T-Mobile US and Sprint finally get some support for merger

Budget MVNO Ting Mobile has come out in support of the proposed T-Mobile US and Sprint merger, standing pretty lonely opposite the waves of opposition.

In a letter to the FCC, Elliott Noss, CEO of parent company Tucows, has penned his support for the merger. While there certainly will be support for the transaction outside of the T-Mobile US and Sprint offices, Noss is creating a pretty lonely silhouette at the moment.

“In a general sense, we think the T-Mobile/Sprint merger makes strong business sense and will generally benefit most stakeholders,” Noss states. “For greater clarity, we view the group of stakeholders as customers, employees and investors, in that order.

“We believe customers will benefit from a more efficient, profitable company which will allow greater investment in building the current Sprint spectrum in particular. We are uncertain whether customers will benefit from lower prices as we have seen in Canada (with the most expensive mobile phone service in the world) that three competitors and no MVNO presence in the market leads to clear oligopolistic pricing and a minimum of competitive pricing pressures.”

While the queue opposing the merger has been growing over the last few days, T-Mobile US has apparently been lobbying MVNOs and customers to build its own legion of support. There there have been few public statements so far, this might well be the first, and although Tucows is not a massive player, having an established business will count for something.

For those who are not aware of Tucows and its Ting Mobile brand, the organization operates out of Ontario in Canada and Mississippi in the US, using both Sprint and T-Mobile US’ networks. The firm generated revenues of $81 million for the quarter ending August 8, with a net income of $3.6 million. This quarter demonstrated a 4% decline in revenues, though the firm is up 15% year-on-year for the first six months.

The general message here seems to be one which contradicts that of the bigger telco boys; light-touch regulation is the way forward and this merger will benefit US consumers and businesses.

Looking at the opposition, the Communications Workers of America (CWA) union, satellite operator Dish and MVNO Altice USA were the latest to join. Dish and Altice USA have both stated the merger would make them reconsider entering the mobile race in the US, though Tucows clearly believes this is a lot of hot air. The merger would not prevent it from succeeding in the future.

“We had chosen Sprint and T-Mobile as our service providers originally for a variety of reasons, including price, device compatibility, territorial coverage, protocol coverage (CDMA and GSM), and MVNO-friendly policies and practices,” Noss states. “These factors were not the same for both companies. In some cases, Sprint is stronger than T-Mobile. In other cases, T-Mobile has advantages. Mostly, we chose to add T-Mobile as a second network in 2014 in order to have diversity of supply and to have some leverage with our suppliers in hopes of balancing an unequal bargaining position.

“In combination, a new Sprint/T-Mobile entity should continue to provide diverse support for geography, protocols, and device support. Sprint and T-Mobile, however, have different approaches to pricing and MVNO policies and support generally, and they have not announced which practices will prevail in a post-merger company.”

Noss believes a healthy MVNO sector can compensate for reduced competition as a result of the merger, and this ecosystem should be given more attention by the FCC. Neglecting the MVNO market would create the same sticky situation Canadians are facing in terms of competition, which would have more of a negative impact that the combination of Sprint and T-Mobile.

This is an opportunity for Noss to have a moan at regulators for neglecting the MVNO market to date, most notably the adoption of eSIMs, however it is fundamentally in support of the merger. Tucows might be a minnow on the US telco scene, but should the T-Mobile US lobbying efforts work, enough support from the MVNOs will have to be taken into consideration. Could this be the first of many…

CWA, Dish and Altice USA join the T-Mobile/Sprint opposition

With conflicting predictions on the outcome of the industry’s biggest will-they/won’t-they flying everywhere, opposition to the deal from a communications union, Dish and Altice has started to scrap for attention.

The Communications Workers of America (CWA) union, satellite operator Dish and MVNO Altice USA have all aired their grievances, as the industry seemingly turns against the prospects of reducing competition across the US. While we suspect politically-minded individuals actually care very little regarding the concerns of Joe Bloggs, enough resistance from corporations could certainly have an impact on the decision making process.

Mergers of this nature are particularly sensitive to authorities due to the direct impact on competition. The difficulty is focused around the idea of ‘public interest’, a loosely defined term which underpins opinion in a huge number of legal cases in the US. Unfortunately for the US and its citizens, the definition of ‘public interest’ can depend on numerous factors and is rarely 100% consistent.

