New York Attorney General Barbara Underwood could prove to be another hurdle for T-Mobile and Sprint to overcome in their headache-inducing merger.
The problem for the pair is there seem to be a lot more objections surrounding the tie-up than there has been support. After T-Mobile CEO John Legere seemingly got little response from his appeal to MVNOs to support the transaction, the wild-eyed leader has opened up to opinions from staff; a dangerous move considering some would certainly be under threat of redundancy.
Perhaps what the duo didn’t need are objections from the New York Attorney General Office over fears the consumer might get screwed. According to the New York Post, the objection is relatively simple. T-Mobile runs a prepaid service called MetroPCS, while Sprint has Boost and Virgin Mobile. Bringing all three into the same business could lead to one or more being scrapped, reducing competition. Secondly, all three are incredibly aggressive on pricing, but again, bringing all three into the same business could end this trend of undercutting, and an increase in price. The New Yorkers are concerned tariffs could become too expensive for some.
While objections from a few lawyers might not be the worst thing in the world for T-Mobile and Sprint, it seems there is a queue forming. In fact, the FCC released a notice last week which stated the Attorney General Offices of Alabama, Connecticut, Florida, Hawaii, Mississippi, Tennessee, Virginia, Washington, Wisconsin and the District of Columbia have all requested information to assist their own investigations into the merger. The lawyers are lurking, and the more who gather around the fire, the less pleasing the situation appears for T-Mobile and Sprint.
This of course might mean nothing. All major parties in the US are perfectly entitled to do their own due diligence surrounding the deal as transitioning from a market with four major telcos down to three is a massive move. Considering there will be regions across the country where this transaction effectively creates a communications monopoly, every chance to scrutinise the deal should be taken.
As it stands, the self-appointed shot-clock on approving the deal at the FCC is on hold. This again is simply down to the magnitude and the potentially significant consequences of the deal, and should not be surprising at all, but the longer it stands still, we suspect the more nervous executives will become. Mergers of this nature have already been shot down in the US, and this deal does seem to be hanging in the balance.
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.
Kit vendor Ericsson has announced a major deal win in the form of a $3.5 billion contract to bring TMUS into the 5G era.
Not much detail has been offered up, but it involves Ericsson hardware such as ERS and plenty of involvement from the Digital Services silo, including dynamic orchestration, BSS and Ericsson Cloud Core. The chances are a spot of managed services may well be chucked in for good measure.
“We have recently decided to increase our investments in the US to be closer to our leading customers and better support them with their accelerated 5G deployments; thereby bringing 5G to life for consumers and enterprises across the country,” said Niklas Heuveldop, Head of Ericsson North America. “This agreement marks a major milestone for both companies. We are excited about our partnership with T-Mobile, supporting them to strengthen, expand and speed up the deployment of their nationwide 5G network.”
“While the other guys just make promises, we’re putting our money where our mouth is,” blurted TMUS CTO Neville Ray in the approved corporate style. “With this new Ericsson agreement we’re laying the groundwork for 5G – and with Sprint we can supercharge the 5G revolution.”
That’s the long and short of it, but Ericsson couldn’t resist another plug of its main USP, stressing that T-Mobile’s installed base of ERS radios will be able to run 5G NR technology with just a software upgrade. There is likely to be a bit of a PR arms race over big 5G deal wins among the kit vendors, but we won’t be seeing any of that action from Huawei in the US. Or Australia.
T-Mobile, ably led by wild-eyed CEO John Legere, has been causing chaos throughout the US wireless market, but a data-breach could impact the brands credibility in the eyes of customers.
Customer opinion is a fickle thing. It can sometimes only take a minor incident and all of a sudden the brand is as attractive as a turd in a washing machine. T-Mobile has been generating some serious momentum over the last few years, readily stealing subscribers from the likes of AT&T and Verizon by undercutting tariffs, though how much of an impact with a data-breach have on brand perception?
“Out of an abundance of caution, we wanted to let you know about an incident that we recently handled that may have impacted some of your personal information,” T-Mobile wrote in a statement to customers.
