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Sprint + T-Mobile: What everyone else is saying about a possible acquisition

Sprint + T-Mobile: What everyone else is saying about a possible acquisition
Brad Molen
Brad Molen|March 13, 2014 10:00 AM
Japan Earns Softbank

Softbank CEO Masayoshi Son has been on a mission to purchase T-Mobile and merge it with the Now Network. His campaign began in secret, first involving several visits to regulators in Washington DC. In the past week, however, he's become much more vocal. Son appeared on The Charlie Rose Show and CNBC on Monday, claiming a post-merger Sprint will be good for the wireless industry. The next day he argued that broadband in the US is one of the slowest and most expensive in the world, and the answer is to encourage mobile broadband deployment.

Son's solution to the speed problem is to eventually deploy mobile broadband as fast as 200Mbps, but would a T-Mobile acquisition bring down the cost to consumers? The CEO certainly thinks so: he says the merger will launch a price war and enhance wireless competition unlike anything this country has ever seen. He's going up against federal regulators, two of the largest carriers in the country, and history: just over two years ago, AT&T's attempt to purchase T-Mobile fell flat when the FCC and Department of Justice determined that competition would take a nose dive. So we know Sprint's position on the matter, but what does the rest of the industry think about it?


When asked on Tuesday about industry consolidation (streamlining from four national networks to three) at a Deutsche Bank investor conference, T-Mobile CFO Braxton Carter said: "It is not a question of if, it is a question of when." Carter didn't specify which companies would be involved in this inevitable process, but he went on to mention that "to take a third-scale national player that has the scale benefits with the right business model could be very competitively enhancing in the US." If Sprint were to acquire T-Mobile, its subscriber count would climb to an estimated 100 million, which puts it just shy of AT&T and Verizon. A Sprint of this size, Carter argues, would be strong enough to make it much more competitive than it can be with only 53 million subscribers.

"The government can't have their cake and eat it too."

Carter believes that a merger between the third and fourth-largest wireless carriers in the country wouldn't be as damaging to competition as US spectrum auctions, which are typically dominated by the two largest operators, AT&T and Verizon. "The government can't have their cake and eat it too. If they think there really needs to be four players in this market on a nationwide basis, they are going to have to put some structural protections to ensure an adequate distribution of spectrum," Carter said. If the big players are snatching up the best spectrum, he argues, it makes it much more difficult for the smaller players to legitimately compete.

In the meantime T-Mobile isn't worried about its own future, even if Sprint isn't involved in it. While Deutsche Telekom CEO Tim Hoettges mentioned last week that his company would approach future consolidation with "an open mind," he also said that "at the moment we have no difficulties to run T-Mobile US on a stand-alone basis."


At the Deutsche Bank conference this morning, AT&T CFO John Stephens said that he'd be surprised if such a merger were to be approved. He has plenty of reason to be skeptical: his own company attempted to do the same thing over two years ago and was met with rejection from government regulators, a roadblock which ultimately cost his company four billion dollars.

"It would be surprising if [the FCC and DOJ] changed or reversed that opinion."

Since a merger between Sprint and T-Mobile isn't official yet, Stephens didn't give any specific views on it. That didn't stop him from pontificating about industry consolidation, which he said was something AT&T favored for several years due to the need for more spectrum, more resources to upgrade networks and higher demands for data consumption. ""It would be interesting to see if the government varies from [their previous position]... I don't think they will," Stephens said. "It would be surprising if they changed or reversed that opinion."


Although Verizon doesn't have much to say about Sprint's proposal, the company's CFO, Fran Shammo, briefly touched on the subject recently at the same Deutsche Bank conference. When asked about the potential merger, Shammo reiterated the words of his company's CEO Lowell McAdam by stating: "We are really happy with four competitors ... Obviously spectrum would become a big play if there was a consolidation in the industry."

"We are really happy with four competitors."

Interestingly, Shammo's point about spectrum plays well into Son's and Carter's arguments: a post-merger Sprint would be large enough to compete against AT&T and Verizon in the war for spectrum. In other words, it would finally have the resources and strength to buy up more airwave real estate -- a luxury that has worked against Sprint and T-Mobile.

The Government

To nobody's surprise, regulators are skeptical about the merger. After Son met with government officials, Reuters reported that FCC Chair Tom Wheeler was dubious of the potential deal, but would keep an open mind. Justice Department reps expressed similar mistrust, according to the WSJ, indicating that such a deal would face difficulties going through the regulatory process. The heart of the argument is that government officials believe a four-carrier system is essential for maintaining a competitive market.

Of course, this doesn't guarantee Son's mission will be fruitless, but it shows exactly what he has to overcome in order to find success. Not only does he have to prove that his proposal won't harm the US wireless industry, he has to affirm that this transition will actually leave the industry in much better shape than it was before.

In an ironic twist, the company Sprint wants to acquire is also the company currently proving that a four-carrier system can indeed initiate price wars and strengthen competition. Thanks to its UnCarrier strategy, T-Mobile has made the process of persuasion much more difficult for Masayoshi Son.

[Image credit: AP]

Sprint + T-Mobile: What everyone else is saying about a possible acquisition