Sprint and Tidal: Expanding the planes of competition

The ink is not yet dry on Ajit Pai’s promotion to Chairman of the Federal Communications Commission (FCC). But the market is already responding to an anticipated relaxation of the regulatory environment, in ways that will benefit consumers. Earlier this week, Sprint announced that it will purchase part of streaming music service Tidal, giving its subscribers access to exclusive content. This is the type of deal that might have raised eyebrows under the previous administration, but is good for competition in both wireless and edge markets. The details of the transaction have yet to be announced, but the broad contours of the agreement are clear. According to a Sprint press release, the wireless provider will acquire a 33 percent interest in the company, at a reported cost of $200 million. As part of the deal, Tidal will be made available to Sprint customers, who will get access to Tidal content, including exclusives unavailable elsewhere. Although Sprint CEO Marcelo Claure will join Tidal’s Board of Directors, creative control of the company will remain in the hands of musician Jay-Z and the other artist-investors who currently manage the company. Although the deal has made headlines this week in the US, such agreements between mobile and edge providers are common around the world, particularly in Europe. TechPolicyDaily.com co-blogger Roslyn Layton has written about the way that Danish mobile phone providers have bundled service with exclusive content as a way to get a competitive advantage on rivals. Nor are such agreements foreign to the United States -- in recent months AT&T has announced that DirecTVNow service would be zero-rated on its mobile devices, while Verizon has launched go90 as a source of exclusive content for Verizon subscribers. Such agreements are lucrative because they diversify the planes of competition among wireless providers. By bundling wireless service with different types of content, a provider can lure new customers with perks beyond the typical metrics of speed and service quality. This can be particularly helpful for smaller companies like Sprint, which lack the capital to compete head-to-head with larger incumbents on network quality alone. To attract new customers, smaller players need to identify niche consumer groups whose desires are imperfectly served by traditional wireless business models. T-Mobile discovered this with its attractive Music Freedom and Binge On promotions, which offered unlimited music and video streaming, respectively, to customers who consumed media on mobile devices and sought to avoid overage charges. Furthermore, such agreements can enhance competition in both mobile and edge markets. I have previously discussed a similar partnership in the United Kingdom, where French mobile provider Orange entered the market by bundling service with free access to streaming music service Deezer as a way to differentiate itself from traditional offerings. Like T-Mobile, Orange leveraged free music as a way to stand out from incumbents and gain a toehold in Britain’s mobile market. But the deal also helped Deezer gain share on market leader Spotify, by promoting its brand and giving it easy access to Orange as a delivery platform to consumers. The Sprint deal could yield similar benefits for Tidal, which many suspect has struggled to gain customers in a crowded American streaming music marketplace. Sprint provides Tidal with instant access to 45 million customers on the Sprint network, which raises its visibility and may help it gain traction on industry leaders Spotify, Apple, and Pandora. Given this potential to improve competition in both markets, one wonders why the outgoing administration of former FCC Chairman Tom Wheeler seemed so hostile to such agreements. Shortly before he stepped down, Wheeler’s administration released a report by the Wireless Bureau calling into question zero-rating practices, where a carrier treats certain types of content as exempt from monthly wireless data limits. The report frowned upon exclusivity agreements, where a wireless provider zero-rated one edge provider but not its rivals, particularly if that edge provider was an affiliate of the wireless company. The report suggested such combinations are problematic because they might sway the consumer to choose one edge service over a rival. But of course, that’s the whole point of competition: to attract customers from one’s rivals. Tidal has sold a third of its company to Sprint in order to gain a competitive advantage over its rivals in distribution, just as it has sold other equity stakes to artists to gain an advantage over rivals with exclusive content.  Economists — who, as co-blogger Mark Jamison notes based on interviews, have felt routinely ignored by FCC leadership in recent years — would say that these vertical agreements are generally pro-competitive. Yes, it’s possible that they might have anticompetitive effects, but this is likely to occur in scenarios where one of the two partners has market power. This is simply not the case in wireless markets, where four national carriers compete mightily with a host of regional providers for customer loyalty. Chairman Wheeler departed the agency with the mantra “competition, competition, competition.” Vertical agreements such as the Sprint-Tidal deal enhance that competition, by increasing the planes on which companies compete. Absent evidence of market power and anticompetitive effects, they should be allowed to continue to do so.

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