The message coming from T-Mobile US and Sprint executives as they work to convince legislators that their proposed merger will be of benefit to U.S. consumers seems to largely come down to this: if you can’t beat ’em, join ’em.
T-Mobile US CEO John Legere has made criticism of the two largest U.S. carriers, AT&T and Verizon, a staple of his strategy and industry commentary. Sprint has gone so far as to hire Verizon’s former spokesman for its advertising. But both companies now say that unless they have comparable scale to their larger competitors, they won’t be able to compete against those companies effectively.
Here are five takeaways from Legere and former Sprint CEO Marcelo Claure’s Senate testimony this week.
–Sprint admits it is struggling. Despite the carrier’s frequent public emphasis on a “turnaround” in quarterly calls, Claure — now COO of Softbank — painted a bleak picture of Sprint’s financial competitive position: losing $25 billion in the last 10 years, struggling to attract and retain customers, with a network reputation that trails its rivals. In addition, he said, the carrier faces the need for new investments in 5G in order to compete, but is not in a good place to afford that infrastructure investment.
“We have struggled to barely break even, and will have to invest another $20 to $25 billion just to offer 5G in limited areas,” Claure said. He said that a combined network would have “six times” the capacity of the standalone networks and that the operator will need to lower prices in order to fill that capacity — forcing AT&T and Verizon to do the same and enabling the merged company to disrupt markets beyond the cellular space by providing wireless internet services.
–Emphasizing winning the global 5G race. Claure and Legere are framing the merger as a way for regulators to support the overall development of 5G in the U.S. — that neither company will be able to afford the necessary 5G network investments on its own, but together, they’ll be in a position (both in terms of spectrum and cash flow) to put up a strong, nationwide network.
“To deliver on the promise of 5G, we need to combine Sprint and T-Mobile now,” Legere said. (Tower company owners debated the impact of the proposed merger on infrastructure investment at ConnectX earlier this year — read the full story here.)
Legere also said in his testimony that the combined company would still have 1/8 the cash flow of AT&T.
The carriers continue to play up benefits for rural America. Legere said that the combined company plans to open five new call centers in rural and small-town locations to boost jobs, and to take on players such as AT&T, Charter and Comcast in the broadband market, enabling more cord-cutting in the broadband space.
Senators were concerned about impacts to price and competition — and they’re not the only ones. The Wall Street Journal has reported that the New York attorney general — joined by “dozens of other state attorneys general” is investigating the potential impact of the merger on the prepaid market — something that Boost Mobile founder Peter Adderton has raised as a concern related to the two companies’ combination. The Department of Justice has also been looking into the impact of the merger on the wholesale/mobile virtual network operator market, given Sprint’s history as the operator most willing to work with MVNOs and offer flexible pricing to such companies.