“On August 20, our cyber-security team discovered and shut down an unauthorized access to certain information, including yours, and we promptly reported it to authorities. None of your financial data (including credit card information) or social security numbers were involved, and no passwords were compromised. However, you should know that some of your personal information may have been exposed, which may have included one or more of the following: name, billing zip code, phone number, email address, account number and account type (prepaid or postpaid).”
According to reports and rumours across the industry, the breach could have left as many as 2.5 million subscribers exposed to the attack. According a T-Mobile spokesperson talking to Motherboard, the incident occurred after hackers compromised company servers through an API, although no further technical details have been disclosed. The attackers are believed to be international.
This is not the first time T-Mobile US has been exposed for security flaws. In May, researcher Ryan Stephenson found a bug which allowed external parties to access customer information just using a phone number. An API used by T-Mobile staff allowed them to look up customer details simply by entering their phone number, though it was not password protected meaning anyone could take advantage of the short-cut if they found the sub-domain. The oversight unveiled a customer’s name, address, billing account number, and in some cases, information about tax identification numbers, as well as security question information.
Every company will have flaws in the system, the perimeters are simply too vast nowadays making the concept of 100% secure almost impossible. The issue here is about credibility; how much of an impact will the news have on customers perception of T-Mobile as a brand and a trusted guardian of their personal information?
As mentioned before, customers are very fickle, especially when much of the attraction to a brand is based on price. Some customers might be asking a simple question now; are a few saved dollars each month worth the risk of my personal information being exposed? T-Mobile has been excellent at hoovering up new subscribers over the last couple of years, but this has been due to highly aggressive marketing moves focused on acquisition. The retention capabilities of the brand have not genuinely been put to the test.
With data protection and privacy high on the agenda following several scandals, most notably the Facebook Cambridge Analytica saga, customers are becoming more sensitive to such incidents. Whether this is enough to de-rail the magenta steam train remains to be seen, but it does ask questions over the company’s credentials.
T-Mobile and Nokia have jointly announced another incremental step towards 5G Nirvana with a bi-directional over-the-air 5G data session.
The test, which took place in T-Mobile’s Bellevue lab in Washington, is claimed to be the nation’s first bi-directional over-the-air 5G data session on a 3GPP-compliant 5G New Radio (NR) system, with a user equipment simulator and Nokia’s 3GPP-compliant high-capacity 5G solution in the 28 GHz band.
“This test is a big step forward in building real 5G that will work on actual smartphones,” said Neville Ray, Chief Technology Officer at T-Mobile. “We’re excited to continue our work with Nokia to move the future of wireless forward and bring 5G to customers!”
“This successful 3GPP compliant over-the-air data transmission represents an important step for T-Mobile and the commercialization of 5G,” said Marc Rouanne, President of Mobile Networks, Nokia. “By building on the tests Nokia has previously conducted with T-Mobile, T-Mobile is well on its way to 5G commercial deployment.”
Looking at the technical side, the 5G data transmission was conducted with the Nokia AirScale baseband and radio, AirFrame server, and AirScale Cloud RAN running 5G NR 3GPP-compliant software, building on other work such as T-Mobile’s deployment of its first inter-vendor 5G test platform.
Although genuine 5G is still years away, the news will add another bit of credibility to the T-Mobile 5G mission as it readies for battle against AT&T and Verizon, both of whom have put forward ambitious plans alongside the magenta army to be the first to deliver 5G in the US.
That said, it means very little for the consumer until 5G compatible handsets start to hit the market.
Sprint CEO Marcelo Claure has undertaken a new role at Softbank, heading up the acquisition team, in what we can only imagine was a calculated more to keep the eccentric T-Mobile boss John Legere away from the suits.
Taking on the role of Executive Chairman at of SoftBank Group International and COO of SoftBank, Claure will head up the team designed to woo regulators and agonise through the cumbersome process of navigating the red-tape maze. Claure has taken a bullet for Legere here.
