Indian government strives to save its dwindling telco industry

Government officials have reportedly been having meetings to figure out how the prospects for Vodafone Idea can be improved and three-way competition can be preserved.

Rumours have been circling the Indian telco space over recent weeks as it appears the industry is sleep-walking towards the death of Vodafone Idea and the creation of a defacto duopoly. One potential outcome in the immediate future would be invoking banking guarantees, a precursor to termination of telecom licences, according to the Economic Times, though this would be a worrying move.

With finance and telecoms ministers meeting in private, the objective could be to preserve a level of competition which is deemed adequate. Three private telcos should be considered the absolute minimum, though this is arguably too few for a nation the size of India. If the status quo is to continue concessions will have to be made.

What is actually being discussed behind closed doors remains to be seen, though reports are suggesting the Indian Government is seeking remedies to the precarious situation. This may well mean deferred or staggered repayments for the €7 billion spectrum bill being faced by both Vodafone Idea and Bharti Airtel.

The seriousness of the situation in India should not be taken lightly, though whether the Indian Government has the foresight to appreciate the damage which could be done in pursuing immediate repayment remains to be seen.

Vodafone Group CEO Nick Reid has repeatedly stated he would not be prepared to invest more capital in the market, or at least the vast sums which are being discussed today. It does appear Vodafone is prepared to wrap-up the joint venture between itself and Idea Cellular. Reid is perhaps looking at the big picture.

Vodafone is under pressure in several markets across the world. In the UK, it is spending significantly to bolster its current market share, while both Spain and Italy are presenting challenging environments thanks to heightened competition. India offers great potential, but $7 billion is a significant investment to remain in the hunt. At some point, executives will have to question when the end is nigh.

The ‘Chase Theory’ is usually associated with compulsive gambling, but it is also applicable here. As one of the simplest forms of gambling, the punter doubles down to recoup losses in pursuit of a theoretical gain. India is a market which offers great rewards due to a massive population and rapid digitisation, but it is proving to be a very costly pursuit. The last thing Reid will want to do is bankrupt his business chasing the hypothetical pot of gold at the end of the rainbow.

If the Indian Government does not introduce some flexibility into its mindset in dealing with the telcos, the market will soon devolve into a defacto duopoly. Admittedly, there are two state-owned telcos still in the fray, but these are providing next to no genuine competition. For a sustainable and healthy telecoms industry in India, the existence of Vodafone Idea should be considered priority number one.

The trickiest aspect of this discussion will be how to maintain credibility as an authority; the Indian Government needs to help Vodafone Idea, but it cannot be held to ransom by divas in the telecoms space.

Vodafone and TPG win appeal for $15bn mega merger

The Australian Federal Court has overturned a decision by the Australian Competition and Consumer Commission (ACCC), paving the way for Vodafone and TPG to create a converged telco giant.

The ACCC had originally opposed to decision on the grounds of weakened competition, believing TPG would create a mobile offering while Vodafone would expand its broadband offering independently, however the courts disagreed. Both the telcos argued the financials did not add up to pursue convergence strategies independently, with the courts now greenlighting an AUS$15 billion merger after an 18-month wait.

Vodafone and TPG have said the merger is set to be complete by mid-2020, subject to approvals from other regulators and other shareholders, as well as the likely appeal from the ACCC.

“The ACCC’s concern was that with this merger, mobile data prices will be higher than they would be otherwise,” said ACCC Chair Rod Sims. “These concerns were reinforced by statements from the industry welcoming the merger and the consequent ‘rational’ pricing.

“We stand by our decision to oppose this merger. If the ACCC won 100% of the cases we took it would be a sign we weren’t doing our job properly; by only picking ‘safe’ cases and not standing up for what we believe in. The future without a merger is uncertain. But we know that competition is lost when main incumbents acquire innovative new competitors.”

Theoretically, the ACCC has a point, but it has been ignoring some very significant factors. Firstly, deploying a mobile network in a country so vast as Australia is incredibly expensive. Secondly, in banning Huawei as a supplier of RAN equipment, TPG’s business case was undermined. And finally, introducing additional competition and encouraging a race to the bottom does not necessarily create a healthy and sustainable telco industry.

TPG has said continuously over the last few months that without being able to work with Huawei the commercials of deploying a mobile network do not add up. On the increased competition, India and Italy are two markets which have demonstrated more competition and decreased tariffs can eventually lead to a very difficult position.

