Reality Check: Will wireless competition disappear?

Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
There has been much consolidation in the wireless industry over the past few years. AT&T recently purchased Leap Wireless. T-Mobile US bought MetroPCS. AT&T bought Aloha Partners’ spectrum. Verizon Wireless bought SpectrumCo’s and Cox’s AWS spectrum assets. For many years FierceWireless provided quarterly updates on the growth of the top 10 operators. Now, they report on the top eight.
Recent persistent press reports indicate that Softbank, having already acquired a controlling interest in Sprint, wants to buy T-Mobile US. The potential purchase of T-Mobile US by Softbank is a bad idea from a consumer perspective. This is the worst M&A idea since Sprint bought Nextel. It could be worse than AT&T’s misguided attempt to buy T-Mobile US.
Why is such an acquisition a bad idea?
The challenges that Sprint and T-Mobile US face will not be solved by a merger of these two operations. Instead, such a merger will create new challenges while reducing choice for consumers. There are a number of claims, presumptions and assumptions that simply do not make sense regarding such a merger.
For example, Softbank (and others) have been whining about a duopoly formed by AT&T Mobility and Verizon Wireless. While AT&T Mobility and Verizon Wireless do have greater market influence and control than T-Mobile US and Sprint, they do not form a duopoly. In fact, the four wireless operators who offer services nationwide form an oligopoly. A merger of Sprint and T-Mobile US will merely make this oligopoly less competitive because it would offer reduced choice to consumers. Instead of two highly motivated challengers to the market leaders, there would be one potential challenger (a very large No. 3) with no real incentive remaining having taken over its closest competitor.
Softbank’s interest in T-Mobile US has nothing to do with improving consumer services. It has everything to do with taking out a competitor. Softbank stated that it needs to be larger to compete with the “duopoly.” Seriously? How about offering better services? T-Mobile US is doing so and winning market share. Clearly, T-Mobile US has its “mojo” back. The services they introduced recently and the energy they bring to the market are helping them gain market share. By some measures, T-Mobile US is already the No. 3 mobile network operator in the U.S.: a recent press report indicates they are the third-largest purchaser of smartphones; RootMetrics data for the top 25 metropolitan areas indicates that on average they have the third-fastest network – much faster than Sprint; and, OpenSignal data shows that the latency in T-Mobile US’ data network is better than both Sprint and Verizon Wireless.
Nothing that Softbank has said (in its public relations campaign to buy T-Mobile US) indicates that it would offer a superior set of services to those T-Mobile US currently offers. There is nothing to indicate that Softbank will in fact help T-Mobile US introduce new services faster than T-Mobile US is already doing.
Perhaps what Softbank is concerned about is the buying power of Verizon Wireless and AT&T Mobility – especially with devices. The market advantage enjoyed by AT&T Mobility and Verizon Wireless is real and should be quite obvious. The advantage is so large that for many years T-Mobile US did not offer the iPhone – indeed, T-Mobile US was obliged to reconfigure its network to align HSPA and LTE with AT&T Mobility before being able to offer the iPhone. T-Mobile US did not have sufficient buying power to get the Apple product otherwise. It is not at all clear that a merged company will fundamentally change this situation given the network and spectrum challenges it will face.
On the network side, a merger of these two companies will create a short-term mess. Their networks are simply incompatible – CDMA and HSPA for 3G. There is the appearance that Softbank seems to be projecting that Sprint’s Network Vision program is not competitive (even before it is fully deployed.) There are real challenges that a merged operation will face to turn off one of the 3G networks to gain operational efficiencies, presumably CDMA (they would have to be totally nuts to mess with T-Mobile US’ superior HSPA+ network), while expanding coverage.
How would they expand coverage? In which spectrum bands? T-Mobile US’ meager 700 MHz spectrum? Or Sprint’s unique 800 MHz band? Will this provide sufficient competition, considering that both AT&T Mobility and Verizon Wireless have about twice as much sub-1 GHz spectrum? How about handsets for these bands? How many spectrum bands will they have to put in their smartphones, including for international roaming, and at what incremental cost? And while they are addressing all of these challenges, spending capital to do so, how will they focus on improving their competitiveness versus AT&T Mobility and Verizon Wireless?
Considering spectrum, is there any circumstance in which the Federal Communications Commission would not require divesting spectrum to approve a merger? I think not. Where would this spectrum end up? With a smaller regional service provider? A smaller (and weaker) fourth national operator? Or, with a new market entrant? Will such spectrum eventually end up with AT&T Mobility or Verizon Wireless (even if a third party acquires it initially), effectively arming the enemy? And what about the upcoming AWS-3 and incentive auctions – will a merged entity have the ability to acquire more sub-1 GHz spectrum? Just from a spectrum acquisition perspective, one has to wonder whether these companies would be better served remaining independent through the two upcoming auctions, maximizing their ability to acquire spectrum while partnering in other.
I think Sprint has the spectrum depth to become a mobile broadband market force again without T-Mobile US and despite limited sub-1 GHz spectrum. There was a period when Sprint offered new and innovative services to consumers well ahead of competitors. As a new market entrant in 2G, Sprint was a leader in transforming the cellular industry. When Sprint introduced the HTC Evo 4G in 2010, it was one of the fastest smartphones available to consumers. Recent indications are that Sprint’s upgraded network will make it much more competitive. Will this be enough? Perhaps not in a changing market.
The pending purchase of DirectTV by AT&T will enable it to offer mobile broadband and subscription TV services nationwide along with fixed broadband regionally – something that no other service provide can do today. Verizon’s FiOS is a regional service. It seems to me that Sprint (and T-Mobile US) need to expand and diversify their services to be more competitive with the broad set of services offered by AT&T and Verizon. From this perspective, a potential partnership between Sprint and Dish Network would appear to make more sense than Softbank merely trying to take out T-Mobile US.
Madan Jagernauth started FutureMobile Service in 2013 after more than 20 years in the wireless industry, including leadership roles for internationally recognized companies like Huawei Technologies and Nortel. With a master’s degree in Engineering and an MBA in Telecommunications Management, Jagernauth has a broad understanding of technology and business, with a focus on innovative solutions to solve real-world problems. Today, Jagernauth applies this experience, focus and understanding of the evolving wireless industry landscape to provide wireless solutions for clients in the United States, including market analysis and forecasts, business analysis and planning, requirements analysis and wireless communication applications. futuremobileservices.com/.