Legere does not seem to be a man who suffers fools gladly (putting it lightly), therefore asking the wild-eyed, at times almost rabid CEO to be calm and considerate when dealing with bureaucratic busybodies might not have been the best strategy. John Legere is not necessarily offensive, but some might be offended. Referring to AT&T and Verizon as ‘Dumb and Dumber’ might not get the same giggles in the offices of the FCC, and we doubt the FTC suits in Washington will be entertained by the magenta t-shirt or jokes about offering ‘doobies’ in goodie bags at events.
“Let me be clear that while I’m shifting my focus, I’m not leaving,” said Claure, as he confirmed Michel Combes would be moving from the CFO office to take on the CEO role.
“The main reason for effect in this change now is to collaborate with John Legere on securing regulatory approval over the next nine to 18 months. That is the most important goal to optimize in shareholder value. This is going to give me the capacity to focus on securing regulatory approval without compromising the day-to-day operations.”
Combes will now be responsible for the day-to-day operations of the Sprint business, having done such a great job at Altice, however Claure remain responsible for liaising with Softbank, as well as delivering performance and financial results to the parent company. Aside from managing the merger, Claure will also aim to ‘optimize synergies’ across the Softbank portfolio, as well as identifying how the wider group can work with the new, combined entity in the future.
Claure might not have the same flair as his counterpart at T-Mobile, but you have to give the man a bit of credit. Quietly and quite humbly, he spearheaded somewhat of a turnaround at the Sprint business since his appointment in 2014. Sprint is still at the bottom of the rankings when you look at the four major telcos across the US, though the gap is no-where near as monumental. Recent reports have suggested Sprint is quickly improving network performance, while the last few quarters have seen an improvement in the steady flow of customers flocking to the emergency exit. It hasn’t all been glamourous while Claure has been in-charge, but perhaps this is the reason he is the perfect person to liaise with the starch-heavy collars of government.
When announcing the deal, both Claure and Legere seemed to realise the government is going to be a major pothole to negotiate. The announcement, which you can see below, made several references to how it would aid President Trump’s political objectives including job creation, investment and the battle against China. Buttering up the White House from the outset is a tactic here, and quite rightly so; this deal will need all the favour and luck available if it is to have any chance of success.
While this is a merger the telco industry has been eagerly awaiting for some time, Claure will have to muster all his Latin charm to win over regulators who have not been gazing favourably on acquisitions in recent months. The team is confident this deal will improve the lives of consumers, either through an accelerating role out of 5G or a more comprehensive challenge to the AT&T and Verizon duopoly, but there will certainly be resistance.
“Sprint and T-Mobile will be hard pressed to demonstrate how their combination would benefit the public interest,” said Phillip Berenbroick, Senior Policy Counsel at Public Knowledge. “This task proves increasingly difficult when a merger drastically reduces competition in the wireless marketplace, as this combination certainly will.
“If approved, this deal would especially hurt consumers seeking lower-cost wireless plans, as the combined company’s plans would likely increase while competitors AT&T and Verizon would have even less incentive to lower prices. Unless the merging parties can demonstrate clear competitive benefits we have yet to see, we will urge the Department of Justice and the FCC to reject this deal.”
There are arguments for both sides of the case, but one argument which will have to be addressed before too long is Canada. The friendly neighbours to the north of the US have three major carriers, Bell, Rogers and Telus, with tariffs priced almost identically. Some will argue this is primarily due to the reduced levels of competition. Claure will have to make some pretty bold promises to make sure this does not happen in the US, as should this deal go through, it is highly unlikely a fourth player would rise up to take Sprint’s vacant spot; the table stakes are simply too high. Competition is paramount in the eyes of regulators.
This is a deal which will face a very-high level of scrutiny, especially considering previous T-Mobile merger attempts have been quashed by regulators on the grounds of competition, so perhaps the calm, collected and charming Claure is the best man to be sent to Washington.
When you talk about the telcos in the digital era one of the super trends we’ve been watching is content. But is the desire to diversify causing more damage than good?