Mobile Broadband
Telco Market share Telco Market share
Optus 31.4% Optus 13.6%
Telstra 50.4% Telstra 55%
Vodafone 18.5% TPG 16.8%
Other 14.4%

While it is not guaranteed, there is hope this merger could end up being a positive for the Australian telecommunication market. A merged entity could provide more competition for the Telstra and Optus pair who are leading the market share rankings. Both of these telcos are able to entice customer with bundled service offerings, something which is becoming increasingly popular in the eyes of the consumer. The merged Vodafone and TPG proposition can now theoretically compete on a more level playing field.

“For the first time, Australia will have a third, fully-integrated telecommunications company,” said Vodafone Australia CEO Iñaki Berroeta. “This will give us the scale to compete head-to-head across the whole telecoms market which will drive more competition, investment and innovation, delivering more choice and value for Australian consumers and businesses.”

Competition is certainly not balanced in the Australian market currently. Increased competition might well fragment the market further, creating a ‘divide and conquer’ strategy for Telstra. It might have created more value for the consumer, as the ACCC so strongly insists, but it might have also worked out for Telstra, giving it a stronger position as market share is dwindled for the smaller players.

This ruling by no means guarantees the long-term health of the Australia telco industry, but it does create three converged players, perhaps the most logical position in the pursuit of sustainability.

FTC starts turning the screw on Big Tech

The Federal Trade Commission (FTC) has issued Special Orders to five of the technology industry’s biggest hitters as it takes a more forensic look at acquisition regulation.

Under the Hart-Scott-Rodino Act, certain acquisitions or mergers are required to be greenlit by the regulatory authorities in the US before completion. This is supposed to be a measure to ensure an appropriate marketplace is maintained, though there are certain exceptions to the rule. It appears the FTC is making moves to combat the free-wheeling acquisition activities of Big Tech.

Under the Special Orders, Google, Amazon, Apple, Facebook and Microsoft now have to disclose all acquisitions which took place over the last decade. It appears the FTC believes the current rules on acquisition need to be reconsidered.

“Digital technology companies are a big part of the economy and our daily lives,” said FTC Chairman Joe Simons. “This initiative will enable the Commission to take a closer look at acquisitions in this important sector, and also to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition. This will help us continue to keep tech markets open and competitive, for the benefit of consumers.”

While authorities have already questioned whether some acquisitions are in the best interest of a sustainable industry, in fairness, Big Tech has done nothing wrong. Where relevant, the authorities have been notified regarding acquisitions, and they have generally been approved. If the FTC and its cousins in other regulatory authorities believe the current status quo is unappealing, they only have themselves to blame.

In general, an acquisition will always have to be reported if the following three criteria are met:

  1. The transaction would have an impact on US commerce
  2. One of the parties has annual sales or total assets of $151.7 million, and the other party has sales or assets of $15.2 million or more
  3. The value of the securities or assets of the other party held by the acquirer after the transaction is $68.2 million or more

All three of these criteria have to be met before the potential acquisition has to be approved by the regulators.

Interestingly enough, the Android acquisition by Google is rumoured to be for roughly $50 million, therefore the third criteria was not met, and the team did not need to gain regulatory approval for the deal. This is perhaps what the FTC is attempting to avoid in the future, as while we suspect there was no-one in the office at the time with enough foresight to understand the implications, the regulator might suggest it would not have approved the deal in hindsight.

One of the issues being faced currently, and this is true around the world not just in the US, is that authorities feel they have lost control of the technology industry. Companies like Google and Facebook arguably wield more influence than politicians and regulatory authorities, a position few will be comfortable with outside of Silicon Valley.

Aside from this investigation, the FTC is also exploring Amazon in an antitrust probe, while Google and Facebook are facing their own scrutiny on the grounds of competition. There have also been calls to break-up the power of the technology companies, while European nations are looking into ways to force these companies to pay fair and reasonable tax. Across the world, authorities are looking for ways to hold Big Tech more accountable and to dilute influence.

Interestingly enough, we don’t actually know what the outcome of the latest FTC foray will be. It will of course have one eye on updating acquisition rules, though as Section 6(b) of the FTC Act allows the regulator to conduct investigations that do not have a specific law enforcement purpose; it’s a blank cheque and the potential outcome could head down numerous routes.

