Europe backtracks on market consolidation opposition

The General Court of the European Court of Justice has annulled a decision made in 2016 to block the merger between O2 and Three in the UK, potentially opening the door for consolidation.

In 2016, Europe decided it was better for sustainable competition that the four operators in the UK remain independent, blocking the mega-merger between O2 and Three. This decision has set market precedent over the subsequent period, with the generally accepted rule that bureaucrats would not allow less than four independent mobile network operators in a single market. This ruling turns that presumption on its head.

“In our appeal, we argued that the Commission’s approach to reviewing the proposed merger, and European telecoms mergers more broadly, was guided by a misconceived default view that European telecoms markets are better served by having a minimum of four Mobile Network Operators in each EU Member State,” CK Hutchison, Three UK’s parent company, said in a statement.

“This approach ignores market realities, the clear evidence of successful market consolidation in Europe and across the world as well as the very significant efficiencies in terms of increased investment, network improvements and consumer benefits that can be achieved from mobile mergers.”

As soon as the decision from Europe was made to block the merger between Three and O2 was made, the agreement between the two parties was terminated. It will now always be a case of what could have been, as this decision will not reignite talks between the two parties.

“Telefónica notes the EU Court’s decision, but the company has moved on,” a Telefónica spokesperson said. “Telefónica recently announced a transaction that combines Virgin Media, the UK’s fastest broadband network, and O2, the country’s most reliable and admired mobile operator, into a 50:50 joint venture that will create a powerful fixed-mobile challenger in one of its core markets.”

As there will be no material impact on the proposed merger between Virgin Media and O2, which was announced in recent weeks, questions will now turn to more general market consolidation in Europe


How do you feel about market consolidation in Europe?

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Europe has always been against market consolidation if the result leads to less than four independent service providers in the mobile segment. If concessions are offered, like in the Netherlands for example, mergers would be allowed but this would result in a diluted version of what the merging parties would have wanted to achieve.

The ruling from the General Court changes everything.

In 2016, the European Commission considered the reduction from four to three service providers would have resulted in increased prices, decreased quality of service, hindered investment in infrastructure and would have had a detrimental impact on the MVNO segment also.

The ruling which has been made public today disputes the claim there would be negative impacts on competition. Negative experiences for the consumer has not been seen in other markets around the world where there has been consolidation, while there were several flaws during the assessment process. The original assessment also failed to demonstrate effectively that network infrastructure would be impacted also.

With the General Court annulling the decision to block the merger, it is effectively saying Europe would consider market consolidation should there be a good business case. This is a very interesting ruling and statement to make, as it is effectively a green flag to the industry. Could this spur the market’s imagination for consolidation?

What we learned about Dish during the earnings call

With Dish executives leading the company’s quarterly earnings call, details of the plan to crack into the US mobile market were revealed.

The next few years are critical for the US telecoms industry but also the credibility of the FCC and the Department of Justice. Both of these authorities dismissed opposition to the T-Mobile US and Sprint merger, ignoring suggestions it would damage competition. Dish was the reason competition could be maintained, irreversibly changing the US telecoms industry, so it better succeed.

Fortunately, the is being fairly transparent about developments, or certainly more so than most telecoms executives are. But what did we learn from CEO Erik Carlson and Chairman Charlie Ergen last week?

Firstly, $10 billion should be enough to build a nationwide network.

This is a figure which has been banded around quite a lot in recent months without any in-depth explanation, but Ergen believes $10 billion should be enough to meet FCC regulatory requirements and go beyond to create a nationwide network which can compete. There might be a few unforeseen expenditures, spectrum auctions for example, but the team is standing by this estimation.

While the Boost business has not been officially closed yet, the team should have launched in one market by the end of the year, with its own independent core but leaning on the T-Mobile access network. This MVNO agreement will be running for seven years, but the team have already begun talks with tower companies to push forward to create its own network.

What is worth noting is that this work is running independent of the assets which can be purchased from the new T-Mobile company. EVP of Corporate Development Tom Cullen highlighted that deployment planning has begun but once the Boost deal closes, Dish will also have first refusal to acquire cell sites from T-Mobile which are deemed surplus to requirements thanks to the network rationalisation process between T-Mobile US and Sprint.

Although this is detail which some might not have expected, there are still quite a few questions remaining. That said, there is absolute clarity on one area in particular.

