There has been increasing chatter about mergers and acquisitions in the mobile space in recent weeks. SoftBank has again floated its desire for Sprint to acquire T-Mobile US, or to sell Sprint. The Wall Street Journal reported rumblings of T-Mobile US potentially buying Dish Network. This in addition to AT&T being well on the path to acquiring Time Warner. And, Verizon Communications is in the process of buying Yahoo despite apparent second thoughts.
AT&T has changed the game fundamentally with the purchase of DirecTV and the pending purchase of Time Warner. With the DirecTV acquisition, AT&T gained nationwide content aggregation and distribution to go with its nationwide mobile broadband. Time Warner will give them high-value content, which can be distributed natively in their network or as internet content. How do others compete with this new AT&T with such a diverse portfolio of services?
Financial analysts, looking at the impacts of potential mergers from the perspective of investor benefits, may be favorably disposed to some of the potential being mentioned in the press. However, some mergers are not so good from a strategic mobile broadband communications perspective. Let’s look at the ones being mentioned in the press, and a few other potential combinations.
Sprint buys T-Mobile?
This is a terrible idea. Sprint under SoftBank’s stewardship has lost market position to T-Mobile US. Time and again Sprint and SoftBank executives have made statements indicating they cannot compete in a market with four nationwide mobile operators. Why should the future of T-Mobile US be entrusted to SoftBank? After failing to buy T-Mobile US in 2014, SoftBank has not shown resolute commitment to the U.S. market – reports are that they tried to sell Sprint. In addition, the potential merger of Sprint and T-Mobile US will do little to improve their long-term competitiveness versus AT&T. It would merely make the merged entity bigger without adding new capabilities. Finally, remember Sprint’s acquisition of Nextel Communications and the difficulties of managing incompatible technologies? Sprint’s CDMA 3G baseline is incompatible with T-Mobile US’ superior HSPA-based technology; they would have to turn one off quickly to really save money.
T-Mobile buy Sprint?
SoftBank has been having buyer’s remorse for years and has not made Sprint competitive. Selling Sprint is the likely end game for them. But, is T-Mobile US the right buyer? This is a bad idea, though not quite as terrible as Sprint buying T-Mobile US.
T-Mobile US does not need Sprint. After all, T-Mobile US does not need to spend tens of billions of dollars to get Sprint’s users. They can pick off users through churn while avoiding the technological dissonance of Sprint’s CDMA network. T-Mobile US has better options – any amount spent to buy Sprint would be better invested in expanding and improving their network.
T-Mobile and Dish Network merge?
This is a good idea. This combination would be a smaller, nimbler version of AT&T/DirecTV, one that can be quite competitive. Dish has great spectrum assets to contribute to a merged entity, plugging one perceived weakness in T-Mobile US’ recent market charge. There would still be a content gap versus AT&T/Time Warner, which subsequent actions could address.
Comcast merges with Sprint or T-Mobile?
This is a good idea, similar to a possible T-Mobile/Dish combination, with regional rather than national scope. Additionally, Comcast has high-value content through its ownership of NBC Universal. This combination would be a strong regional competitor to AT&T/Time Warner that could expand to become a national competitor.
Verizon merges with Charter?
Who would such a merger benefit? Verizon already has content aggregation and distribution capabilities through Fios, despite having sold some major markets to Frontier. Charter would expand the footprint somewhat. It is not clear that such a merger would provide any long term strategic advantage from a mobile broadband perspective any more than Yahoo and AOL.
Remember when long distance was a separately billed service? Those days are long gone. Long distance has been incorporated into the overall mobile voice service. AT&T’s merger moves point to a potential bifurcation of the mobile services space: in one corner, the mobile multiservice providers, with access, distribution rights and original content; and in the other corner, mobile network operators providing basic mobile broadband access. The key question is whether basic MNO service has a sustainable future. The days of the standalone mobile network operator may well be numbered, with AT&T’s recent M&A actions being leading indicators of the future – a future in which mobile network access is a subset of vertically integrated services.
Madan Jagernauth has more than 24 years of experience in the wireless industry, including leadership roles for internationally recognized companies like Huawei Technologies and Nortel. With a master’s degree in Engineering and a MBA in Telecommunications Management, he has a broad understanding of business and technology strategy, with a focus on innovative solutions to solve real-world problems. Today, he 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. He can be reached at madan@futuremobileservices.com. www.futuremobileservices.com.
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