Italian telcos fined for pricing collusion

Telecom Italia, Fastweb, Vodafone and Wind Tre have been fined a total of €228 million after an investigation found the four telcos had co-ordinated price hikes for consumers in 2017.

The complaints against the four telcos had been raised by Iliad, a fifth service provider in the market, as well as Onlus CODES Association and Altroconsumo, two consumer rights groups. The investigation has now been formally concluded with Telecom Italia taking a €114 million fine, Vodafone €60 million, Wind Tre €39 million and Fastweb €14 million.

Telcos are of course allowed to raise prices as they see fit, though when it is done in such a collective manner to prevent churn and competition, regulatory authorities will become nervous.

In this case, the Italian Competition Authority (AGCM) found the telcos aligned their commercial activities which violates item 137 of the Italian consumer code, though it is somewhat of a complicated story.

The Italian telco decided to move from a monthly billing cycle to a 28-day one in 2017, though as the prices were not decreased during this transition. Consumer and advocacy protests focused on the 8.6% price hike which would be experience over the course of the year, as the telcos were effectively creating a thirteenth billing month.

In 2018, the telcos decided to pivot back to the monthly billing standard, though there would be a price increase to compensate for the shift. The consumers were back to square one but were paying more for the pleasure.

The AGCM has now concluded the co-ordination between the telcos allowed each to keep the inflated tariffs, made it unnecessarily difficult to compare tariffs and unfairly prevented the consumer from searching for a better deal.

While it is very difficult to 100% guarantee the consumer will be safeguarded from underhanded and nefarious corporate practices, the AGCM is at least dishing out fines which will make a material impact on the spreadsheets. The telcos will of course be able to afford these fines, but the amount will certainly make them think twice about trying this sort of thing again.

Could Iliad Italia be a victim of Corporate Darwinism?

Iliad’s Italian business unit has lodged complaints with Italian and European regulators regarding network sharing deals, but could these objections be effectively ignored?

While network sharing is a proposition which offers great benefits to cash-strapped telcos in pursuit of the eye-wateringly expensive 5G connectivity dream, it is not without its opponents and critics. Some regulators have become very defensive about the progressive idea, while there are telcos being left out of discussions who are objecting also.

In Belgium, Telenet has raised concerns over a tie-up between Orange and Proximus, while the European Commission prevented O2 and T-Mobile from expanding an existing agreement to include 5G in the Czech Republic. Both of these network sharing partnerships have been halted in the pursuit of maintaining attractive levels of competition, but Iliad’s objections might fall on deaf ears.

Iliad is objecting to network sharing agreements between Wind Tre and Fastweb, as well as another between Telecom Italia and Vodafone Italia. Iliad is the only major telco in Italy not to be in a network sharing discussion. If these partnerships bear fruit, efficiencies will be realised, meaning competitor funds can be redirected elsewhere.

If this is a prediction of the future, Iliad will be in a weakened position to compete in the Italian market, and financial pressures could become too much to justify the venture. Iliad could become a victim of Corporate Darwinism.

The competition versus consolidation conundrum

Competition has been somewhat of a difficult topic of conversation between the regulators and telcos in recent years, primarily because of the polar-opposite opinions on market consolidation. The telcos would like to consolidate to achieve scaled economics, while the regulators want to preserve the number of telcos in each of the markets to maintain competition and encourage investment.

There are pros and cons on either side of the fence, though the regulators do not seem to be shifting. This argument has knock-on effects for network sharing agreements.

Ovum’s Dario Talmesio points out, network sharing could be viewed as consolidation through the backdoor. Combined assets reduces the number of independent networks in the market, and potentially reduces investments and competition.

In the Czech O2 and T-Mobile case, the European Commission suggested as there were only three major players in the market, further combination of assets between two of the parties would present too much of a risk of the third being squeezed out. The same case has been presented by Telenet to the national regulator in Belgium.

Regulators are sensitive to any propositions which would negatively impact competition in a market, but what about markets where the number of telcos could actually be reduced?

How much is too much competition?

While there is no official stance on the number of telcos in a market, the European Commission does not generally approve activities which would reduce the number of telcos below four. Vetoing the O2/Three merger in the UK, or Telia/Telenor in Denmark are two examples, but this might not be the case in Italy.