“We also took a $356 million impairment charge during the quarter, related primarily to our narrowband IoT build and our satellites D1 and T1,” said CFO Paul Orben. “Now that the T-Mobile/Sprint merger has closed and there is more clarity surrounding our revised build-out requirements. We no longer intend to finish our narrowband IoT build.”

NB-IOT has been struggling to live up to the expectation in numerous markets and this will not help matters. Dish is officially turning its back on NB-IOT, choosing to take an impairment charge on FCC commitments and turn attentions to a 5G network instead of completing the project.

While this might not be the most encouraging of signs, the embracement of OpenRAN and Mavenir as the company’s first official supplier is.

“Marc [Marc Rouanne – Chief Network Officer] continues to work on the architecture and further vendor selection,” said Ergen. “So I would anticipate more of those announcements in the third quarter. And then we’ll share our deployment plans once those are formalized likely on the next call.”

The dynamic of network suppliers is an interesting one for Dish. Ergen highlighted there was a desire to use Huawei equipment, which he described as “best in class”, though the team is being asked to find innovation in new ways. We also found out there is an active dialogue between Dish and Japan’s Rakuten to learn about OpenRAN deployments in the wild.

This is an area many will be keeping a close eye on, not only for validation of a technology which is still not the real deal, but also vendor appointments. The scale of this network, and the aggressive deployment schedule, could force OpenRAN start-ups to grow very quickly. Dish could be a major catalyst for growth for the lucky few who are selected.

It is of course early days, but there are some very interesting developments to keep an eye on here. The team might have opened the door slightly, but there is still much left to discover.

Will the team be able to deploy a network for $10 billion? How will it build its wholesale business unit? When will network slicing begun to be factored in? Which OpenRAN suppliers will be added to the roster over the next few months? Which markets will the postpaid products be launched in first?

With the next earnings call scheduled for July 30, the next three months could offer some very interesting announcements.

O2 and Virgin Media are merging to form BT-busting connectivity giant

Telefónica and Liberty Global have confirmed plans to merge UK operations, O2 and Virgin Media, to challenge the connectivity market leader BT.

Since the end of the Supply Chain Review, the UK telecoms market has been relatively mundane, operating as one would largely expect, however this merger throws a cat amongst the pigeons. All of a sudden, the UK has become on the most interesting markets to watch, with the promise of a second convergence connectivity business to rival market leader BT.

“Combining O2’s number one mobile business with Virgin Media’s superfast broadband network and entertainment services will be a game-changer in the UK, at a time when demand for connectivity has never been greater or more critical,” said Telefónica CEO Jose Maria Alvarez-Pallete. “We are creating a strong competitor with significant scale and financial strength to invest in UK digital infrastructure and give millions of consumer, business and public sector customers more choice and value.”

“We couldn’t be more excited about this combination,” said Mike Fries, CEO of Liberty Global. “Virgin Media has redefined broadband and entertainment in the UK with lightning fast speeds and the most innovative video platform. And O2 is widely recognized as the most reliable and admired mobile operator in the UK, always putting the customer first. With Virgin Media and O2 together, the future of convergence is here today.”

Talks emerged earlier this week, though they certainly got to the official confirmation stage quicker than many were expecting.

As part of the agreement, a 50-50 joint venture will be created, with the promise to spend more than $10 billion on network development over the next five years. Synergies are expected to be as much as £6.2 billion, with 46 million subscribers, 15 million homes passed for broadband, 99% population coverage for mobile, 18,700 employees and £11 billion in revenue.

Full details on the deal can be found on a new website, proudly proclaiming the creation of a national digital champion.

This all sounds very promising, but when the merger is complete in mid-2021, which brand will survive?


What should a merged O2/Virgin Media company be called?

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“In the long run, we believe it would be better for the JV to retain the O2 brand at the expense of Virgin Media,” said Kester Mann of CCS Insight. “Both have a strong presence, but O2’s respected customer service, highly loyal customers and sponsorship of the O2 arena mean it is impossible to drop. A multi-brand approach serves only to duplicate costs and risks confusing customers.”

For convergence to work, there can only be one brand which survives. BT’s £12.5 billion of EE has arguably not paid off to date as the two brands still exist, effectively creating two separate business units inside the same group. There might be convergence benefits from an operational perspective, but to realise the gains from a customer and commercial angle, the businesses have to be fully consolidated and coherent.

