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What would a Sprint/T-Mo merger mean for prepaid, wholesale?

by Kelly Hill
written by Kelly Hill Share
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Image: 123RF Stock Photo

What would a Sprint/T-Mo merger mean for prepaid, wholesale?

While T-Mobile US has emphasized the importance of 5G and spectrum as it has made its case for regulators to allow it to purchase Sprint, there hasn’t been much talk about the impact to the prepaid market or wholesale operators — but the Department of Justice is scrutinizing the potential impact of the proposed merger, according to published reports.

In the prepaid market, T-Mobile US’ MetroPCS and Sprint’s Boost Mobile brands are fierce competitors, particularly in major metropolitan markets. Sprint also supports a number of mobile virtual network operators who buy wholesale access and serve either prepaid or cost-conscious customers. Reuters has reported that the Department of Justice is exploring the potential impact of the proposed T-Mobile US/Sprint merger on the wholesale space. DOJ “has been speaking with small wireless operators that buy access to the major wireless networks at wholesale rates, and is seeking their opinions about the merger,” according to Reuters. RCR Wireless News has independently confirmed such conversations with a source familiar with the matter.

T-Mobile has 38% of the U.S. pre-paid market and Sprint has 16%, giving the combined company 54% of the market, according to S&P. Principal analyst Jeff Moore of Wave7 Research, however, said that a union of T-Mobile US and Sprint’s prepaid operations would yield nearly 30 million subscribers, or about 38.9% of the total prepaid market.

Moore breaks the prepaid market into the urban prepaid segment and the national retail market — two very different spaces. In the former, Moore described as “three really robust brands going at it, toe-to-toe”: Boost, MetroPCS and AT&T’s Cricket. In the national prepaid retail market, where Sprint’s Virgin Mobile brand is a player, Tracfone is the market leader and it’s a channel that T-Mobile US is absent from, he noted — T-Mobile US pulled out of the national retail prepaid market in late 2016, Moore said, and so MetroPCS hasn’t been a player in that space for about two years.

Still, Moore said that “a union of MetroPCS and Boost would give the combined entity majority share in urban America,” although it’s difficult to assign hard numbers for the market because the breakdown of  which Sprint prepaid customers belong to Boost and which are Virgin Mobile customers isn’t clear.

But it’s not just about the size of the prepaid customer base that a combined Sprint/T-Mo would end up with — Boost and MetroPCS have been driving price wars for prepaid customers in major metropolitan markets, mostly by competing with each other. Bringing the two of them under one roof would basically eliminate each company’s arch rival in metro markets.

“Boost and Metro have been the most innovative in terms of rolling out offers and promotions,” Moore said, noting recent promotions including head-to-head offers for free months of service, four unlimited lines for $100 and five unlimited lines for $100 within the past year — “a lot of generous offers,” Moore said. For example, earlier this year Boost offered a free month of service for customers who brought their own devices, and MetroPCS responded by upping the ante to two months.

Former Boost founder and CEO Peter Adderton has been beating the drum that the merger would cause grave harm to the prepaid and wholesale market, and this week hired lawyers to represent his concerns about those impacts as government regulators look at potential impacts and conditions for the merger. He has also started a website on the topic, all4price.com (as opposed to the allfor5G.com site that promotes T-Mobile US’ perspective on the proposed merger).

“There are some significant issues with the proposed Sprint and T-Mobile merger as currently structured, and on behalf of American wireless subscribers, the prepaid mobile sector, the hundreds of MVNOs who rely on these two carriers, and the tens of thousands of independent wireless dealers across this country who will be negatively affected by this deal, our team is geared up and ready to fight for their protection,” Adderton said in a statement on his new legal team.

Adderton, who is no longer involved with Boost’s operations, told RCR Wireless News that due to the high penetration of the wireless market, carriers are increasingly using their prepaid offerings as a way to “hook” customers and then try to convert them to postpaid unlimited offerings. T-Mobile US reported that in the first quarter of this year, the company did see a significant fall-off in its prepaid numbers — from 386,000 in the first quarter of 2017 to about 200,000 in the first quarter of 2018 due to “increased competitive activity in the marketplace and higher deactivations from a growing customer base, partially offset by a higher impact from the optimization of our third-party distribution channels in the prior period, and lower migrations to branded postpaid plans.”

With AT&T and Verizon not particularly interested in fighting for prepaid customers, Adderton said, it was particularly gratifying to see such competition between Boost and MetroPCS for a segment that has been traditionally overlooked.

T-Mobile US has said little about its plans for the prepaid operations, and both Sprint and T-Mobile US declined to comment for this article. In its merger announcements, T-Mobile US said that “the new company will have some of the most iconic brands in wireless – T-Mobile, Sprint, MetroPCS, Boost Mobile, Virgin Mobile – and will determine brand strategy after the transaction closes.”

Adderton is certain that “they’re going to kill one of those [prepaid] brands off.” He argues that if the merger goes through, “they have to be forced to spin these brands out.” 

In terms of the impact of the merger to MVNOs, Adderton — who led the short-lived, premium MVNO Amp’d during the mid-2000s — said that there will also be consequences for the ability of MVNOs to operate at the necessary scale in order to be successful. T-Mobile US has been slightly more friendly to wholesale purchasers than AT&T and Verizon, but not much — it’s Sprint that has the track record of being particularly friendly to MVNOs, even if its crop of MVNOs over the years haven’t necessarily had the successful track record, of say, long-operating MVNOs like StraightTalk (which has most of its users on Verizon’s network). Sprint’s wholesale systems and pricing have a reputation among wholesalers for flexibility and support of innovation — as opposed to carriers with the attitude that they aren’t particularly open in bringing on MVNOs, charge such high prices that the MVNO has limited ability to put out unique offers, or are only interested in MVNOs that target customer segments where the carrier’s retail brand doesn’t perform well.

It’s unclear if T-Mobile US would be willing to take up the mantle of being the most MVNO-friendly among the national operators.

“I think this would make the wholesale market much less competitive, and MVNOs would likely be harmed by a merger of the two carriers,” Moore said.

Considering how many tens of millions of customers will be impacted by whatever decision a combined company will make about those brands, Adderton doesn’t see the “we’ll deal with it later” stance of T-Mobile US as being acceptable. And, he noted, prepaid it’s tricky to transition prepaid customers because of the logistics of equipment or SIM card replacement in a customer base that already has a high propensity to churn — many users are likely to be lost along the way.

Adderton said that he has attempted to engage T-Mobile US CEO John Legere and Sprint’s Marcelo Claure on these issues, but that they haven’t responded to his efforts.

“These guys are mobile mavericks,” Adderton said. “When it comes to these issues, they’re kind of part-time mavericks.” Legere, he added, “has fallen in love with beating up on Verizon, but when we start to look at [him] closely and start to challenge [him], [he’s] nowhere to be seen.”

Editor’s note: This story has been updated. 

Image copyright: andreypopov / 123RF Stock Photo

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Kelly Hill reports on network test and measurement, AI infrastructure and regulatory issues, including spectrum, for RCR Wireless News. She began covering the wireless industry in 2005, focusing on carriers and MVNOs, then took a few years’ hiatus and returned to RCR Wireless News to write about heterogeneous networks (remember those?) and network infrastructure. Kelly is an Ohio native with a masters degree in journalism from the University of California, Berkeley, where she focused on science writing and multimedia. She has written for the San Francisco Chronicle, The Oregonian and The Canton Repository. She lives in northern Virginia, not far from Data Center Alley.

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