If regulators were to allow the network sharing agreements to proceed, Iliad would certainly be in a very precarious position, though there would still be four mobile service providers in the country; Telecom Italia, Vodafone Italia, Wind Tre and a Fastweb proposition enabled by its agreement with Wind Tre. This might be deemed enough competition in Italy to maintain a healthy market for the consumer and a financially sustainable one for the telcos.

The four telcos named above are venturing into untested waters here. This presents a new question for the regulators to answer on competition. Theoretically, suitable levels of competition are being sustained, and this network sharing dynamic has been approved by regulators in the past.

In the UK, Three and EE have formed MBNL, while Vodafone and O2 have CTIL. These are passive infrastructure sharing joint ventures, focusing on the rural environments. It is a similar situation which would be created in Italy, and the UK does have a sustainable telco industry. It is evidence that the dynamic could work, with or without Iliad in the mix.

Could this be a case of Corporate Darwinism?

Corporate Darwinism occurs when a market evolves to such a degree that players are either irrelevant or uncompetitive, and therefore go out of business.

The best example of this is Blockbusters. Once a dominant player in the movie rental business, as the distribution of content moved online the proposition of Blockbusters was no-longer relevant, therefore the company did not survive. This is an example of a market evolving to such a degree that the business was no-longer relevant.

The Iliad example is perhaps one where the market evolves to such a degree that the business is no-longer competitive.

If the four remaining mobile service providers have network sharing initiatives driving network deployment, investments can be more intelligently spend (a) on the network, or (b) in other areas of the business.

The shared networks might have a greater geographical footprint, have future-proofed technology and higher performance specs. Theoretically, Iliad would churn subscribers to higher quality rivals. Also, as less money is being spent on network deployment, tariffs could be lower, but profitability could be maintained. Or, more cash could be invested in value-add propositions for products. Rival offerings could look more attractive than Iliad products.

If regulators approve the network sharing agreements between Telecom Italia and Vodafone Italia, alongside Wind Tre and Fastweb, Iliad would find itself in a very difficult position. It become difficult to see the telco surviving in the long-term.

Unfortunately for Iliad, there is a coherent argument to approve the partnerships to drive towards a more sustainable telecoms industry, allowing the telcos to realise efficiencies ahead of the vast expenditure of 5G. The consumer would benefit, as would enterprise customers and the Italian economy on the whole. It might be a case of letting Iliad die out for the greater good of the Italian telecoms sector.

Indian telcos are ‘cap in hand’ in front of Government

The digital economy in India is accelerating at an almost unprecedented speed, but this is a market which is far from being in a healthy position.

To state the telcos are in a precarious position would be considered one of the biggest under-statements of this or any other decade. In an attempt to reverse their fate, the telcos have reportedly approached the Indian Government to plead for some sort of assistance.

According to local press, the telcos have requested the creation of new funding mechanisms with lower interest rates, a refund of accumulated input tax credit, as well as the removal of goods and sales taxes on licence fees, licence fee, spectrum usage charges and the payment of spectrum charges. The telcos are also requesting cell towers be reclassified as plant and machinery for input tax credits.

In short, the telcos need a lot of help as well as regulatory reform if the market is to become sustainable for the long-term. The Department for Telecoms has said it will listen to the ideas of industry until Tuesday (January 7), before making a decision.

The Indian telecommunications industry is perhaps one of the most interesting around the world, but this is as much because of the precarious path being trodden as it is for the potential cash bonanza.

India has the second-largest population in the world, a rapidly growing middle-class of digitally enthusiastic millennials and an economy where GDP is growing more than 6% annually, compared to a global average of 3.01%. India is a flourishing market, though this success is clearly coming at a cost for the telcos.

One of the reasons the digital economy is aggressively expanding in the country is the cost of connectivity. When Reliance Jio entered the market in 2016, it democratised access to the World Wide Web for Indians. The aggressive pricing strategy forced competitors to lower data tariffs, making the digital economy accessible to all. More than three years later, the average cost of a GB is still unsustainably low at $0.26.

Thanks to the socio-economics of India, data tariffs will never reach (or shouldn’t reach) the levels of Western Europe or the US, though prices do need to be at a level which offers the industry the ability to generate ROI. $0.26 per GB does not, and this is one of the reasons the telcos are facing the financial strangleholds of today.