BT has never really been able to take advantage of its assets. It has the largest mobile network, the largest broadband network, the largest public wifi footprint and the largest bank accounts to throw cash at content. Its inability to evolve into a convergence-defined business has opened the door for O2 and Virgin Media. But the question is whether the duo can learn from these mistakes.

Ultimately this is a major threat to the BT business, not because this is a combination which can potentially match the scale and depth of BT services, but these are also two currently healthy businesses which are coming together.

Financial Results for O2 and Virgin Media to March 31 (UK sterling (£), millions)
O2 Virgin Media
Total Year-on-year Total Year-on-year
Revenue 1,739 2.9% 1,266 -0.6%
Profit 516 2.4% 84 >1000%

Sources: Liberty Global Investor Relations and Telefonica Investor Relations

Usually, when mergers and acquisitions are discussed, one of the parties is a significantly stronger position than the other. It can still be good news, but there is plenty of work to do during the integration stages to ensure the new company is fighting fit. This is not the case with O2 and Virgin Media.

Virgin Media might have experienced a bit of a downturn over this three-month financial period, but this could likely be attributed to dampened customer acquisition amid the COVID-19 outbreak, while O2 has demonstrated year-on-year increases once again.

While these are healthy businesses right now, some might have suggested limited success in the convergence game would have caught up eventually. This is a very encouraging move forward, getting ahead of negative impacts, though a renewed assault on TV/content is needed. Neither, despite what Virgin Media claims, have done very well in this segment.

Current subscriber numbers for O2 and Virgin Media
Mobile Broadband Content
O2 35,266,217 29,085 *
Virgin Media 3,179,500 5,271,000 3,687,400

Source: Omdia World Information Series

*Too early to tell how successful the partnership with Disney+ to add a content element to O2 bundling has been

One area which should be allocated to the risk column, though it is a very minor risk, is the prospect of regulatory intervention.

“Unlike when O2 attempted to join forces with Three in 2015 but was blocked by the European Commission, I don’t expect there to be any major hurdles to this deal going through,” said Dan Howdle, consumer telecoms analyst at Cable.co.uk. “After all, with BT’s purchase of EE given the all-clear in 2016, it’s difficult to see how a case could be made to block it.”

These are both telecoms companies, but service overlap is minimal. Core competencies lie in different segments, and while there have been attempts to launch into parallels, success has been woeful. These are complementary companies with little material service overlap.

When considering whether competition authorities will be interested, you have to ask whether the merger would make single business units stronger or is the company stronger by association with parallel services. O2’s mobile business will not be enhanced materially by Virgin Media’s MVNO proposition, and Virgin Media will not benefit from O2 at all in the fixed connectivity game. There does not seem to be any case for objection on the grounds of competition.

Aside from the direct impact for both Virgin Media and O2, the rest of the market could be spurred into action.

“Vodafone UK appears the biggest loser as the deal lays bare its weak position in the market for converged services,” said CCS Insight’s Mann. “It also looks certain to scupper its virtual network partnership struck with Virgin Media in 2019. We think this deal will trigger a ripple effect on the UK market: Vodafone, Three, Sky and TalkTalk will all be assessing their positions and further deal-making can’t be ruled out.”

This is a challenge to the industry and will create a rival to BT in mobile, broadband, convergence and enterprise. However, it is also worth remembering the ‘also rans’.

Unless the ambitions of rivals are inspired by this threat, the prospect of a tiered connectivity industry could emerge, with those offering bundled services on top and the pureplay service providers on the bottom.

The UK has quickly become one of the worlds’ most interesting telecoms markets, thanks to the permutations which could be inspired by this merger.

Tier One Tier Two Tier Three
  • BT (mobile, broadband, content)
  • O2/Virgin Media (mobile, broadband)
  • Sky (content and broadband)
  • Vodafone (mobile and broadband)
  • TalkTalk (broadband)
  • Three (mobile)
  • MVNOs
  • Alt-nets

O2 completes full convergence U-turn amid Virgin Media merger talks

Two years ago, O2 CEO Mark Evans said he was not convinced by the idea of convergence, but as merger talks between O2 and Virgin Media swell, the telco has entered into moonwalking mode.

The negotiations between O2 parent company Telefónica and Virgin Media owner Liberty Global, which have been confirmed by Telefónica’s group corporate communications team, would being together two of the UK’s connectivity heavyweights, significantly shifting competition dynamics in the telecoms market.

