Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The wireless industry has consolidated with regional carriers absorbed by larger national giants. Many decry that as a result, there is less incentive for these national carriers to compete (e.g., by lowering pricing) and innovation will be limited or stifled. Still others argue that industry consolidation is a good thing and larger scale brings service uniformity, faster product development, and overall better efficiencies with which these carriers can effectively compete.
M&A activity
Virtually every national carrier got into the mergers and acquisitions game in the last few years. Following the AT&T Wireless and Cingular merger, the new AT&T marched to acquire Dobson Communications, Edge Wireless and soon will complete the acquisition of Centennial. T-Mobile in its own right acquired SunCom, expanding its presence in the Carolinas and Puerto Rico. Verizon Wireless mixed it up with acquisitions of Rural Cellular, SureWest and West Virginia Wireless but Alltel was its largest and most significant acquisition. All these acquisitions have made the national carriers much larger. After the big four with customer bases from 32 – 80-plus million, U.S. Cellular ranks as the fifth largest U.S. operator with only about 6 million customers and only a regional one. Aside from Clearwire that is positioned as a data service play, is there any hope for new competitor with a national footprint?
The promise of a united MetroPCS and Leap
In 2007, MetroPCS tried to unite with Leap Wireless without fruition. Regardless of the reasons why the proposed union was unsuccessful, many in the industry feel that it’s just a matter of time that these two companies join as one. There are many reasons why a united MetroPCS and Leap make sense. Of course there are blatant similarities such as the business model – low cost unlimited prepaid services, CDMA networks, spectrum band operation (PCS and AWS). What’s more (for the most part), their operating footprints do not overlap and a merger would be analogous to completing a jigsaw puzzle map of the U.S. Each carrier has been building out markets last year and has ambitious launch plans in 2009. Already, MetroPCS has launched New York City and Boston while Leap launched in Chicago. A quick look at the top 25 U.S. metropolitan markets shows that both carriers have a presence or will have a presence, making further compelling argument for consolidation.
As a sign of closer cooperation in late 2008, the companies buried the axe on litigation, swapped spectrum and most importantly forged a reciprocal roaming agreement, effectively expanding their pockets of regional service to a broader but not quite national footprint to give national carriers a run for their money. But that begs the question of whether a company needs to truly reach all corners of the country to be considered a national carrier and in turn provide national pressure?
Given the top markets covered, the only thing missing for theses super-regionals may be favorable national roaming agreements. However, with an unlimited calling credo and unfavorable roaming rates, the business model may be less profitable. So this may take a combined Leap-MetroPCS entity down the road of a full national buildout – possibly very costly.
Physical network presence aside, it’s certain that a united and nationally built out MetroPCS and Leap entity will be a disruptive force in the wireless sector. Already, each carrier on its own is expected to expand its customer base, taking its business model to new markets.
Competitively, Boost Mobile has become Sprint’s proxy to contain, get ahead of and take some of these carriers’ potential marketshare. Indirectly, T-Mobile has felt some of the sting as it looks to unlimited calling retention offers at a similar $50 price point. A combined MetroPCS and Leap will number under 10 million customers – would that be enough of a significantly disruptive force to change the prevailing postpaid model, dropping prices and make mobile calling and data a commodity as we’ve seen on the wireline side? It’s hard to say definitively but it may be unlikely in the short term as national carriers will have to see considerable erosion of customers before they react. Still if the economic clouds continue, a combined Leap-MetroPCS will only gain momentum. Yet a combined entity may provide but one pressure point.
What about the cablecos + Sprint + Clearwire alliance?
While cable companies are largely regional in nature and pro-competitive regulations prevent a national cable provider, there is still opportunity for cable companies to offer wireless services in competition with national wireless carriers. Despite the failure of Pivot, a cable consortium’s (Comcast, Cox, Time Warner and Advance Newhouse) wireless service collaboration with Sprint, cable companies still view wireless as a competitive imperative that they needed to address. In this consortium’s asset corner is the AWS spectrum acquired under the SpectrumCo name in 2006.
For its part, Cox is the most aggressive MSO returning to wireless as it announced its intentions to launch wireless services in the second half of 2009, using its cut of the AWS spectrum. To get off the ground Sprint will be its wholesale service partner as Cox builds its own 3G infrastructure. Unlike MetroPCS and Leap which have more difficulty in securing favorable national roaming rates, Cox can count on Sprint’s national network for roaming. So while Cox is solid in its 2/3G wireless strategy, what of other cablecos? None of the other companies have hinted on an approach and it’s uncertain that they will have the “owner’s economics” approach to build a wireless infrastructure that Cox is undertaking. But if they do and take advantage of their AWS spectrum, each cable provider can conceivably roam with each other in addition to Sprint. While all cable companies agree that a 4G data pipe is essential to their service proposition, there are different approaches. Moreover, it’s unclear how some of the consortium will address standard voice and 3G services.
Cox breaks away from Sprint and its cable brethren in 4G. Whereas Time Warner, Comcast and Advance Newhouse has put its eggs in the Clearwire WiMAX basket, Cox bets on LTE technology for its 4G future running on similar 700 MHz spectrum as other soon to be LTE operators. The common thread is that each cable company will need to extend their service proposition to the mobile screen much as their telco competitors are working towards. Given all this uncertainty, cable operators are unlikely to provide direct wireless voice competition to the big four but in data, it remains to be seen.
So is wireless competition necessarily dead? No, far from it, players are emerging on the scene. A combined Leap MetroPCS would bring their pricing models and provide competitive pressure at a minimum to the national carriers’ prepaid businesses and eat into the postpaid bases. The cablecos on the other hand stand to bring their own technical and pricing innovation that tie together their traditional fixed broadband, video and fixed voice. Interesting times do indeed await us.
Contact William at who@currentanalysis.com. Contact RCR Wireless at rcrwebhelp@crain.com.
