Failed M&A promises threaten to bring more government regulation
Elon Musk’s proposed buyout of Twitter has thrust merger and acquisition activity, particularly with regards to the tech sector, into the spotlight.
A critical component of any dynamic free marketplace, 2021 was a banner year for mergers and acquisitions, reaching the highest levels since such data has been kept according to some estimates. But since President Biden took office, such activity has been receiving increasing scrutiny. Federal Trade Commission (FTC) chair Lina Khan, for example, has repeatedly expressed her skepticism to industry consolidation in general. Some recent mergers that have failed to live up to expectations threaten to sway the sentiment of the American public in favor of such blanket bans.
The wild claims of fraud and gross misrepresentation of facts, as well as explosive whistleblower testimony that are enveloping the current Twitter saga and ongoing lawsuit, have all been highlighted in the breathless media coverage that has pulled back the curtain on what at times can unfortunately be a messy process. But this is not the only major merger and acquisition in the tech world that currently finds itself enveloped in controversy.
Specifically, the merger between T-Mobile and Sprint is surrounded by several of its own controversies after being approved in April of 2020. While it has not grabbed the same headlines as the back and forth surrounding the proposed Twitter takeover, there have been several allegations and lawsuits levied against the new T-Mobile that need to be resolved to right the ship of public opinion. If such concerns are not addressed, it could portend broader issues in the M&A space moving forward, specifically in the form of problematic new government regulations.
One of the most compelling issues surrounding any merger is consumer harm. In order for the government to approve a merger, regulators aim to create an environment that does not force consumers to confront higher prices, lower quality, reduced service, or fewer choices. Regrettably, the new T-Mobile has done just that.
While the merger was under consideration, proponents from both T-Mobile and Sprint quickly dismissed concerns raised by both outside organizations and through a lawsuit by a bipartisan group of fourteen state Attorneys General that the merger would eliminate wireless competition and raise costs for consumers. Since then, the company violated the spirit of its agreement to freeze rate-plan prices for three years by raising taxes and fees on some of their customers. Not only that, but a new lawsuit alleges that the new T-Mobile is now restricting access to full network functionality and connectivity for tens of thousands of customers using certain wireless devices, unless those affected purchase upgraded hardware and more expensive plans. And just a few short months after the merger was approved the new T-Mobile delivered the worst carrier outage in recent times, something the Federal Communications Commission (FCC) referred to as “unacceptable.”
The new T-Mobile’s failure to deliver on its jobs promises is also of concern. In sworn testimony to Congress then-Sprint CEO Marcelo Claure said “this new company will create new jobs.” A blog post from then-T-Mobile CEO John Legere meanwhile proclaimed the merger would be “jobs-positive from day one and every day thereafter.” The post-merger environment has looked considerably different.
In the two years since the deal has been approved T-Mobile has eliminated more than 5,000 positions and has fired hundreds of engineers in just the last few weeks alone. Some experts estimate that when it is all said and done somewhere between 10,000 and 30,000 positions will ultimately be lost. The negative impact this merger has had upon the former Sprint’s small business partners is also of concern.
Several third-party dealers and vendors have filed lawsuits against the new T-Mobile, alleging that the company engaged in predatory and anti-competitive business practices against its small business partners. They contend that Sprint manipulated and deceived these dealers for its own benefit of pursuing the merger deal with T-Mobile and downplayed the downside risks once the deal was made public. After the merger was completed, the new T-Mobile claimed they had no obligation to honor pre-existing contracts and offered new take-it-or-leave-it terms that ultimately decimated some of these small businesses, eliminating thousands of additional jobs in the process.
Free markets can only remain free if all actors participate fairly and candidly. In order to preserve the integrity of the American marketplace, companies must live up to the promises that they make in order to win governmental approvals for mergers and acquisitions and take adequate corrective actions when they don’t. Otherwise, we risk setting a dangerous precedent that may ultimately result in heavy-handed government regulations that will harm innovation and economic growth prospects in the long term.
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