A new non-profit organization called ‘Protect America’s Wireless’ has emerged, seemingly with the sole objective of hurling spanners at the T-Mobile US and Sprint merger.
Details on the group are relatively thin at the moment, it was only founded last month, though a press call introducing the group and its mission statement on the website both seem to give the same message; the T-Mobile US and Sprint merger will be bad for the national security of the US.
“We must protect our networks from foreign spying,” the team announces on the websites homepage. “Our greatest concern is the pending Sprint T-Mobile merger, which could give countries like Saudi Arabia, China, Germany, and Japan direct access to our networks through the use of foreign-made networking equipment and billions of foreign money. We call on President Trump, Congress, and the FCC to protect American national security by denying these foreign interests access to America’s wireless communications.”
We must protect our networks from foreign spying. There are real national security and foreign policy implications that should be explored about the proposed merger of Sprint and T-Mobile.
On the press call, David Wade, Founder of Greenlight Strategies, suggested a merger of the two telcos would open up the US to a Chinese ecosystem, while also suggesting any business working closely with Chinese vendors would effectively handover data to the Chinese government. While it is true Sprint owner Softbank has collaborated closely with Huawei and ZTE in the 5G R&D journey, this seems to be taking the conspiracy theory up another level. Deutsche Telekom, parent company of T-Mobile US, also has ties to Chinese vendors, but there aren’t many telcos who don’t.
The theory here is a merger between the two telcos would be bad for national security, effectively handing China a key to the backdoor. There have certainly been objections from a competition perspective, but this is the first we’ve seen with this angle. It’s difficult not to be suspicious about who the puppet master actually is.
Interestingly enough, the group has declined to discuss where funding is emerging from. As a 501c4 non-profit, the team do not have to disclose funding or ownership details, though they are permitted to attempt to influence politics as long as it isn’t their main area of focus. While the groups attempt to tackle US security is a thinly veiled attempt to demonstrate ‘social welfare’, as long as the group isn’t spending more than half of its funds on political-related activities, it can continue to operate half-hidden by shadows.
Finding out who is funding this organization is key to figure out what the angle is and whether this is yet another example of propaganda, though it is not necessarily a simple task. 501c4 non-profits have to complete a Form 990 for the IRS, on which any donations above $5,000 have to be disclosed. Unfortunately, due to the efficiency of the IRS, there is usually a 12-18 month lag on this information being made publicly available.
Until the influencers and donors of this group have been identified, this could be a very dangerous source of misinformation. Statements being made might very well be true, but without transparency it would be safe to be suspicious.
Perhaps realising the gravity of the situation, the FCC has drafted in outside help to assess the impact of the T-Mobile-Sprint merger on the US economy.
David Sibley will help the team as an outside consultant reporting into David Lawrence, who is leading the merger taskforce. This should not be seen as an unusual move from the FCC, though perhaps such external opinions should have been brought in earlier considering the impact this merger will have on the telco landscape and competition.
“We are fortunate that Professor Sibley is bringing his considerable economic experience and expertise to bear in this review,” said FCC Chairman Ajit Pai. “Rigorous economic analysis plays an important role in all of the Commission’s work and will be essential to a thorough investigation into whether approval of this transaction would be in the public interest.”
This is the big question. The merger will bring the number of national telcos down from four to three, but is this a good or bad move. There are arguments on both sides.
The bad side of the argument is a simple one. Removing one of the major telcos from the ecosystem will reduce competition and hurt the consumer through higher pricing due to a lack of choice. This is not a complicated point to make and a genuine concern, especially in a country like the US which where telcos do not operate everywhere. The risk of monopolies or duopolies in certain areas increases.
On the positive side, while the number of massive telcos decreases, competition increases as the merged entity would offer a more valid threat to AT&T and Verizon through the combined scale. T-Mobile US CEO John Legere often refers to AT&T and Verizon as the duopoly, and while this is an exaggeration, they are miles ahead of T-Mobile and Sprint in third and fourth place. T-Mobile and Sprint are not at the right scale to compete with the leaders individually, but together the merged organization would offer greater scale. The theory here is reducing competitors would make the market more competitive, therefore better for the consumer.
This is the conundrum which the FCC needs to decide on. Evidence and experts will be aplenty on both sides of the argument, though Sibley certainly adds some expertise to the team.
Sibley is currently the John Michael Stuart Centennial Professor of Economics at the University of Texas at Austin. Prior this role, Sibley worked Head of the Economics Research Group at Bell Communications Research, as well as the Deputy Assistant Attorney General for Economic Analysis in the Antitrust Division of the US Department of Justice. He also represented the US in OECD discussions.