“A deal between O2 and Virgin Media has much logic,” said Kester Mann of CCS Insight. “Notably, it would offer each side crucial assets it severely lacks: a mobile network for Virgin and a fixed-line arm for O2. Should it come to fruition, it would transform the UK telecoms industry and a create a giant converged provider to rival BT.”

As Mann highlights above, the merger of the two parties would certainly create a converged telco capable of challenging the market dominance of BT. For one reason or another, the convergence trend was passing these telcos by, but uniting powers is a very interesting move.

At Virgin Media, this is a team which attempted to make waves with bundled service offering, but never really cracked the equation. The TV element was always a bit weak, while not owning its own mobile network was always going to put it a step behind the main players.

Current subscriber numbers for O2 and Virgin Media
Mobile Broadband Content
O2 35,266,217 29,085 *
Virgin Media 3,179,500 5,271,000 3,687,400

Source: Omdia World Information Series

*Too early to tell how successful the partnership with Disney+ to add a content element to O2 bundling has been

At O2, the executive team always made a point that the telco was a mobile connectivity business and it would not get distracted by side-missions into content or broadband. This stubborn position has of course been watered down over the last year or two, and now it appears Telefónica is embracing the convergence trend without prejudice.

To date these are companies who have been successful focusing on core competencies, but the world is of course changing, with the risks to pureplay telcos very noticeable.

“Neither company is immune to the driving need for a converged network and services,” said Paolo Pescatore of PPF Foresight.

“This is the next battle ground in the UK. Virgin Media has been one of the pioneers in this area but has been let down without a mobile network, late to market in 4G and a struggling TV business. Whereas O2’s sole focus on mobile and championing consumers will run out of steam at some point.”

What is of course worth noting is that this is a deal which is far from complete. Firstly, the duo would have to agree on a price, secondly, existing partnerships would have to be unwound, one of the brands would have to be folded into the other and finally, regulatory approval would have to be sought.

Both of these UK telcos are successful components of international corporations. Group level executives would want to ensure there the business benefits suitably financially, while also maintain a high enough stake in the merged business moving forward. This could prove to be a prickly point during the negotiations.

In terms of the existing partnerships, Virgin Media signed a very prominent MVNO agreement with Vodafone in recent months, while O2 offers MVNO services to Sky. These deals would likely have to be examined during the negotiation periods to ensure a merged party does not offer to much assistance to rivals.

Although O2 and Virgin Media are successful brands in their own right, one would have to give way to the other. BT and EE co-exist in the same group function, but the full benefits of convergence cannot be realised with two distinct brands. The teams would have to figure out which brand survives, and which one dies.

Finally, regulation. This has been an irritation for UK telcos in recent years as European authorities seem very dismissive of consolidation demands from the industry. As service overlap between O2 and Virgin Media is minimal, we suspect this will not be too much of an issue, though the likes of BT, Vodafone, Sky and Three will likely kick up a stink as the merged entity is a threatening prospect.

Should all the pieces fall into place, this is a move which could benefit both parties considerably. O2 would gain more access to fibre assets, Virgin Media to mobile infrastructure and both would be able to offer a broader portfolio of services.

Convergence is a business model which offers considerable gains in terms of customer loyalty, operational efficiencies, net promoter score, average revenue per user and momentum in diversification ventures. However, the barriers to entry are high, time consuming and very expensive. This is far from a finished deal, but it would create a much more competitive force and a potential catalyst for disruption in the UK market.

New T-Mobile company has already opened itself up to a lawsuit

The newly merged T-Mobile company has barely seen daylight, but it has already irritated one regulator enough that the risk of a lawsuit hovers on the horizon.

As T-Mobile proclaimed the beginning of a new era, the California Public Utility Commission (CPUC) issued an order to the management team. The order stated T-Mobile and Sprint could not merge their operations until the CPUC had officially greenlit the transaction on April 16. This would appear to be little more than a bureaucratic tick-box exercise, as a local judge recently recommended the CPUC approve the deal.

However, in announcing the completion of the deal and beginning the integration process under new CEO Mike Sievert, the new T-Mobile team seemingly believes this procedure is not worth waiting for. Or, it implies the approval is not necessary.

The order from the CPUS states:

Public Utilities Code Section 854(a) states in relevant part that “[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control … either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the commission.” Both Joint Applicants, T-Mobile and Sprint, have California subsidiaries that are public utility telephone corporations under state law, and subject to the jurisdiction of this agency. The merger of the companies’ operations in California is therefore subject to CPUC approval. Accordingly, Joint Applicants shall not begin merger of their California operations until after the CPUC issues a final decision on the pending applications.

