Great ResignationClimate ChangeLeadershipInflationUkraine Invasion

The T-Mobile-Sprint Merger Isn’t Really About 5G

May 4, 2018, 4:50 PM UTC

Sprint and T-Mobile are trying to justify their recently announced merger by claiming that the combined company would be able to invest in 5G service. Yet no matter how much T-Mobile CEO John Legere and Sprint CEO Marcelo Claure push this justification for their merger, it doesn’t make any sense.

To start, a fully developed 5G network is at least four years away. At present, 99% of the 5G electromagnetic spectrum is in the hands of the U.S. government, which has not determined any procedure for allocating it to telecom companies. AT&T and Verizon hold the miniscule remaining amount. So wide-scale investment in 5G is far from imminent.

In addition, 5G uses a spectrum that is inferior to the one used by 4G/LTE. 5G cannot penetrate walls, so its transmission cells need to be placed inside buildings, requiring substantial capital investment and a lot of time.

It’s also important to realize that Sprint and T-Mobile are not the companies most in need of 5G. The companies that need it most are those that are presently using almost all of the wireless spectrum they own: AT&T and Verizon. Sprint and T-Mobile currently lease a lot of their current spectrum to smaller carriers. If at some point in time they need more spectrum, they should end the leases they have with the smaller carriers and use the high-quality spectrum that they already own before investing in 5G.

Additionally, unlike those of the 4G spectrum, the technical features of the 5G spectrum allow several carriers to share the same spectrum frequency. In the future, instead of selling the spectrum to a single telecom company—as is done today—the government could sell the 5G spectrum to a third party, which could then lease it to multiple carriers. Telecom companies could end up using the 5G spectrum with a much smaller capital investment than they’ve made in 4G. Contrary to Legere and Claure’s claims, telecom companies might not even be leading the charge into 5G.

If the merger were just a matter of Sprint and T-Mobile needing to raise capital, the U.S. has well-functioning financial markets for that purpose. It is true that Sprint may have a hard time raising capital because of its $32 billion debt. But that debt is due to historically bad leadership of the company. Sprint should focus on hiring better managers now instead of getting stuck in the future.

No matter how you cut it, 5G is not a legitimate justification for this merger. Instead, the companies are likely looking to raise prices, as the number of nationwide carriers would shrink from four to three. Higher prices would hurt consumers and are likely to move the Justice Department to challenge the merger.

Nicholas Economides is a professor of economics at the NYU Stern School of Business. Under a National Science Foundation grant, together with colleagues from the NYU Wireless research center, he has been studying the business and engineering of 5G networks.