As it stands, the merger shot clock is currently on pause, with the FCC deciding it does not want to be rushed. The approval or rejection of mergers and acquisitions are targeted to be completed within a 180-day window, though the FCC is offered the luxury of taking longer if it is a particularly complicated case. This is proving to be one, with the FCC requesting input from competitors of the pair recently, most notably from players outside the mobile ecosystem, suggesting it is investigating the impact on such segments as broadband.
In a move which perhaps indicates the Sprint/T-Mobile team is starting to get nervous, Sprint CEO Michel Combes is rousing employee support for the very merger which could potentially make them redundant.
On Friday 5 October, Combes is inviting as many employees as possible to a special edition Town Hall which will feature John Legere and Mike Sievert, who will take over as CEO and COO of the combined company should the merger be given the go-ahead. The attendees will be able to ask questions and air their grievances, with perhaps a couple of brave souls condemning the merger due to the number of jobs it will sacrifice to the gods of profit making.
“Speaking of, it was five months ago when Sprint and T-Mobile announced our intentions to merge,” said Combes in the email, which was later filed with the SEC. “Since then, you’ve heard from me and Marcelo – along with much commentary in the media – about why this is such a good deal. Together we can build the best network across the U.S., including rural areas – and establish global leadership in 5G; offer unprecedented products and services at lower prices for consumers and businesses; and create thousands of jobs.”
How many jobs accountant Combes and his psychotic-eyed colleagues can create is questionable, though what is almost certain is redundancies. There will be cross-over when it comes to internal service departments (such as HR and IT) but the majority will most likely come from the retail side of the business, those in the field interacting with customers. In many cities across the US there will be areas which both a T-Mobile and Sprint presence; these will have to be rationalised.
But perhaps this is where Combes is playing his masterstroke. Those who can attend the meeting will be those who work at the HQ in Kansas, these people are less likely to be at risk from redundancies. Combes can have photographers and camera men capturing the happy faces at the event, while the people who are genuinely under threat can’t afford to fly out to Kansas with a weeks’ notice, or have work in the retail stores all around the country. Combes is essentially herding all the happy people together, while the ones who actually have something to object about are left in the cold, voiceless.
Perhaps Combes should be congratulated on his ability to present the concept of democracy while simultaneously silencing any objections through absence.
Maybe this is an indication the team aren’t getting the support they believe is necessary to force the hand of watchdogs approving the deal? The FCC has hit pause on the 180-day shot clock to approve the deal, not necessarily a good sign, industry groups have slammed the merger, customers offered a mixed-bag of feedback and as far as we can tell, Legere’s plea for support from the MVNOs of the US only brought about one proclamation. Asking employees for their approval is certainly risky, there is as much an opportunity for negative feedback as there is for the managers to be strong-armed into shallow, PR-riddled statements.
Despite seeing a few nerves between the lines, the team has hired an integration team, T-Mobile hired Sunit Patel to lead their merger and integration strategy while Kevin Crull leads efforts at Sprint. Vonya McCann and the Government Affairs team are working hard in the lobby front in Washington, while numerous executives from T-Mobile, Softbank and Sprint will be lending their weight to the effort.
Guessing which way the FCC is going to lean on this deal is almost 50/50 according to many of the people which we have spoken to, but with this move perhaps the mood in the merger camp isn’t as positive as some would let on.
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…
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.
Back in 2016, Qualcomm just wanted to buy NXP in the continued quest for self-improvement, unfortunately the business has become one of the rarely moving pawns in the prolonged chess game between the US and China.
It was reported by several news outlets last week the deal had been approved, only to be shot down by Chinese authorities almost immediately afterwards, and for Qualcomm to extend the offering period of its previously announced cash tender offer to purchase all of the outstanding common shares to June 22. Just as there seems to be some promise for the Qualcomm team, the tides of war seem to draw in.
Underlying tensions between the US and China seems to be a common trend throughout the saga, as the deal increasingly looks like a bargaining chip in in rising tensions between the two nations. With only Chinese regulatory authorities left to green-light the deal, the Qualcomm management team will be nervously looking onto the horizon as the world waits for Chinese retaliation to US tariffs.
The last few weeks had seen the uncomfortable stance between the two nations ease slightly, perhaps due to President Trump’s apparent desire to save ZTE, but all the good work looks to be for nothing following the confirmation of $50 billion in tariffs on Chinese goods entering the US. China has promised a retaliation to the move, though when this will actually be remains to be seen.
This is the unfortunate position Qualcomm finds itself in. A company which can play a dominant role in the connected economy, but with fortunes in the M&A game perhaps reliant on a mature discussion between stubborn politicians. We fear for the Qualcomm ambitions.
The love affair between T-Mobile US and Sprint will be taken to a new level as the pair finally agree terms on a $26 billion merger.
