Sprint CEO Dan Hesse Warns Of The Danger Of Duopoly In Cell Phone Land

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AT&T’s $39 billion bid for T-Mobile this weekend wasn’t just a surprise to the general public. Sprint CEO Dan Hesse was also “shocked” to find out about it. “That one was not on the radar screen,” he tells CNBC’s Jim Cramer in an interview today (transcript). He didn’t think it would be possible because of antitrust issues, and he is definitely playing up those issues now.

Hesse doesn’t like the deal one bit because it will make Sprint a distant third after AT&T and Verizon in the U.S. mobile market. (A combined AT&T-T-Mobile will have more than 100 million subscribers, as does Verizon already, while Sprint is half that size with 50 million). He’s already threatening to complain to Congress, and he’s practicing his arguments on TV. He warns Cramer of a duopoly situation:

If this transaction goes through you’re talking 79 percent, or roughly 80 percent of the market controlled by two companies. I think that’s a little too much–too much concentration.

AT&T thinks that the DOJ will look at share in local markets where it is not as concentrated, and also argues that the merger will be good for the country because the combined entity will spend billions of dollars to spread mobile broadband across the country.

The numbers Hesse cites are in terms of mobile contracts. But even if you look at revenues, Hesse figures Verizon and a post-merger AT&T-T-Mobile, “if it’s approved by the DOJ and the SEC, you’re talking 74 percent of the market of all the wireless revenues in the US market being controlled by two companies.” And that is dangerous, he continues, because they are not just wireless carriers, they are “vertically integrated companies” with landlines and backhaul networks that other telecom companies like Sprint rely on. He worries that giving them more market power will just embolden them to squeeze Sprint even more on backhaul fees:

Roughly a third of our costs of operating the cell site goes to AT&T and Verizon, who’s–to pay for access. And those rates are usurious. They’re very, very high. And so we would hope to see our back hall costs come down dramatically, at a minimum.

Is that a concession he’s fishing for in the form of a break on Sprint’s backhaul fees? Well played, sir.