Looking at the opposition raised in recent days, the focus seems to be around three themes; competition, national security and jobs. Competition is the main focus here, so will get the lion’s share of attention.

When looking to raise support for the transaction, T-Mobile and Sprint executives have pointed towards the idea of consolidated networks and more efficient supply chains to bridge the gap created by AT&T and Verizon at the top of the communications rankings. According to Dish and the CWA, this is nothing more than hot air, as neither organization needs the merger as a means to provide 5G services or could not exist without the deal. As 5G services would be brought without the proposed tie-up, the public interest aspect is questioned as why would it be logical to remove a fourth player.

Another interesting point is the spectrum screen. The FCC gets very fidgety when one telco controls more than 33% of available spectrum in a given region, though should the deal go through, this would be the case across 66% of the US, a landmass which acts as home to 92% of US citizens according to the CWA. Altice USA believes one of the conditions of the deal should be the divestment of spectrum which exceeds the screen, as well as the associated network infrastructure, to improve opportunities for MVNOs and smaller telcos.

But perhaps the most important assertion here is the prevention of competition. Dish has stated the tie up would possible prevent it entering the wireless market with its own offering, while Altice USA has expressed concerns over whether the new organization would honour its own MVNO agreement with Sprint. Altice USA has said it is on track to launch an offering in 2019, though there have been no guarantees its ability to compete would not impaired by the transaction.

Predictions on whether reducing the number of wireless operators from four to three vary quite considerably, though there will certainly be concern if MVNOs start rowing backwards due to the deal. Taking Sprint out of the equation is one problem, but MVNOs disappearing will have another painful impact on competition.

Dish argues customisation of radios, chipsets and devices by the new organization would prevent it from entering the 5G mobile voice/broadband market, or at the very least delay it. Altice USA has pointed to comments from T-Mobile US CEO John Legere, which it believes demonstrates hostility towards MVNOs. Finally, the CWA has suggested the removal of head-to-head competition between the pair would be detrimental, while each has a viable future in the 5G world as a standalone business.

Looking at the other arguments, there seem to be less credibility. On the jobs front, the CWA predicts under the proposed terms of the transaction, 28,000 jobs would be sacrificed. 12,600 would be in the postpaid business, 11,800 in the prepaid and 4,500 in head office roles. As with any merger, there will certainly be crossover and therefore redundancies, though considering the combined workforce of the two organizations is in the region of 80,000-90,000, we can’t imagine redundancies will be as high as 33%.

In terms of national security, the CWA suggests Softbank is too close to Huawei and ZTE. The union quotes Sprint executives, claiming they have praised the technology of the two vendors, though this is hardly a surprise; many telcos around the world have paid compliments to Huawei in particular for the excellence of products, customisation and account management capabilities. Huawei is the market leader for communications infrastructure for a reason.

The national security argument seems to be nothing more than a shallow attempt to rile paranoid politicians who already have a Chinese bee in their bonnet. The link appears to be a smear attempt, attributing comments which are far from uncommon to a single business. It is an underhanded move and undermines the credibility, assuming it has much, of the union.

Although we do not see much substance to the employment and national security arguments, the competition concerns from all three are somewhat justified. Authorities will certainly have some alternative ideas to consider and it tough to see how this merger will be approved within the 90-day targeted window.

GSMA has a pop at BEREC over Euro MNO merger study

Mobile industry lobby group GSMA is unconvinced by findings from Euro telecoms regulator BEREC about the effects of consolidation.

A persistent theme in the European mobile market is the desire for consolidation. The European Commission has regularly blocked such attempts, apparently viewing four as the optimal number to ensure healthy competition. The counter-argument put forward by operators is that consolidation creates efficiencies and economies of scale that allow for greater investment, etc.

One of the organisations the EC apparently looks to for guidance on such matters is BEREC (Body of European Regulators for Electronic Communications), which recently published a report entitled ‘Post-Merger Market Developments – Price Effects of Mobile Mergers in Austria, Ireland and Germany’.

