTE model, despite the fact that none of Compass Lexecon’s claimed efficiencies would materialize for a minimum of 3 years.

The Cornerstone Report also provides no new evidence that rural Americans would see any benefit from the proposed merger … In short, the Cornerstone Report diverges sharply from the major claims Applicants have been making over the past five months, contains modeling decisions that likely overestimate the merger’s benefits, ignores actual data that is readily available to the Applicants, jettisons their own engineering model, and imports speculative efficiencies claims.

The proposed merger, as currently structured, does not serve the public interest.”