In short, do not complete the merger without our approval.

As with all corporate announcements, the new release proclaiming the completion of the T-Mobile US and Sprint merger came with fine print detailing the risks which might cause plans to alter. The below extract is an interesting one:

…the risk of litigation or regulatory actions, including litigation or actions that may arise from T-Mobile’s consummation of the business combination during the pendency of the California Public Utility Commission’s review of the business combination

T-Mobile is effectively admitting to investors and analysts there is a risk it will be taken to court by the State of California and its regulatory authorities.

Ultimately, this is another version of the State versus Central Government saga which has plagued US bureaucracy for centuries. The State Governments retain the right to create localised legislation and regulation, though how this position overlaps with Federal Government rules has always been a point of contention.

In a separate filing made by T-Mobile, its lawyers believe the CPUC is overstepping its jurisdiction.

…The PD [proposed deal] erroneously asserts that the Commission has the authority to “approve the Merger” and impose conditions as a prerequisite to granting such approval. Both assertions conflict with federal law and the Commission’s own precedent.

In other words, the regulator does not have the power to submit additional requirements on T-Mobile in order to gain approval. This could have a significant impact on the way T-Mobile operates over the coming years.

One of the reasons the merger took so long to be greenlit was opposition from State Attorney Generals. Led by New York Attorney General Letitia James, a joint lawsuit was filed opposing the deal. To appease these objections, T-Mobile and Sprint made numerous commitments to the States, though this latest filing might be considered a way for T-Mobile to back out of these promises.

The ‘Proposed Deal’, as it is referred to in the legal document, includes almost 50 commitments which T-Mobile has made to the State of California ranging from data tariffs, 5G deployments and broadband. However, the lawyers are requesting the courts offer them grounds to change the ‘Proposed Deal’ which could have an impact on the commitments made to the court.

If it is accepted that the CPUC does not have the jurisdiction to make demands in exchange for the deal being approved, considering Federal approval has already been granted, it could offer an opportunity for T-Mobile to reshape the commitments it has made across the country. In the legal world, precedent is everything.

The two-year wait for the T-Mobile/Sprint merger is finally over

653 days ago, T-Mobile US and Sprint formally submitted the paperwork to the Federal Communications Commission (FCC) for a $26 billion merger, and today it is officially complete.

As of April 1, 2020, the merged business unit will now trade on the NASDAQ Global Select Market under the symbol ‘TMUS’, officially bringing an end to Sprint as a corporation. This has been a drawn-out and very expensive period for the two firms, but the management teams can finally relax.

And for the energetic, erratic and eccentric John Legere, the days over leading the Magenta Army into battle have also drawn to a close.

Mike Sievert, the new CEO of the combined company, might not have the energy or flair Legere possesses, but perhaps that is a good thing for the next few months. Over the last few years, T-Mobile US perhaps needed a flamboyant CEO to mount a challenge to the leadership position of AT&T and Verizon, but the immediate future for this firm requires a different type of manager.

Now the legal and regulatory hurdles have been negotiated, the new business will need a logical, pragmatic and steady hand to lead integration efforts. Perhaps this is what Sievert is? Having been Legere’s first hire, maybe he was the yin to yang, the balance to the madness which the wild-eyed John brought to the firm.

“During this extraordinary time, it has become abundantly clear how vital a strong and reliable network is to the world we live in,” said Sievert. “The New T-Mobile’s commitment to delivering a transformative broad and deep nationwide 5G network is more important and more needed than ever and what we are building is mission-critical for consumers.

“With this powerful network, the New T-Mobile will deliver real choice and value to wireless and home broadband customers and double down on all the things customers have always loved about the Un-carrier. T-Mobile has been changing wireless for good — and now we are going to do it on a whole new level.”

With today (April 1) being the first day of operations under the new cloud of expectation, T-Mobile has to deliver on the promises it has been making. This is the challenge which Sievert will face.

Firstly, the integration of the two businesses is no small feat. Secondly, the aggressive 5G rollout has to continue. And finally, the promises made to the various different regulators and Attorney Generals will have to be honoured. And perhaps above all else, business value will have to be demonstrated to investors otherwise heads will roll.