While there were few concrete conclusions the report seemed inclined against 4 to 3 mergers on competition grounds. “In all of the three cases considered, there is at least some evidence that retail prices for new customers increased due to the merger compared to the situation without the merger (the counterfactual),” it said in its conclusion.

The GSMA isn’t convinced and thinks BEREC failed to provide sufficient evidence to support this claim. Regarding price it picks holes in BEREC’s choice of data from Austria, reckons the Irish data used doesn’t support the claim at all and says most of the German data is ‘not very robust’, which seems like a polite way of saying ‘dodgy’.

BEREC also directly criticised the GSMA’s own study of the effects of the Hutchison/Orange merger in Austria, specifically the methodology and data used and the positive conclusions made about its effect on network quality. The GSMA predictably pushed back on that, saying its findings don’t stand up to [the GSMA’s] scrutiny.

“In summary, the BEREC report does not add any significant finding to the existing body of evidence on the impact of mergers,” concludes the GSMA press release. “It fails to convincingly dismiss past evidence on the positive impact of recent mergers, while not providing a convincing picture of higher prices for consumers in Austria, Ireland and Germany.”

BEREC hasn’t issued any public response but if it did, it would probably be something like “It’s not our methodology that’s rubbish – it’s the GSMA’s. And no returns.”

AT&T wastes no time in completing Time Warner acquisition

A mere two days after a judge rejected the US government’s attempt to block it, AT&T has completed its $85.4 billion acquisition of Time Warner.

The giant US telco is now the owner of some of the biggest properties and brands in the media world. HBO is arguably the number one producer of premium video content, responsible for Game of Thrones and Westworld as well as all-time classics The Wire and The Sopranos. Turner owns a bunch of major broadcast TV channels including CNN and Cartoon Network, while Warner Brothers is one of the big movie studios.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate,” said AT&T CEO Randall Stephenson. “Combine all that with AT&T’s strengths in direct-to-consumer distribution, and we offer customers a differentiated, high-quality, mobile-first entertainment experience. We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

The strapline for the press release announcing the completion of the deal announces: “Positioned to be a Global Leader as a Modern Media Company. Set to Create the Best Entertainment and Communications Experiences in the World.” This chimes with the contemporary trend towards mutliplay and sets AT&T up as the big beast of this space.

The Time Warner name, which can be traced back to the launch of Time magazine in 1923, will now cease to exist. AT&T is adding a new super-silo to its corporate structure to accommodate these new media assets, alongside its communications, international and advertising business, but has yet to pick a name for it. You would presumably get short odds on ‘AT&T Media’.

That silo will be led by AT&T lifer John Stankey, who took over the AT&T Entertainment Group that was created to house DirecTV when it was snapped up for $50 billion or so in 2015. He’s going to get a crash course in running a media empire from former Time Warner CEO Jeff Bewkes during a transition period of unspecified length.

“Jeff is an outstanding leader and one of the most accomplished CEOs around,” said Stephenson. He and his team have built a global leader in media and entertainment and I greatly appreciate his continued counsel.”

There are only two larger media companies out there: Comcast and Disney, who are currently in a bidding war for Twenty-First Century Fox, with the former outbidding the latter to the tune of 19% earlier this week by offering $65 billion, apparently hastened by the AT&T development. Fox, meanwhile has trying to buy Sky for ages, a process also complicated by Comcast’s gazumping tendencies.

The US seems to be feeling pretty laissez faire about massive comms/media consolidation but Europe might yet have something to say about all this. The Fox/Sky acquisition has been mainly held up by concerns about media plurality in terms of TV news and the more of this sort of M&A happens the more questions like these will be asked.

The T-Mobile and Sprint love affair may be back on

The will-they/won’t-they flirting between T-Mobile US and Sprint is seemingly back on as the pair head back to the negotiating table for the third time in four years.

The restarted merger talks were originally reported by the Wall Street Journal, though the news has been very positively received by the market. Sprint share price is up over 17%, at the time of writing, while T-Mobile US has increased by 5.5%. The market is clearly excited about such a merger, though it does appear Sprint might need the deal more than T-Mobile US.

Of course it would not be advisable to get too excited just yet, as we’ve been down this path before. Last year the pair were discussing the tie up, only for egos to get in the way as there was no agreement on who would have the controlling voice of the merged entity, while in 2014, regulatory issues killed the deal.