A combined business would have 120 million subscriptions, in comparison to the 144 million and 160 million at AT&T and Verizon respectively, the ability to invest at scale and more efficiently, as well as a catalogue of spectrum readying the organization for a 5G assault. T-Mobile US has been making waves as it chases down the AT&T and Verizon lead in the wireless market, though this merger would add momentum to the crusade.
The $26 billion all-stock deal, which will be viewed with a great deal of scepticism by regulators, will see John Legere become CEO of the combined company, known as T-Mobile, and Mike Sievert, current COO of T-Mobile, serving as President and COO. Tim Höttges, current T-Mobile US Chairman of the Board, will serve as Chairman of the Board for the new company, while Masayoshi Son, SoftBank CEO, and Marcelo Claure, Sprint CEO, will also serve on the board. T-Mobile has certainly gained the upper-hand when it comes to management.
“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience – and do it all so much faster than either company could on its own,” said Legere. “As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf.”
The creation of a new, combined company promises faster rollout of 5G, increased competition, expansion into rural communities and to fuel US ambitions to dominate the next era of the digital economy. There are plenty of claims, some of which will certainly be nothing more than PR quips, but should it clear regulators the communications environment in the US will be a new beast.
The end of telco’s longest running soap opera
This announcement ends a will they/won’t they storyline which has been going on for years. Rumours of the pair finally getting together were becoming as common as rain in London, so those who dismissed last week’s reports should be forgiven.
2014 was the beginning of the saga, but at this point it was Sprint looking to acquire T-Mobile US. Deutsche Telekom had been mulling over an exit from the US market, where the brand was lagging light-years behind the AT&T and Verizon leaders. How things have changed.
When the two companies were sat around the negotiating table last year, discussions fell apart as there was no agreement over who would have the controlling voice in the boardroom. As reports emerged last week, claiming a deal would be finalised in the coming days, we were sceptical. There are a lot of egos sitting around this table.
Softbank CEO Masayoshi Son, who controls 84.7% of Sprint, is not a man who likes to sit in the backseat. Neither are the top-guns over at T-Mobile US. To move this deal forward, it does seem Son has conceded his position, allowing executives at T-Mobile US to have the biggest offices in the combined organization.
We are not surprised this conclusion was reached, but we surprised at the speed. Son might be an influential and powerful businessman in the telco space, but in this relationship T-Mobile/Deutsche Telekom had the better hand. T-Mobile US has more subscribers than Sprint, momentum and future prospects are better with the magenta army, while Deutsche Telekom will hold a greater share of the newly formed company. There should be little surprise T-Mobile executives are the bosses.
Before anyone gets too exciting about the tie-up, it is worth bearing mind US regulators might have a couple of comments. Both the FCC and the US Department of Justice will have to greenlight the deal. AT&T’s attempted acquisition of T-Mobile in 2011 was called off after opposition from regulators, as were initial discussions between T-Mobile and Sprint in 2014.
“The main issue with this deal will be regulatory and if US competition authorities are prepared to allow the market to consolidate from four to three national operators,” said Gabriel Brown, Principle Analyst at Heavy Reading.
“Consolidation is probably good for operators, with a small risk they become complacent through lack of competition, but the calculation for consumers is harder to make. Affordable mobile connectivity is important to the wider online economy, and prices are generally driven lower, or at least kept in check, by competition. On the other hand, profitable operators are more able to invest in new technology and new networks, and therefore offer better services – the combined entity would be better placed to invest and compete in 5G, for example.
“Certainly there are technical and execution risks to the proposed integration, and valuation questions, but this is fundamentally about competition policy. It is a gamble on the regulatory environment in the US. To pursue this deal and then have it fall apart later will be negative for both T-Mobile and Sprint.”
Targeting troublesome Trump’s trump cards?
One common theme throughout the below video from Legere and Claure was indirectly addressing President Donald Trump. While the Commander-in-Chief has not passed comment on the deal just yet, he has shown himself to be proactive when it comes to major M&A.
Legere and Claure have seemingly tried to combat this offensive before it has any chance to gain momentum. The plan seems to be to align the merger with Trump’s interests and objectives.
Firstly, the pair spoke extensively about supporting rural communities throughout the US, many of whom are underserved by the status quo. Offering increased competition and better service to these communities, many of which are located in Trump-supporting states, would certainly gain favour in the White House.
Secondly, investment. This is a promise which has been loud and proud during the Trump administration, with promises to deliver new opportunities and jobs to the US people. Claure spoke of $40 billion investment over the coming years in delivering 5G connectivity, as well as the creation of thousands of jobs. Mergers guarantee redundancies, though the promise here is aggressive expansion plans through combined assets will create a bigger workforce possible than if the two organizations remained separate.