And what do we have to look forward to over the next couple of years:

  • The promise of a network which will have 14X more capacity than T-Mobile could deliver alone. The new company has set a six-year timeline to meet this milestone
  • Within six years, the team promises download speeds which are 15X faster than what can be delivered today
  • Also within the six-year window, 100 Mbps 5G download speeds will be available to 90% of the US population, while 5G will be available to 99% of the population
  • $40 billion will be invested into the network
  • The deal has promised to unlock at least $43 billion in synergies for all shareholders
  • Create 1,000 jobs in a customer service centre in Kingsburg, California
  • Create 1,000 jobs in Rochester, New York
  • Open 600 new retail stores across the country

Some of these commitments will have been made to ensure the lawyers stop being a nuisance blocking the completion of the transaction, but now it is over to Sievert who has the unenviable job of delivering on promises made by wild-eyed Legere.

Vodafone’s M&A team has a very positive day

The towers transaction in between Telecom Italia and Vodafone has negotiated all the regulatory hurdles, while the Vodafone and TPG merger down under has gotten the US greenlight.

Starting in Italy, the merger between INWIT, Telecom Italia’s tower business, and Vodafone Towers has been approved, and the deed of merger will be effective as of 31 March 2020. The combined tower business will add significant benefits for the development of new 5G networks for both telcos, while the overarching European Vodafone business will receive 360,200,000 shares in the INWIT company.

As a result of the merger, both Vodafone Europe and Telecom Italia will have a 37.5% stake, though the efficiencies which can be realised in developing new network infrastructure in Italy will benefit both parties substantially. A new passive infrastructure sharing agreement will be in-effect once the merger has been completed at the end of the month.

Down in Australia, the Vodafone business has also received regulatory approvals from the from the Committee on Foreign Investment in the United States (CFIUS) and the United States Federal Communications Commission (FCC), to merge with TPG in a deal valued at AUS$15 billion.

“Our teams are prioritising support for our customers through the impacts of COVID-19, but we remain focused on progressing the merger,” said Iñaki Berroeta, CEO of the Australian business unit. “This unprecedented situation highlights the need for strong and resilient telecommunications companies to provide the services that Australians rely on.”

After a prolonged, and successful, legal battle with the Australian Competition and Consumer Commission (ACCC) who opposed the merger on the grounds of decreased competition in both mobile and broadband, it might sound unusual the team had to seek approval from US authorities.

Thanks to a TPG-owned submarine cable between Sydney and Guam, a US territory, the team was compelled to seek permission to merge from US authorities, though this was a much painless process than the 10-month legal battle with the ACCC. Everything might seem like downhill momentum in comparison now.

California gives up opposition to T-Mobile US and Sprint merger

The final hurdle the long and arduous merger proceedings for T-Mobile US and Sprint has finally been overcome, 1 year, 8 months, 3 weeks and 3 days after it was first announced.

California Attorney General Xavier Becerra has announced a settlement with the two firms, and also said the legal fees of all the States would be covered by T-Mobile US. Alongside Becerra, a California judge has also recommended the state’s Public Utilities Commission (CPUC) approve the deal. California has only been delaying the inevitable over the last few weeks, but the stubborn stance from the Attorney General has at least ensured at least some benefits for the State of California.

“Our coalition vigorously challenged the T-Mobile/Sprint telecom merger over concerns that it would thwart competition and leave consumers with higher prices,” Becerra said.

“We took our case to court to ensure that, no matter its outcome, we’d protect innovation and fair prices. Though the district court approved the merger, its decision also made clear to companies that local markets matter in assessing the competitive impact of a merger and that no one should underestimate the role of state enforcers.

“Most importantly, today’s settlement locks in new jobs and protections for vulnerable consumers, and it extends access to telecom services for our most underserved and rural communities.”

As part of the deal, the new T-Mobile company will:

  • Offer guaranteed data tariffs for a period of at least five years. 2 GB a month deals can be bought for $15, while 5 GB will be $25
  • Any deal which was bought prior to February 2019 will also be guaranteed for an additional two-year period
  • Certain low-income homes, nationwide, will be offered 100 GB of no-cost broadband internet service per year for five years or a free mobile wifi hotspot device
  • Create 1,000 jobs in a customer service centre in Kingsburg
  • Guarantee the number of jobs in California for the newly merged company will be the same in three years as is it today

California does certainly benefit from the Becerra opposition, but the Attorney General has also negotiated a $15 million purse which will be split between the coalition of State Attorney General’s who opposed the deal to pay for legal costs.