These are still preliminary talks and there is plenty which can go wrong. Little has in the top of the management teams involved, so why anyone thinks the control hurdle has disappeared after only five months is a bit of a mystery. Another factor which might be worth considering is the current administrations seeming opposition to major M&A. The AT&T/Time Warner deal is hanging in the balance, while President Trump killed off the idea of Broadcom acquiring Qualcomm. Reducing competition in the wireless market with the merger of the third and fourth players might not be well received in the current climate.

To remain relevant in the next era of the communications world, something needs to change. T-Mobile US is putting itself in a handy position, but taking the next step to compete with AT&T and Verizon on a level playing field might make the Sprint merger a necessity. A combined business would have just over 120 million customers, just ahead of AT&T but still behind Verizon.

Sprint looks like a business which needs T-Mobile US as well. Excluding the bump experienced over the last 24 hours, share price is down over 40% over the last 12 months as people question how the telco can compete with the top three players. The network is not as good, customer numbers are declining, customer service is deemed poor and the mountain of debt is incredible.

Who needs who more is partly irrelevant, as they both need each other to make a play for the 5G world. A combination of the two networks would offer substantial benefits in terms of consolidated investment strategies, which neither team would say no to. Maybe this is a case of third time lucky?

Multiplay time in Sweden as Tele2 buys Com Hem for $3.3 billion

The global trend towards consolation across telecoms, and content has reached Sweden with the acquisition of cable player Com Hem by operator group Tele2 for $3.3 billion.

The general theory behind multiplay is for a company to try to become a one-stop-shop for all a customer’s communications needs, which includes the internet and content streamed from it. Despite the fact that many big bets on content from the likes of BT have yet to deliver much return, operators don’t seem to have a plan B so are still doubling down on consolidation.

There’s a whole bunch of detail about the structure of the acquisition, who gets what equity, etc, but frankly it’s just too boring to detail. The price premium paid is only around 12% and the resulting company will be run by current Com Hem CEO Anders Nilsson, with Tele2 CEO Allison Kirkby calling it a day.

“We are delighted to have reached agreement to combine two great Nordic companies to create a leading integrated connectivity provider in the Swedish market,” said Tele2 Chairman Mike Parton. “Allison Kirkby has led Tele2 through a challenging period with great energy and commitment. We as a Board would like to thank her for everything she has done for the Tele2 group and especially for her pivotal role in laying solid foundations from which Enlarged Tele2 can prosper.

“In this exciting new chapter for Tele2, the Board would like to welcome Anders Nilsson as the incoming CEO at completion. His broad and deep operational experience in the Nordic media and connectivity market makes him extremely well suited to lead Tele2 to drive integration and delivery of the significant value creation potential that this transaction enables.”

“Merging is the best possible next step for both companies as it will enable us to meet the demands of tomorrow and unleash the power for the best possible digital quality of life in Sweden,” said Nilsson. “The combined company will be very well-positioned for the future to meet the expectations of our shareholders, customers and employees.”

“Enlarged Tele2 will be able to provide a wide range of complementary connectivity and digital services; a base that makes us well positioned to act as a customer champion in an increasingly integrated world,” said Kirkby. “I am confident that, at completion, I will hand over a company in very good shape and with Anders Nilsson and the current Tele2 management team leading the organization, it is in great hands to be even more successful going forward.”

There you have it. The driver of this deal is investment company Kinnevik and the underlying strategy is to make the most effective competitor for Telia. For the benefit of other investors the companies have to tick various boxes such as synergy and scale but at the end of the day prevailing sentiment in telecoms seems to be consolidate or die.

Pan-European telco is a great idea but national interest usually wins – Ericsson

The idea of a pan-European telco is one which has been pondered for some time, but according to Ericsson’s Ulf Ewaldsson, it is one which should perhaps be revisited.

The countdown to 5G has begun and the starting grid is starting to look a bit more orderly. There are some at the front, revving engines, itching to begin, while some are lurking at the back, taking the marathon approach. Both strategies have merit, but for Ewaldsson one is clearly better than the other.

“Every new generation (of mobile technology) creates new winners,” said Ewaldsson. “And the ones who are first out of the gate are usually win.”