This is a problem which the industry created for itself, and also one which the regulator simply watched develop. However, it should also be noted annual payments for spectrum are crippling the telcos. The telcos insist the Government is charging too much, though a court ruling is forcing the telcos to pay up, playing them under financial duress.

Whether the Government listens to the pleas of the telcos remains to be seen, though it should be noted action needs to be taken. The majority of competition in the country has already been eradicated thanks to the pricing war, and with two of its three major telcos facing financial calamity, the future of the hangs in the balance.

Unless some serious bureaucratic and regulatory changes are made in India, perhaps the most likely outcome is a monopolised market. This is not a situation anyone involved would like to see emerge.

Dish CEO claims it can compete from Day One

Dish CEO Charlie Ergen has been sitting in a New York court room to defend the approval of the T-Mobile US-Sprint merger, but also insisting his company can compete in the cut-throat telco industry.

This week is a critical one for executives in both the T-Mobile US and Sprint businesses. For the next few days, these men and women will be face-to-face with the 14 Attorney Generals, led by New York’s chief prosecutor Letitia James, in a court case which will decide the future of the business.

With approvals being granted by the relevant regulatory authorities, the last hurdle the duo has to navigate is the lawsuit from the Attorney Generals. These 14 lawyers oppose the merger on the grounds of competition, but Ergen is the star witness for T-Mobile US and Sprint.

“We will compete with the largest operators in the United States, and we’ll compete from day one,” Ergen said in court.

Ergen believes the Dish mobile business will be live within 30 days of the T-Mobile-Sprint merger being approved. At this point, Ergen will get his hands-on Sprint’s prepaid business, Boost. The brand will continue in the pre-paid market for the short-term, though Dish plan to move into the post-paid segment sharpish.

This is perhaps what the judgement will lie on. Will the court believe Ergen? Can this CEO convince Judge Victor Marrero that Dish is a viable alternative to the Sprint business which currently exists?

Looking at the positive side of the argument, Dish has spectrum. It has been competing in the spectrum auctions for years and has a treasure trove, which is currently under threat. Dish has been told to use it or lose it. Another interesting factor is the financing; Ergen claims to have $10 billion lined-up in loans from the banks. Then there is the agreement with T-Mobile US. For the next seven years, Dish will be able to make use of the T-Mobile US network where it hasn’t deployed its own.

These are all interesting points to consider, but then you have to look at the other side of the equation.

Dish has never been in the mobile business. Will it be able to get an effective mobile service up-and-running within 30 days? We’re not too sure. Is $10 billion enough to fulfil the grand promises which have been made to gain approvals from the authorities? If Sprint currently has 50 million subscribers, will the Dish mobile proposition ever reach this mark to maintain the current levels of competition across the US?

These are all queries which will need to be answered. Ergen will be placed under cross-examination from the Attorney Generals, and there are plenty of threads to tug on to unravel this story.

The question which remains is can Ergen prove Dish is a viable replacement for Sprint to maintain the competitive environment which is present today? That is the question which this case rests on.

Google giving up on Turkey

Google has announced that new Android devices sold in Turkey will no-longer be sold with its own applications pre-installed following an antitrust dispute with authorities in the country.

“We’ve informed our business partners that we will not be able to work with them on new Android phones to be released for the Turkish market,” Google confirmed in a statement.

“Consumers will be able to purchase existing device models and will be able to use their devices and applications normally. Google’s other services will be unaffected.”

Android will of course be still available in the country, it is an open-source operating system after all, though Google has informed business partners in the country it will no-longer be able to work with them thanks to the friction with the Turkish Government.

The words Google and antitrust do of course sit together as comfortably as Bill and Ben, though it seems there is little chance of resolving this conflict in the immediate future. Google was found to be in the wrong following an antitrust investigation, though it has been unable to align itself to the demands of the authorities to move forward.

As part of the antitrust conclusion, Google was forced to pay 93 million lira ($17.4 million) and make changes to contracts with its business partners. Google complied, though on November 7, Turkey’s competition board said the changes were not sufficient.

The original complaint was filed by Russian search firm Yandex, with Turkish authorities hoping Google would allow consumers to choose which search engine was default on new devices. This was never going to be something Google would agree to, it undermines the business model after all, hence the situation today.

