T-Mobile’s move for Mint reignites debate over MVNOs

T-Mobile’s move to buy Mint Mobile and its affiliated brands Ultra Mobile and Plum is raising questions yet again about the competitive role Mobile Virtual Network Operators (MVNOs) play in the U.S. market.  
Most industry insiders would probably agree they play a critical role, but the government’s taken a kind of Jekyll and Hyde stance.

The perspective at the FCC for a long time has been that MVNOs are not real competitors in the market dominated by mobile network operators (MNOs), according to Roger Entner, founder of Recon Analytics, adding that’s an opinion he does not share.

However, under the FCC chaired by Ajit Pai FCC, the Sprint/T-Mobile merger was allowed to go through on the condition, among others, that Dish Network becomes a fourth facilities-based carrier and operates Boost Mobile as an MVNO while it builds a 5G network of its own.

“So which one is it?,” he asked. “It will be interesting to see what is going to be what. Do you matter or are you irrelevant? The FCC has said both.”

It’s unknown what kind of government scrutiny T-Mobile’s acquisition of Mint Mobile and its affiliated brands will trigger. Analysts at New Street Research don’t anticipate a challenge from the FCC or Department of Justice (DoJ). T-Mobile has said it expects the deal to close later this year.

‘It’s selective’

An outspoken critic of U.S. regulators throughout the T-Mobile/Sprint merger process, Peter Adderton, founder and former owner of Boost Mobile and currently CEO of the newly launched MVNO MobileX, ties T-Mobile’s acquisition of Mint back to that Sprint deal.

The Boost Mobile business has been sinking since it was acquired by Dish as part of that merger deal, and he blames the FCC and DoJ for that.

The question isn’t so much whether T-Mobile should be allowed to buy Mint, he said. “Mint probably had somebody else in line to buy them, which forced T-Mobile’s hand,” he said.  

The bigger picture is whether regulators treat MVNOs as competition and protect them, he said. “My belief is the FCC and the DoJ need to do something fast to protect the MVNOs” because without some kind of protection, they’re just going to get swallowed up by the bigger carriers.

“It’s selective. When they need it to justify a merger, MVNOs are competitors. When they want to buy an MVNO, they’re all part of the family… they’re all one big network,” he told Fierce.

“Do you know who does treat MVNOs as competitors? The carrier who spends $1.3 billion buying them. The carrier sees them as a threat but the FCC and regulators who are supposed to protect them don’t. That’s the irony of the whole thing,” he said.

Broadly speaking, U.S. carriers are not required to strike MVNO deals, although AT&T, T-Mobile and Verizon are all involved in MVNOs at different levels. Sprint developed a reputation as friendly toward MVNOs, whereas other operators, not so much.

Verizon did its MVNO deals with Comcast and Charter because when it paid $3.6 billion for AWS licenses held by SpectrumCo back in 2011-2012, it was required to offer the cable companies access to its network on a wholesale basis, Adderton noted.

“What I would say to regulators is: Make up your mind,” he said. “They’re either competitive or they’re not. If they are competitors, then protect them and make sure that it’s not as easy for MNOs to buy them. If they’re not competitors, then let them be bought but make sure you protect the new MVNOs coming through to make sure that you’re got a good pipeline of brands  that are coming in to fight for consumers.”

Competitors and/or customers?

Public Knowledge and others argued in their opposition to Verizon’s acquisition of TracFone that there’s a real problem in the industry with increased vertical integration of the MNO/MVNO market. Vertical integration threatens the limited price competition that MVNOs create, said Harold Feld, SVP at Public Knowledge.

But it’s unclear if the FCC has much say in the T-Mobile/Mint merger review given there is no exchange of spectrum licenses and, unlike with the TracFone deal, there’s no Lifeline authorization that the companies need to transfer.

“To be clear, we have not ruled out a challenge to these transfers,” but given the current information, it would be a harder case to make, he told Fierce via email.

He also noted that this sort of vertical integration is something the DoJ has taken a renewed interest in since Assistant Secretary Jonathan Kanter was appointed, so it may get a more thorough DoJ review than the Verizon/TracFone deal received – which he said the DoJ passed on entirely. A lot will depend on whether other MVNOs ask DoJ to intervene, he said  

Consolidation in the MNO market has the same impact on the MVNOs as it does on the consumer market, he said. If the MNOs can raise prices to consumers because of post-merger concentration, the MNO market also will raise the wholesale price to the MVNO, effectively eliminating the ability of MVNOs to compete with MNOs on price. In that sense, MVNOs are customers of MNOs and not competitors.

But the same is not true in reverse. As the FCC has observed in various competition reports, a robust MVNO market can provide competition to MNOs (if the MVNOs can get cheap enough wholesale access to resell services at lower prices to resell these services at a profit). This makes vertical integration between MNOs and MVNOs particularly problematic from a competition perspective, he said.