The theory is sound. Invest in content to add value to a converged offering and source new revenue streams to counter declining numbers in the quarterly statements. But when you look at the telcos who are making the most positive moves in the industry, they aren’t the ones making super investments in content. They are focusing on the boring job of improving the network and customer experience.
We’re going to focus on a couple of different telcos to argue our point. On one side of the equation you have BT and AT&T, while on the other side you have Orange and T-Mobile US. One side is buying Time Warner and trying to dominate the football broadcasting game, while the other is spending billions on trenching fibre networks and securing important spectrum licenses for the 5G world. One side is struggling to assert itself in the connected economy, while the other is raring to go.
Let’s start with the pro-content telcos; BT and AT&T. The last few years have seen BT go head-to-head with Sky in an effort to control access to football in the UK. It’s an expensive business, more recently BT scaled back its football ambition only paying £885 million for 32 matches a year over 2019-21, and the benefits haven’t really been that exceptional. Growth in video subscriptions have stagnated recently and there have been questions about how good the offering actually is.
On the other side of the Atlantic, AT&T is spending more than $100 billion to acquire Time Warner. Admittedly through this deal AT&T will be purchasing some of the most popular TV assets worldwide, but the whole transaction has proved to be unpopular in some corners of the country, most notably in the White House. Even if securing Game of Thrones is a major coup for the content ambitions of the telco, you have to wonder whether $100 billion could be better spent.
Both of these telcos are viewing content as a means to diversify and futureproof the business for the connected economy where consumers are increasingly hungry for on-demand entertainment. At the same time, both of these telcos are finding their influence in their home markets dwindling and questions are being raised by investors surrounding the suitability of these strategies to take the business forward.
Now let’s have a look at the other side of the equation. Orange and T-Mobile US are two companies which are performing well in a tricky period and laying what look like very stable foundations for the future. Both of these telcos are also spending a lot of money, but the difference here is the investment is being directed more towards the network. It might be boring, it may not grab headlines, but it looks like it is a strategy which is working.
In Europe, Orange has been rolling fibre out like it’s about to go out of fashion. Over the last 12 months, €7.209 billion was spent on CAPEX as the team seemingly looks to create a better customer experience as opposed to trying to compete with the OTTs in the cut-throat world of content.
In the US, T-Mobile has been improving its 4G experience steadily over the last couple of years and is now turning its attention to nailing 5G. CEO John Legere and his cronies aren’t looking to entice customers through attractive content offerings or gimmicks, they are rolling out the network to as many people as possible and making it as fast as possible.
Both T-Mobile US and Orange are making very positive impacts on the markets in which they operate in. There are success stories through awards and positive financial results, and a very optimistic outlook for the next couple of years. The rest of the industry might believe tempting customers through the promise of shiny red balls might be the way forward, but ultimately success is being seen by the companies who are focusing on what really matters to customers; connectivity.
And this seems to be having a very positive impact on the spreadsheets. Orange released its financial results last week, with year-on-year increases popping up all over the place, while T-Mobile US can’t stop bringing on new customers. On the other side of the coin, BT’s CEO Gavin Patterson is looking like a man on borrowed time and AT&T is looking very uninspiring.
Perhaps the relentless pursuit of relevance is ironically making some of the telcos less so. The basic principle of communications service providers is to connect customers to the rest of the world. Maybe some telcos have forgot what their basic purpose is. These are the telcos which might struggle the most when it comes to the next era of connectivity.
Every quarter the industry sits back and wonders how long the Uncarrier momentum will continue and every quarter the magenta army marches on. This quarter saw 891,000 net additions of postpaid phone subscribers.
This number might sound familiar, but that is because T-Mobile US decided to purposely leak the gains a couple of weeks ago, but now it is official as the company reports its quarterly earnings. This quarter saw service revenues up 7.1% to $7.8 billion, total revenues up 5.1% to $10.8 billion and net income of $2.7 billion.
Over the course of 2017, the numbers are equally as impressive. A 8.3% year-on-year increase to $30.2 billion over the 12 months for service revenues, while total revenues were up 8.3% to $40.6 billion and net income stood at $4.5 billion.
