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Sprint's Hesse argues more consolidation will aid in rural wireless coverage

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Sprint (NYSE: S) CEO Dan Hesse said that creating a bigger No. 3 carrier in the U.S. market would lead to better coverage in rural areas. Though Hesse did not specifically address a merger between No. 3 carrier Sprint and No. 4 carrier T-Mobile US (NYSE:TMUS), in an interview with Cnet he said that the creation of a larger rival to AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) would likely lead to that third carrier providing better coverage in rural areas.

"If you have more customers, you can afford to build a larger network," Hesse told Cnet in an interview earlier this week. "Only then do you have the revenue to justify building in smaller suburbs and rural areas."

As Cnet pointed out, AT&T and Verizon command fully 73 percent of all wireless subscribers in the United States. The combination of Sprint and T-Mobile would create a carrier with roughly 103 million wireless customers--still behind the 122 million that Verizon has and the 116 million that AT&T has, but within the same league.

"If you live in an urban core, you will have access to AT&T and Verizon and you'll also likely have access to T-Mobile and Sprint," Hesse said. "But when you go to less populated areas, Sprint and T-Mobile might not be there."

Hesse said that creating a bigger rival to AT&T and Verizon would give that carrier the financial wherewithal to invest in coverage for rural areas. He said that, today, Sprint and T-Mobile aren't able to effectively cover rural areas like their larger rivals, simply due to their smaller size.

Nonetheless, Sprint is clearly working to improve its position in rural areas. The carrier earlier this month announced it is working with 12 rural and regional operators to expand their LTE footprints by offering them low-cost access to Sprint's LTE network and helping them get access to devices with 700 MHz Band 12 capabilities. Those carriers are part of Sprint's new Rural Roaming Preferred Program, which Sprint developed in conjunction with the Competitive Carriers Association.

Interestingly, Hesse's comments in favor of more consolidation--that it will improve rural coverage--essentially mirror the arguments that AT&T CEO Randall Stephenson made recently in favor of AT&T's effort to acquire DirecTV (NASDAQ: DTV).

Hesse's comments are also a further indication of SoftBank CEO Masayoshi Son's desire to marry Sprint and T-Mobile. For months, Sprint and SoftBank executives have been discussing the benefits of such a tie-up, and reports continue to indicate that Sprint and SoftBank are lining up the necessary funding to make a public bid for T-Mobile. Reports indicate that bid could come sometime this summer.

However, the merger could face significant regulatory opposition. Representatives from the Department of Justice and the FCC have made clear their desire to retain four nationwide wireless carriers.

But SoftBank's Son recently told a group of reporters in Tokyo that he is hopeful that there will be more discussion about a possible acquisition of T-Mobile by Sprint--and that more discussion will lead to less resistance from regulators to a possible merger of the two companies.

For more:
- see this Cnet article

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