After all the legal battles, the T-Mobile US and Sprint merger can now be completed, though it does remain to be seen whether this ultimately is of benefit to the consumer. Critics have suggested the US courts have favoured competition to AT&T and Verizon from T-Mobile US over increased wireless competition for the consumer, though this is under the assumption that the Dish proposition will fail.

With Dish entering the fray as the fourth nationwide player, there is a beacon of hope for sustained competition, though it will certainly face an uphill battle. The service will run as a MVNO on the T-Mobile network for a seven-year period, though whether this is enough time remains to be seen. Its competition has been fine-tuning network deployment for decades, and still hasn’t perfected the art or blanketed the US in its entirety.

We are still trying to figure out the logic of how Dish can be an appropriate substitute for Sprint. Either, the courts have immense faith in the business, zero confidence in Sprint or simply believes three stronger players is better than four.

New York ends resistance to T-Mobile/Sprint merger

New York Attorney General Letitia James has announced her office will not pursue an appeal against the courts decision to approve the $26 billion T-Mobile US and Sprint merger.

While the other states involved in the lawsuit to prevent the combination of the two telcos are yet to formally make their position public, James was the primary driving force behind the legal opposition. Others might try to step up, but without one of the US’ fastest growing political forces at the helm, responses look relatively pitiful.

“After a thorough analysis, New York has decided not to move forward with an appeal in this case. Instead, we hope to work with all the parties to ensure that consumers get the best pricing and service possible, that networks are built out throughout our state, and that good-paying jobs are created here in New York.

“We are gratified that this process has yielded commitments from T-Mobile to create jobs in Rochester and engage in robust national diversity initiatives that will connect our communities with good jobs and technology. We are committed to continuing to fight for affordability and access for all of New York’s mobile customers.”

James’ opposition to the $26 billion merger first emerged in June 2019 when, alongside California Attorney General Xavier Becerra, support was raised for a multi-state lawsuit against the corporate transaction. James managed to convince 12 State Attorney Generals to oppose the deal, questioning whether it would be beneficial for the consumer and attempting to disprove that Dish would not be adequate as a fourth mobile operator.

In a 173-page opinion, Judge Victor Marrero effectively said the merger was a good idea as Sprint was not worthy of being called competition. The combined entity would be a much better representative, while Marrero believed Dish plans to scale rapidly were viable, even if few others do. His ruling effectively killed the resistance to the merger.

Although some will be disappointed the lawyers are giving up the fight, it might simply be a case of looking at the bigger picture. James has pointed to job creation promises in her state, though now the attention will turn to ensure these jobs are actually created. Back in October, Colorado and Mississippi both did the same; the legal opposition was dropped as agreements were forged with T-Mobile US and Dish to offer benefits to the states.

While there will be some benefits to the transaction, it is impossible to avoid the negatives. T-Mobile US and Sprint will be able to realise efficiencies to better compete with AT&T and Verizon, while Dish will offer more jobs. However, there will be a rationalisation project after the transaction leading to job losses in shared business functions (finance, legal etc.) and also in areas where the retail footprint overlaps. Redundancies are unavoidable.

The question which remains is who will get the best slice of the benefits?

Colorado agreed to drop the lawsuit against the merger if Dish was to create 2,000 jobs in the statey and will also keep its corporate HQ in the city of Littleton for at least seven years. The Attorney General has also negotiated an accelerated 5G deployment timeline with T-Mobile US in exchange. Over in Mississippi, former-Attorney General Jim Hood also negotiated an accelerated 5G deployment plan and also a ceiling on tariffs for consumers for a five-year period.

These were the only two states to drop out prior to the conclusion of the lawsuit, though now the lobbying for attention can begin as T-Mobile/Sprint and Dish are wooed by each of the states for their own benefit. James has said the deal offers new jobs to citizens in Rochester, New York, though with other states considering more legal action, T-Mobile US and Dish might have to hit the negotiating table elsewhere.

In California, Attorney General Becerra is considering his options, while Ken Paxton, the Attorney General for Texas, has not stated whether he will pursue an appeal to the decision. These might not be the catalyst for opposition that Letitia James is, but they will certainly be able to cause a problem. T-Mobile US, Sprint and Dish executives want this deal done, are will probably be willing to negotiate some attractive deals.

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.