Sprint, T-Mobile merger collapse may not be such a great deal after all
The collapse of the Sprint, T-Mobile deal isn’t an unqualified boon for consumers. Sprint needed the deal to help fix problems, starting with the quality of its network. T-Mobile, too, needs more funding and marketing power to mount a real challenge against AT&T and Verizon.
“Consumers Win,” shouted the subject line of the email that rushed into reporters’ inboxes soon after the news emerged that Sprint was abandoning its bid for T-Mobile US.
Combining the third- and fourth-biggest U.S. mobile-phone companies would have meant higher prices and less competition in the wireless market, according to Free Press, a Washington-based consumer-advocacy group. Innovation would have taken a hit too. The Federal Communications Commission (FCC), never a fan of the proposed transaction, was also quick to revel in its demise.
“Four national wireless providers is good for American consumers,” FCC Chairman Tom Wheeler said in a statement. “Sprint now has an opportunity to focus their efforts on robust competition.”
Wheeler’s got it partly right. Keeping the companies independent maintains the status quo in terms of the number of service providers and plans they offer. It also gives T-Mobile Chief Executive Officer John Legere the chance to keep undercutting his bigger rivals with deals like unlimited music streaming and international-data roaming.
Even so, the merger’s collapse isn’t an unqualified boon for consumers. Sprint needed the deal to help fix the host of problems plaguing its business, starting with the quality of its network.
SoftBank, which owns most of Sprint, wanted to use a combined Sprint T-Mobile to build a stronger rival to AT&T and Verizon — one with the financial wherewithal and airwaves to serve a wider customer base that’s consuming an ever larger trove of data delivered wirelessly.
For now, Sprint is left muddling along with a subpar system, spending more capital even as it cuts fees to compete.
“You’re likely to have lower prices at least, even if you don’t get demonstrably better service quality from Sprint,” said Craig Moffett, an analyst at MoffettNathanson.
T-Mobile, too, needs more funding and market power to mount a real challenge against AT&T and Verizon, Legere said on a conference call last week.
“It is in an industry where the No. 1 and 2 players are hugely more powerful from the standpoint of scale and capital, etc., than the rest of the industry,” Legere said. “We see a path forward to be highly successful as a stand-alone company, but we also know that we could significantly accelerate that growth and create an even higher level of competition in the U.S. wireless industry by various forms of accelerating this platform.”
Even with four national carriers, it’s not like Americans are awash in bargains when it comes to paying for mobile-phone service in the first place. Compared with their European counterparts, consumers on this side of the Atlantic pay higher average monthly bills.
U.S. carriers got an average of $48.17 a month in revenue per user in the fourth quarter, compared with $32.51 in France, according to researcher Informa.
Just because this deal fell apart doesn’t mean another one won’t come along for Sprint or T-Mobile. Dish Network Chairman Charlie Ergen left open the door to going after one of the parties earlier Wednesday when he said the unraveling “probably increased some optionality that we had.” While he said Dish remains interested in T-Mobile, Ergen also lauded Sprint, saying it has better network assets than T-Mobile.
Then there’s Iliad. If Ergen opts to pursue T-Mobile, he’ll have to contend with the French mobile-phone carrier that has already made a $15 billion bid for control of the U.S. wireless company.
While T-Mobile is set to reject that proposal, Iliad is seeking partners to help finance its bid and let it make an offer for a larger stake, people familiar with the matter said this week.
A deal with Iliad, says John Simpson, privacy project director at Consumer Watchdog, would benefit users too.
“It has a reputation of being very consumer conscious and aggressively cutting prices,” Simpson said. “If they go through with their proposal and are allowed to make the buy, it would be good for consumers.”