This idea of sprinters and marathon runners might come down to the different regulatory environments around the world. In Europe, there is no consistent regulatory framework, which Ewaldsson believes is significant issue for the telcos; perhaps creating a pan-European environment would be the way forward.

There is a distinct line between some telcos who are ambitiously looking towards 5G, and those who are hording a healthy dose of pessimism. The pessimists are generally in Europe, while the North American and Asian telcos are much more energetic when it comes to drawing up plans to push forward into the 5G world. But this sense of pessimism is nothing new for Europeans, the big problem might be more around scale and ROI.

European telcos are by nature smaller than some of the counterparts in North America and Asia. Generally European telcos are restricted to their own borders, meaning a limited number of potential customers. Across the European Union, there are roughly 510 million people split between 28 member states.

The European Commission also has it in its head that it wants four operators per market, so that is 510 million potential customers split between 112 telcos. When you compare this to the US, where four telcos are battling for 320 million potential customers, or China where three major telcos are fighting for 1.37 billion punters, the numbers in European don’t really add up.

This is the foundation of the pan-European telco idea; there are simply too many telcos across Europe. The number of customers is too small, therefore generating ROI on any network investment is difficult, and slow. Ewaldsson highlighted that the smaller operators, who are perhaps considering delaying the investment in 5G, will only fall further behind as there are no prizes for second place. Verizon was first out the door for 4G and look what happened there.

From a macro-economic perspective, the idea of a pan-European telco is very attractive. Networks are simply too small at the moment. Ewaldsson pointed towards the element of scale and the efficiency benefits as justification, but of course the national interests of the state trumps logic to create a telco industry which is healthy.

The European Commission has been trying to harmonise the member states for some time, but there has always been variances and nuances between the member states which prevents any genuine cross-border progress. Asking politicians to make any concessions for the benefit of anyone else would of course be asking way too much. According to Ewaldsson, the regulatory landscape would prevent any pan-European frequencies, which is a pity.

This idea might have to be filed away as optimistic thinking. For all the benefits which a pan-European telecommunications industry might offer, the boresome bureaucrats will probably be an immovable hurdle.

Softbank set to pull the plug on Sprint T-Mobile merger, or is it?

In the absence of any recent romcoms coming out of Hollywood, Sprint and T-Mobile US are doing their best impression of a will-they/won’t they drama.

The latest chapter of the saga is a trough. According to Nikkei, it’s over, they’ve gone their separate ways. At this point in the movie, one would be out in a bar, sozzled and throwing crazy shapes to Taylor Swift, trying to find another partner, while the other would be crying into a tub of ice cream watching the Notebook.

The currently unconfirmed reports claim Softbank is the one which is ready to walk away, though this might be confirmed in the near future. Softbank executives plan to inform counterparts at T-Mobile US today (Tuesday), and the market not happy about the rumours. Over the course of the day, shares in the Japanese telco have dropped almost 5%, though the same cannot be said about Deutsche Telekom, where the price has remained steady.

Who knows whether this is a genuine breakup or if it is just a negotiating tactic, but investors seemed to have picked up on what we already knew in the telco space; Sprint needs this merger more than T-Mobile US does. Perhaps someone should tell the Softbank execs they do not have the upper hand in this negotiation.

The reported reasoning behind the split is down to control. Deutsche Telekom wanted to negotiate a controlling stake in the newly merged entity, which was apparently accepted to start with, though the Japanese still wanted to exercise some influence over decision making. Now it seems executives at Softbank aren’t happy at relinquishing control, and are prepared to ditch any deal which would see the Germans gain the upper hand.

What Softbank doesn’t seem to realize is that T-Mobile US doesn’t explicitly need this deal. It would be a nice to have, the customer base would immediately increase, coverage would be cemented and more efficient network investments could be realized, but this is a telco which is growing at a very attractive rate already. This deal would be to capitalize on momentum, not reverse ill fortunes.

Sprint used to be number three in the states, and now it is number four. But even these numbers are flattering. Sprint was never in a position to challenge the duopoly at the top of the US table. We’re not just talking about a different ballpark, we’re talking a different sport. Irrelevant of what metrics you look at, Sprint has been going downwards for some time, and this was only reinforced by the latest earnings call.

