Recent articles on Reuters and interviews with Charlie Rose have indicated that both T-Mobile and Sprint want this proposed deal to happen. However, the Softbank CEO has indicated in an interview with Charlie Rose that no official price or terms have been agreed upon and that details are being worked on. This is in addition to T-Mobile’s CFO talked in front of a media, internet and telecom conference saying that, "It is not a question of if, it is a question of when." He also said, "To take a third-scale national player that has the scale benefits with the right business model could be very competitively enhancing in the U.S."
I believe that his statements come from the idea that some inside of T-Mobile are open to a sale of the company while others believe that they can compete against Sprint and take it’s 3rd place spot and force them to negotiate with T-Mobile for an acquisition. Initially, Deutsche Telecom was shopping T-Mobile around and found a suitor in AT&T but we said that wouldn’t happen and it didn’t. Now, it seems, T-Mobile’s parent company is interested in investing more capital in T-Mobile USA regardless of whether or not T-Mobile gets acquired and merges with Sprint or not. So, it doesn’t seem like T-Mobile needs to get acquired in order to continue to grow. Their needs to grow are not necessarily nearly as desperate as Sprint’s who continues to suffer. Last year alone, Sprint posted nearly $2 billion in operating losses, as they closed on the Softbank deal, privatizing the company.
In addition to this, CEO’s outspoken CEO John Legere has recently berated Sprint (as I’ve seen him do on Twitter)
"Remember when people actually liked @sprint? Yeah, me either," Legere tweeted.
Now, once you take all of that into account, it doesn’t really seem like T-Mobile needs Sprint. Sure, Sprint has gobs and gobs of spectrum, but they have shown their complete and utter incompetency in deploying a stable and reliable network that has decent speeds and coverage. Sprint’s choice to go WiMax was a beyond foolish one, which I believe that they are still paying for today. But even so, their LTE network is the second slowest in the nation according to Ookla’s own Net Index which tests users’ real world speeds.
TOP 8 CARRIERS IN UNITED STATES
1.Verizon Wireless – 15.02 Mbps
2.T-Mobile USA – 12.33 Mbps
3.AT&T – 10.86 Mbps
4.Metro PCS Wireless Inc – 7.99 Mbps
5.United States Cellular – 7.76 Mbps
6.Sprintcom IncMbps – 5.64 Mbps
7.Cellular South Inc Mbps – 4.8 Mbps
8.Cricket Communications – 2.16 Mbps
Now, in an interview with Softbank’s CEO and Sprint’s Chairman, Masayoshi Son, Charlie Rose was able to get some very interesting statements out of the CEO of Sprint’s parent company. He said that the wireless industry is essentially a duopoly and that they take up over 100% of the industry’s free cash flow. And that if Sprint were to merge with T-Mobile that they would bring them into a massive price war. Even though, right now, T-Mobile is already accomplishing that on their own through their Uncarrier programs and the price adjustments and plan adjustments that they are forcing their competitors to adopt. You can watch the interview here for yourself, it’s a short interview, that’s under 3 minutes.
Now, the problem with his strategy is that he would effectively turn the US market more so into an oligopoly than it already is. By going from 4 carriers to 3 carriers it would instantaneously reduce competition, no matter what anyone says, purely because there are fewer choices to choose from. T-Mobile has illustrated their ability to be competitive even in their current size and network capabilities. But Softbank’s CEO wants to be #1 in the United States and by acquiring T-Mobile, he would come much closer much sooner. It would make the combined company nearly as big as Verizon and AT&T and the rest of the customers would be gained through his so-called price wars and superior network.
All of this sounds great from his perspective, but even the FCC’s own chairman, Tom Wheeler, doesn’t sound convinced that the deal would go through or was even necessary. This is in addition to the DoJ’s assistant attorney general for antitrust cases, who said that such a deal would have intense scrutiny and simply doesn’t make much sense in the current competitive climate. His exact words were, ?It?s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers. Any proposed transaction would get a very hard look from the antitrust division.?
Now, if any deal were to eventually happen, which I’m still doubtful it will, it would likely look like Sprint’s CEO being replaced by T-Mobile’s John Legere and T-Mobile’s policies becoming standard operating procedure for Sprint. I’m not sure which brand would survive the merger, but based on the two brands’ current customer perception, a switch to T-Mobile branding may be beneficial for Sprint. Much like what SBC did with AT&T when they acquired AT&T back in 2005 and renamed the whole company to AT&T because so many people absolutely loathed the SBC brand and the AT&T brand was much better known and less hated.
Let’s not also forget that T-Mobile and Sprint still technically operate their 3G networks on fundamentally different technologies, which in the short term may be hugely problematic. Although, ultimately, both companies are switching to LTE which would mean that once both companies switch to VoLTE it would be much less of an issue. Even so, I don’t see the companies abandoning their 3G networks for quite some time.
We will continue to watch as this deal moves forward through an official announcement or proposal phase and then through board and shareholder approval and then ultimately regulatory approval.