YOU ARE AT:5GA better way to look at the wireless market (Reality Check)

A better way to look at the wireless market (Reality Check)

Since the proposed T-Mobile-Sprint merger was announced in late April, some pundits have expressed concern that a combination of the two firms could stifle business competition because it reduces the number of national U.S. wireless carriers from four to three.

The reality, though, is that the wireless market is significantly bigger than four (or three) wireless telecommunications companies, and, rather than limiting competition, the merger will encourage it.

The Evolving Wireless Landscape

 When you consider the history of mobile communications, it’s a fairly safe bet that unforeseen players will emerge, fueling competition and boosting transparency for consumers, especially as the Federal Communications Commission prepares to auction off 5G spectrum this November. The auction will draw more than the telecom giants to the table – cable companies, FAANGs (Facebook, Apple, Amazon, Netflix and Google) and others now have a stake in the game, the ability to compete for and win spectrum auctions, and the capital to deploy that spectrum.

The current dynamic between users and their mobile devices is just one in a series of technology-driven shifts that the wireless industry has experienced over the last two decades. First there was the move from landlines to mobile for voice calls, then came accessing the internet on our mobile devices rather than desktops, and finally the shift to viewing video on mobile devices rather than TV sets. Each shift has increased wireless usage and brought new players into the sector.

Consider that in the late 1990s/early 2000s – when wireless voice overtook the landline – Amazon and Netflix were still in the nascent stage, Facebook didn’t even exist, and Google couldn’t have cared less about wireless. Today, Apple and Amazon each have an enterprise value (EV) greater than all four wireless carriers combined. The five FAANGs in aggregate have over 3.5x the EV of the four carriers. As their customers increasingly access their platforms via wireless devices, access to those customers is top of mind for each of these tech giants. Case in point? Apple just asked the FCC to release more unlicensed, ultra-high frequency spectrum. Google has been investing in fiber and wireless for several years now. Or how about Comcast? The cable king had gotten out of the wireless business years ago but last year, jumped back in with the launch of Xfinity Mobile. In fact, Xfinity Mobile added more wireless customers in Q1 2018 than Sprint did. And Comcast was an active participant and winner in the 2017’s broadcast incentive auction.

Even traditional television broadcast companies can now compete for wireless market share. After all, they have spectrum and plenty of it. That’s why they were able to sell so much at last year’s broadcast incentive auction. Now they are trialing a new technology called ATSC 3.0, which can provide mobile data services and geotargeted audiences.

As we move towards a 5G-enabled world and continue our reliance on mobile devices, how we judge the competitive landscape needs to change and expand. This means understanding that AT&T, Verizon, Sprint and T-Mobile aren’t just contending with each other anymore. There are multiple industries and various players jockeying for position in the wireless world.

5G and What it Means for the U.S.

 5G is a crucial competitive opportunity for the U.S. on the world stage. The conversion of U.S. networks from 3G to 4G (LTE) just a few years ago was a major success story. In a short time frame, the U.S. went from trailing much of the world in 3G to a leadership position in 4G. The rollout of the technology was rapid and widespread. Recon Analytics LLC estimated that 4G leadership added almost $100 billion to the U.S. GDP by 2016. According to CTIA, which represents the U.S. wireless communications industry, 5G deployment in the US will lead to 3 million jobs and $500 billion in GDP.

It is imperative that the U.S. retains its leadership position for the deployment of 5G and even gains ground on the rest of the world. In a “chicken and egg” quandary, the 5G ecosystem of applications, devices, and new wireless capabilities (think jobs and GDP growth) cannot develop without active 5G networks, but 5G networks are expensive and involve many more individual sites than 4G.

A merged T-Mobile-Sprint will be able to invest significantly more capital and deploy more sites than the two companies would be able to do separately. The combined entity, with a broader and deeper spectrum portfolio, is expected to invest $40 billion in its network over three years. The investment from a merged T-Mobile and Sprint would drive AT&T and Verizon to deploy more capital faster to keep up. All of this is good for the U.S. and its consumers, and not available without the merger.

Others are thinking ahead. In France, the Macron government has signaled its support for carrier consolidation to spur investment by praising the T-Mobile-Sprint combination and signaling the French government’s willingness to support similar moves in France. Can we afford to let Europe – or anyone – overtake the U.S. in 5G?

Thinking Ahead, Not Looking Back 

The U.S. Department of Justice (DOJ) views telecommunications mergers through an antiquated lens. Regulators continue to look at potential combinations based on wireless subscribers who pay a monthly fee. However, analyzing what’s turning into a sliver of the wireless market with a strictly subscriber-based model is no longer adequate. For example, why are wireless subscribers with a phone number counted but users with an email address from Google or Apple excluded?

It’s not about having a phone anymore; it’s about data and applications. When you think about the billions of web-enabled devices – all with any number of applications – the idea of measuring wireless competition via subscription is clearly dated.

It’s imperative that the government looks at where technology is taking us – not where it’s been – and adjust its view of the market accordingly. It’s likely that the current subscription model will evolve to traffic-based and app-based pricing, driven by myriad players vying for both wallet share and mindshare. The DOJ should focus on what will encourage the deployment of 5G, the technology it enables, and its supporting infrastructure – not a simple headcount of current telecommunications carriers.

Alex Gellman is CEO and co-founder of Vertical Bridge, the largest private owner and manager of communication infrastructure in the U.S.

ABOUT AUTHOR