Back in Q2, Sprint recorded a profit of $206 million, but this now seems little more than a false dawn as the telco returned to the norm in Q3, with a loss of $48 million. On the flip side, T-Mobile US brought in $10 billion in total revenues, up 8% y-o-y, net income of $550 million, up 50% y-o-y. In terms of customers, the team is claiming 1.3 million total net additions for the quarter, the 18th straight quarters of adding more than 1 million.

T-Mobile US is growing healthily, and providing a genuine alternative to customers, something Sprint was not able to do during its long tenure in the number three spot. Why Softbank feels it can play hardball is beyond us. T-Mobile US doesn’t explicitly need this merger, things are already on track, Sprint does however.

And just like every good will they/won’t they story, this is unlikely to be the final chapter. Softbank CEO and Founder Masayoshi Son is an incredibly rich man, and with success usually comes a sense of arrogance. Why would he want to take a backseat at a company which could have the potential to challenge the US duopoly? Perhaps the message here is the Son-way or no-way. It wouldn’t surprise us, so there might just be another development before too long.

Sharks circling Reliance Communications but Jio remains quiet for now

Reliance Communications rumours are continuing to swirl after a weekend of adverts and offers to lure customers away from the troubled telco.

The telco has been in a bit of trouble for a while as debts continued to pile up (supposedly in the region of $6.8 billion), and it would seem the attempted acquisition of Aircel could be the final roll of the Reliance Communications dice. Chairman Anil Ambani had promised cash reserves at Aircel would provide a more stable foundation for Reliance Communications, but both parties seemingly got sick of endless delays, abandoning any deal.

And the smell of blood has made its way to the noses of the cut-throat competitors; apparently the scavengers can’t even wait for the limping giant to die; the steaks are being carved out already. This weekend saw Bharti Airtel launch a number of adverts welcoming any Reliance Communications customers to their ranks, and Vodafone launch a referral scheme, promising a £1.50 kickback to any of its customers who can tempt family and friends into their ranks.

While Airtel and Vodafone are already tucking in, Jio has been relatively quiet. Perhaps this is a bit of family respect, although we understand Anil and Mukesh Ambani aren’t exactly best mates, or maybe it has something to do with a bit of acquisition in the future.

With one brother on the up and the other finding issues in the telco space, some have might believe Reliance Communications is an acquisition target for Jio. This does kind of make sense, as Jio has not exactly created a reputation for being considerate to competitors. It was after all Jio’s aggressive pricing strategy which was the beginning of all the pain in India.

Unfortunately for some, they were not able to live with the pace of change. Telenor withdrawing, Vodafone and Idea merging and Bharti Airtel grabbing Tata Teleservices, demonstrate the consolidation trends. Reliance Communications was supposed to contribute in a more positive manner by buying Aircel, but it could be on the worse end of the deal.

Just to be clear, a Jio acquisition has not been confirmed in any way shape or form, and our sister-site Light Reading reported Reliance Communications would close most of its wireless business over the next month. Apparently, most employees have been told November 30 would be their last day, and the company’s DTH license will expire on November 21. The decision has already been made not to renew this licence.

In days gone, Reliance Communications was known to have a fairly successful 3G-dongle offering, though with the industry moving towards 4G and competitors carving into this niche, the telco has struggled. Reliance Communications has already said 4G is going to be the primary focus as “irrational pricing by all industry participants have destroyed profitability of traditional 2G/3G mobile business”. The team can complain about the underhanded nature of competitor moves if it wants, but situation is actually very simple; the industry changed, Reliance Communications didn’t, and now it is no longer competitive.

The only question which remains is what will happen to the remaining business and its small operations in the 4G space. With Bharti Airtel and Vodafone already picking away at the rotting remains of the Reliance Communications customer base, an acquisition from one of these vultures seems unlikely.

Or maybe the business will find more favour in the 4G world and continue to operate on its own? Reliance Communications has preached about a 4G-focused strategy which would optimize its spectrum portfolio, eliminating the loss-making aspects, but something needs to change. The business is not competing with the new Indian heavyweights, and the pressure of debt looks to be swelling.

Perhaps a family reunion is the most realistic chance Reliance Communications will continue to be, otherwise it will likely be a continued erosion to non-existence.