“Wow – what a way to cap off 2017! Record financial results across the board and over 5 million customers added for the fourth year in a row,” said John Legere, CEO of T-Mobile. “We made incredible progress in 2017 building out our network and retail footprint to set ourselves up for future growth. Our business is clearly firing on all cylinders and our strong guidance for 2018 shows that we have no plans of letting up!”
Now onto the customer numbers. Over the course of the fourth quarter, the team saw 1.9 million total net additions and 891,000 branded postpaid phone net additions. Compared to the rest of the industry you can see why Legere is so happy with himself. Over the same three months, Verizon acquired 431,000, AT&T brought in 329,000 and Sprint 184,000. T-Mobile US signed up 5.7 million customers across 2017, bringing the total to 72.5 million at the end of the year.
The Uncarrier strategy has been squeezed as tightly as possible over the last 12 months, though the team are confident of this trend continuing as well. Forecasts put the number of net additions at 2-3 million over 2018, though it is also worth noting that T-Mobile estimates are usually conservative.
While quirky advertising campaigns and a charismatic boss will certainly get you noticed there also has to be some substance to the proposition. This is another area where T-Mobile doesn’t seem to disappoint either. A couple of weeks ago, Opensignal released its ‘State of Mobile Networks: USA’ report for January with T-Mobile almost taking a clean sweep of the awards for network performance.
It would appear the only thing which will be able to stop this momentum over the next couple of quarters will be the 5G rollout. T-Mobile US has been preaching constantly about its 600 MHz spectrum holdings and its ambitions to be the first nationwide 5G network. T-Mobile doesn’t have to be the first to the 5G nationwide podium to continue this momentum, but it does need to keep up the strong network performance.
A nationwide network is all well and good for advertising purposes, but customers will be happy with 5G where they are; Legere has to make sure his ambition to cover the entire of the US doesn’t come at the cost of solid performance in the places that matter; where the majority of his customers are. The T-Mobile 4G network does not cover every single customer as it stands, but the ones it does serve it serves well. That is the success of the T-Mobile charge over the last couple of years, hopefully this lesson will be carried into 5G and executives don’t simply focus on the holy grail of nationwide coverage.
A new report into the performance of the major carriers into the performance of US carriers has given T-Mobile US more fuel to continue squawking, and another reason for Sprint to reach for the aspirin.
Opensignal’s ‘State of Mobile Networks: USA’ has been released for January, and just as the rise of T-Mobile US is becoming more predictable, the decline of Sprint to non-relevance is becoming more worrying. Such statistics will be worrying for the Sprint management team, but they should also be a concern for the consumer. Sprint’s woeful network performance essentially means competition is dwindling; who is going to actively pursue a subscription with such an underperforming product? Is the US becoming a three player market?
Looking specifically at the areas which were judged by Opensignal, using 5,928,296,946 measurements across the country, on 237,213 devices between October 1 and December 30, T-Mobile US leads the rankings. The magenta army took first place in five of the six categories, with only AT&T winning in the 4G Latency category.
Not winning a single award wouldn’t be considered a massive disappointment, there are only six after all, but looking at the breakdown of each one would be a concern for Sprint. Sprint came last in four of the six, only beating Verizon in the 4G and 3G Latency categories. The phrase ‘one legged man in an ar*e kicking content’ comes to mind.
Of course, for every loser there has to be a winner, and T-Mobile US CEO John Legere doesn’t generally need too much encouragement to stick the boot into the ‘duopoly’. In most of the categories, you can see them all at the bottom of the article, T-Mobile US was a convincing winner.
“Wireless customers have spoken again, and it’s time for the Carriers to face facts! Billions of real customer tests prove we’ve built America’s best network!” said Legere. “That’s why T-Mobile customers are the happiest in wireless. We’ve built our whole company – including the network – around delivering the best experience, and we. won’t. stop.”
The report certainly adds fuel to the magenta fire, but it also raises another interesting question; how does Sprint actually have any customers?