Google now has 60-days to appeal the decision, and while it might be uncomfortable for the moment, we cannot see the Turkish authorities winning this battle. Google holds the cards here; if it doesn’t like the situation it can always threaten to abandon Turkey, leaving Yandex the opportunity to distort competition. We struggle to see this being a palatable outcome for the Turkish competition board.

Canada preps the industry with hint of regulatory disruption

The Canadian Competition Bureau is suggesting competition is not healthy in the country and new regulation could emerge to encourage the creation of new challengers.

Having submitted initial feedback for a Canadian Radio-television and Telecommunications Commission (CRTC) review, the competition agency is suggesting significant market power for Bell, Telus and Rogers in most regions across the country, which could mean retail connectivity tariffs are 35-40% higher. Regulators are often very sensitive to when the consumer’s wallet takes unnecessary damage, especially when it comes to a concentration of competition.

For the moment, these comments will not mean too much, though the telcos should keep a wary eye on the situation. The Competition Bureau has pointed to the presence of regional challengers, such as Sasktel, Videotron and Freedom Mobile, as having a positive impact on prices for the consumer, perhaps offering ammunition for the CRTC to force through regulatory disruption.

Country Average price per GB ($) Percentage of monthly income
Canada 12.02 0.322%
Australia 2.47 0.056%
New Zealand 9.87 0.288%
UK 6.66 0.193%
USA 12.37 0.236%

Canada’s connectivity prices are by no-means the highest worldwide, but in comparison to the other members of the ‘Five Eyes’ alliance, they are expensive. Only the US telcos charge more per GB on average, though US consumer wallets maybe more tolerant to higher prices thanks to higher incomes.

The feedback from the competition watchdog seems to be suggesting a regulatory framework which would not be welcomed by the Canadian MNOs. Allowances could be made for MVNOs to enter the market, though the regulatory landscape could well be adjusted to aid the same companies in creating their own scaled and independent networks to compete alongside the ‘Big Three’.

“The CRTC should allow wireless disruptors to act as MVNOs as a transitional step to becoming full-fledged facilities-based providers as they continue their expansion,” the Competition Bureau’s submission suggests.

“This would ensure that the progress made by these providers to date will continue to pay dividends to Canadians. An investment-based MVNO policy achieves the goal of spurring additional price competition from wireless disruptors in the short term, while avoiding the risk of declining network quality in the long term.”

The issue which Canada faces here is a simple to understand but very difficult to overcome. Telecommunications is a very CAPEX intensive business at the best of times, but when you throw in Canada’s expansive and often aggressive environment, introducing a new player becomes even more difficult.

Should Canadian authorities want to encourage the growth of scaled competitors for the ‘Big Three’ there will need to be assistance. This might take the form of forcing lower wholesale prices on the current MNOs, as well as more direct regulatory/financial assistance for the challengers. Interestingly enough, next year’s 3.5 GHz spectrum auction could cause some headaches.

As we have seen in other markets, Germany for example, regulators have a tendency to use spectrum auctions to rebalance the distribution of power. With 3.5 GHz being viewed as an incredibly valuable spectrum asset for future connectivity, the slated 2020 auctions could be an opportunity for the Canadian Government to encourage more competition in the country.

For Bell in particular, this is not welcome news. The current market leader decided to sit out the already expensive 600 MHz auction in April, turning attention to next years’ 3.5 GHz sale instead. If the Canadian Government starts placing difficult obligations or limits on purchases, this might prove to be a red-tape maze of nightmares.

Although the pursuit of increased competition to aid consumers is a valiant cause for authorities to champion, the current chaos in India should serve as a warning for the Canadians. India was a market which was perhaps in need of a disruption (like Canada) due to high data prices and the risk of a digital divide emerging (like Canada), though authorities did not strike the correct balance.

With arguably too much assistance offered to Reliance Jio, the market risks heading towards an environment with even less competition. Telenor has already given up on India, Vodafone and Idea merged, with the new company now financially strained, state-owned telcos are being propped up with bailouts and Bharti Airtel looks uncomfortable. This is a perfect example of what happens when regulations to encourage the growth of challengers are implemented in an ineffective manner.

No concrete plans have been made yet, but this is an area certainly worth keeping an eye on. New rules and regulations are likely to be slated over the coming months, though it will be very difficult to strike the right balance and avoid another debacle like we have been watching in India.