The promise of new jobs, in call centres for example or in new stores to fuel the rural expansion, might also address some of the concerns from regulators. In most mergers, jobs are reduced as there is natural overlap. Job creation is certainly a bold promise, though if the claims can be backed up, it might go some way to smoothing the approval path.
The final area is China. The Trump administration has been highly combative when it comes to addressing the Chinese threat to the US economy on the whole, and Silicon Valley’s strangle hold on the global technology industry. The message here is simple; only a combined T-Mobile/Sprint can deliver the 5G foundations necessarily for the US to retain its lofty position at the top of the global economy.
Beating China to the 5G punch
“Only the new T-Mobile will have the network and spectrum capacity to quickly create a broad and deep 5G network in the first few years of the 5G innovation cycle, the years that will determine if Americans lead or follow in the 5G digital economy,” said Legere. “Listen, only T-Mobile and Sprint can do this together.”
US dominance in the technology and business world can be pinned to a number of different factors, though Legere and Claure believe the country’s early actions in the 4G world was a major contributing factor maintaining this position. For the US to continue at the top, taking a leadership position during the early days of 5G is crucial.
The newly formed company will have access to the 2.5 GHz spectrum currently owned by Sprint, as well as T-Mobile’s 600 MHz hording and other assets. This combination is what the team believe is the best opportunity to scale and deliver 5G nationwide in the shortest period of time. Legere claims the mmWave spectrum at AT&T and Verizon is wholly unacceptable for 5G (due to its short range), estimating the total cost of delivering nationwide connectivity at $1.5 trillion. If these figures are anywhere near accurate, AT&T and Verizon might well struggle to keep up.
Compared to T-Mobile’s network today, the combined company’s network is claimed to be able to deliver 15x faster speeds on average nationwide by 2024, with speeds up to 100x faster than early 4G. The message here is relatively simple; no company standing alone can create a nationwide 5G network. T-Mobile and Sprint are justifying the acquisition by claiming nationwide 5G is impossible without the tie-up.
Expect a race to the bottom to start
T-Mobile has been offering lower tariffs and all-you-can-eat data plans for some time, while Sprint has been aggressively targeting new customers with lower prices in recent months. We would expect these trends to continue, with the acquisition fuelling a race to the bottom.
Customers will be happy with challenge to the status quo, though this could strain the spreadsheets at AT&T and Verizon. A more coherent convergence strategy is likely to be on the agenda before too long, perhaps the next Uncarrier offer, while the press release promises more ‘affordable’ connectivity solutions. Consumers will reap the benefits first and foremost, though government wireless contracts are in the sights as well.
In the video, Legere highlights Verizon and AT&T will have 4x the number of contracts with government and local authorities than the newly formed organisation. This is clearly one of the areas the team anticipate growth.
Will this improve prospects for Sprint customers?
While T-Mobile US customers are pretty happy on the whole, the same cannot be said for Sprint’s. Numerous customers have been quite vocal about the poor performance of the network, as well as sub-standard customer service, and while there have been improvements from the telco over recent months, some might be happy about the positive influence of T-Mobile.
As you can see from the tweets below, some customers hate Sprint, some are confused and some are excited by the prospect of the acquisition.
This is perhaps one of the reasons the T-Mobile brand will be maintained under the new business, and why T-Mobile executives are getting the best offices; it is the better performing of the two right now. Maybe this is just what the Sprint business needs; a break from the past, draw a line and move on.
Rumours surrounding the will they/won’t they tie up between T-Mobile US and Sprint have started swirling again, with some claiming the deal could be done as early as next week.
According to Reuters, sources have stated talks are progressing steadily with a potential deal on the cards for next week. There is no certainty of a deal as egos clash over voting rights and control of the board room, but it does look like the inevitable merger between T-Mobile US and Sprint could finally happen.
A combined business could certainly offer new headaches for market leaders AT&T and Verizon, who have been struggling to deal with the momentum of T-Mobile and the magenta army already. Bringing the two businesses together would herd together more than 120 million subscriptions, in comparison to the 144 million and 160 million at AT&T and Verizon respectively.
Of course, any deal would be reliant on the two parties being able to decide who is in charge. The latest attempt to merge stalled in November, with neither party being able to agree who would have the dominant position in the board room of the combined entity. While T-Mobile has a larger market share as it stands, and all the momentum, Masayoshi Son, CEO of Softbank which owns 84.7% of Sprint, is certainly not a man used to taking the backseat.
There are of course numerous, very attractive reasons for the two to tie up. Whether it comes to more efficient investment strategies, scale or a shot in the arm for subscription numbers, the market is clearly hopeful of a deal as well. T-Mobile share price is up almost 3% in afterhours trading, while Sprint has seen a 7% jump. There is a sense of inevitability around the merger, but we wish they would just get on with 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.