T-Mobile and Sprint convince Colorado to cross the picket line

The coalition of lawyers fighting against the $26 billion T-Mobile US and Sprint merger has gotten a little bit weaker with Colorado dropping out of the resistance movement.

After the Attorney General for Mississippi secured concessions from the duo, the same has been achieved by Phil Weiser, the Colorado Attorney General. It might be the long-way around, but it does appear T-Mobile US and Sprint are turning some heads with individual, state-level deals.

“The State of Colorado joined a multistate lawsuit to block the T-Mobile-Sprint merger because of concerns about how the merger would affect Coloradans,” said Chief Deputy Attorney General Natalie Hanlon Leh.

“The agreements we are announcing today address those concerns by guaranteeing jobs in Colorado, a state-wide buildout of a fast 5G network that will especially benefit rural communities, and low-cost mobile plans.”

The guarantees are somewhat ambitious. New T-Mobile, how the merged entity is currently being referred to, has promised to deliver 5G with minimum download speeds of 100 Mbps to 68% of the state’s population within three years, and within six years, this coverage will have to increase to 92% of the population.

On the rural side, 60% of Colorado’s rural population will have to have access to 5G download speeds of 100 Mbps within three years of the completion of the transaction, increasing to 74% within six years.

New T-Mobile will also offer new tariffs at lower prices. Should the company fail to meet these commitments it will face $80 million in penalties.

In meeting these concessions, New T-Mobile might face some challenges. Colorado is the eighth largest state in the US at 269,837 km² (the UK is 242,495 km²), with some pretty mountainous landscapes. That said, the population does seem to help these coverage commitments.

Colorado has a population of roughly 5.6 million people, of which 4.89 million live in urban locations. The state has 196 towns and 73 cities, with the five biggest accounting for roughly 1.6 million people (23% of total). Should New T-Mobile cover the ten largest cities with 5G within three years, it would have achieved roughly 38% population coverage, more than half of the commitment made to the State.

With Colorado being a highly urbanised population, only 13% are described as living in rural environment according to Rural Health Info, the equation does not look quite as daunting. Another element to consider is the spectrum assets which will be owned by New T-Mobile.

Although it has been toying with the high-speed mmWave spectrum bands, New T-Mobile will have the benefits of the 600 MHz spectrum offering greater range for meeting the concessions. This will not deliver the eye watering speed which has been promised in perfect scenarios for 5G, though it will aid the demands of network densification. During a trial in January, T-Mobile US claimed a 5G call over 600 MHz could reach 1000 square miles from a single cell site.

Interestingly enough, the merger will also offer access to valuable mid-band spectrum which Sprint has been boasting about for years. Sprint is currently hording licences for the valuable 2.5 GHz band, very similar to the mid-band spectrum airwaves which are being championed in Europe because of the more palatable compromise between speed and coverage. Combining these assets with the mmWave trials puts New T-Mobile in a pretty attractive position.

Alongside the conditions placed on New T-Mobile, Dish will also face its own demands following the completion of the $5 billion acquisition of Sprint’s prepaid brand to maintain competition levels across the country. Dish will have to maintain the HQ in Colorado for at least seven years, hire an additional 2,000 people to work on the wireless business and Colorado will have to be one of the first 10 states Dish launches 5G in. Failure to meet these conditions will result in $20 million in fines.

The win in Colorado is a significant one for New T-Mobile and adds to the momentum gained in Mississippi. In this southern state, New T-Mobile will have to deploy a 5G networ with at least 62% of the population experiencing download speeds of at least 100 Mbps. These numbers increase to 88% within six years of the completion of the merger, though 88% of the rural population will also have to be upgraded to 5G by this time also.

Although this is not the end of the lawsuit led by the New York Attorney General, Letitia James to block the merger on competition grounds, it adds a dent to momentum.

The prospect of tackling James and a herd of 16 Attorney Generals might have seemed like a daunting one, but the divide and conquer strategy seems to be working well here. If the T-Mobile US and Sprint lawyers can convince a few more into ditching the lawsuit, the threat looks significantly lessened.

While there are some states where applying the same conditions as have been negotiated in Colorado and Mississippi would be incredibly difficult, the lawyers don’t have to worry about them. Chipping away at the states where 5G deployment might be a simpler task would certainly lessen the threat being posed by the coalition. There only needs to be another three or four convinced to cross the picket-line and the support for the merger starts to look much more substantial.