Christmas has come early for wireless customers and Santa's stocking is stuffed with lots of free data. We are in the midst of the most aggressive fourth quarter/holiday season customer grab that I can remember. T-Mobile started things on Nov. 10, with the doubling of data (and accompanying price increase), and the Binge On video offer. A week later, Sprint announced a promotional plan, offering customers 50 percent savings on their prevailing rates with other carriers if they switch by Jan. 8. T-Mobile, clearly concerned, is offering customers unlimited LTE data for three months, $200 porting credits for Sprint subscribers, plus a grab bag of other goodies. PHEWW!
The Big Two have stayed largely above the fray, with some relatively minor giveaways and device promotions (Verizon…"ThanksGetting"…really?).
The offers from T-Mobile and Sprint are substantial, pushing the price per GB price of data -- the principal currency of wireless -- down as much as 50 percent. The price delta between Sprint/TMO and VZ/AT&T is now pretty meaningful.
So what happens when the dust settles? I think 2016 is shaping up as a pivotal year for Sprint, and as a stress test for T-Mobile. And, I predict that a year from now, there will be a substantial change in the industry's current structure. More on that later.
Pivotal Year for Sprint
I applaud Sprint for its aggressiveness. If you think about it, Sprint doesn't have that many levers to pull in order for customers to pay attention to them again: the network is better but still a work in progress; there is little device differentiation between the operators; Sprint doesn't have video assets like Verizon and AT&T do; and they are a relatively minor player in the enterprise market. So they had to do something aggressive on consumer pricing in order to grab some attention. It will be interesting to see the results from this six-week long "steal customers at nearly any expense" initiative.
But what will this look like, post Jan. 8, when the promotion ends? Sprint will have to have some sort of aggressive follow-on deal, since I can't imagine that the customer interested in switching on Jan. 9 will suddenly be paying double. This is all looking a little airline-esque, in that you have customers sitting in the same seats but having paid very different prices depending on when they bought their ticket.
Most importantly, 2016 has to be the year that Sprint executes on, and achieves meaningful differentiation with, its network. The kernels are there: when all cylinders are firing (carrier aggregation, 8x8 MIMO, the full LTE-A alphabet soup), the network sings -- I have been achieving speeds of some 80 Mbps download in certain locations. That's as fast as just about any wireless network on the planet.
The issue is, how wide, how deep, and how consistent will that experience be? On this point, Sprint remains obtuse. Other than "launch cities" and "priority markets," it is difficult to get a sense from Sprint as to how extensive the LTE Plus network will be -- not just how many markets but within a market. Will it reliably reach the suburbs? How good will in-building coverage be? What percent of cell sites in major metro areas will be equipped? What percentage of the time, or percentage of geography can a customer in an LTE Plus market expect to get those sorts of premium types of speeds? If the coverage is Swiss cheese, then it will be hard for Sprint to create meaningful offers attached to the "superiority" of its network. If the coverage is fairly comprehensive and predictable, the sandbox gets a lot more interesting.
The other piece of this is execution. Sprint's new regional presidents have work to do here (and they could take a cue from Verizon, which might be as boring as the DMV but is really good at this). Over the past week, I've visited five Sprint stores and called about 20 others, all in LTE Plus markets. Their salespeople are not well informed. Most of them don't know what LTE Plus is, nor can they say with much conviction where it's available and what it really does. They still call it Spark. Sprint -- is LTE Plus the same as Spark, does it replace it, etc.? I know the answer to this, but do your own salespeople, no less customers? There is some serious branding/re-branding work that needs to go on here.
Store reps need know what LTE Plus is. They need to know whether it is available in that market and what the general coverage picture is. They need to be carrying around phones or tablets, demonstrating that 80 Mbps download at every opportunity. Phones on display should be loaded up with SpeedTest, so customers can see for themselves. And Sprint needs to be clear to customers that the only way they can take full advantage of Sprint's network is on a phone with a Sprint SKU.
If Sprint's network is competitive in most places, and superior in many, then combined with aggressive (but sane) pricing, they might be able to take some meaningful share.
Stress test for T-Mobile
T-Mobile continues to roll out the goodies. It continues to be successful in re-defining the rules of engagement. But I think they will be tested in 2016. First, if Sprint executes on the above, it will become a more viable competitor for many of the same types of customers that TMO has been attracting. If the combined aggressiveness of TMO and Sprint starts having a meaningful impact on Verizon and AT&T, they might have to exercise some more muscle, which would be bloody for all. Second, is the question of whether T-Mobile's network has the capacity to absorb the generous data buckets, free video and so on. They continue to roll out 700 MHz A-band, which will help both the coverage and capacity picture. But as they gain share, and as those subscribers continue to use much more data than the industry norm and "Binge On," TMO's advantage in capacity per subscriber will begin to erode and they could experience quality and congestion issues in some markets. Third, TMO plans to spend fairly aggressively in the 600 MHz auction. How much longer is parent Deutsche Telekom prepared to fund expensive spectrum purchases, high network capex, and relatively low levels of profitability (as compared to "Dumb and Dumber")? I was pleased to see the price increases attached to most Simple Choice plans, as TMO needs to level the ARPU playing field and increase their margins.
A different playing field a year from now
Which brings me back to my earlier point. Even with all of TMO's success and Sprint's showing a pulse, Verizon and AT&T's profitability share outweighs their market share. It's like Apple and Samsung in the mobile device market (TMO is the Xiaomi). But I maintain a long-held view that the current market structure is not sustainable. There is no country in the world where there are four profitable, healthy facilities-based wireless operators. And, we have DISH as the wildcard, the potential for "new entrants" via the upcoming 600 MHz auctions, and the cable guys, led by Comcast, still trying to figure out the extent to which they want to get into the wireless game. We are in the state where the core wireless market is mature, and one operator's success generally comes at the expense of somebody else's. Yes, there's a big IoT market out there, but despite the "billions of connected devices" slides that we all love to trot out, the timing and contribution of IoT to the bottom line is still indeterminate.
This is my long-winded way of saying that the subject of consolidation could be revisited next year. With the passage of time and the upcoming election, a merger of Sprint and T-Mobile might pass regulatory muster. Or poker-playing Charlie Ergen, who continues to win at the game of Spectrum Hold 'Em, could finally make a move. If Sprint's network is headed in the right direction, those who considered, but passed, on acquiring them, might take another look.
So, expect to see some substantial changes in the wireless industry's structure and market share distribution in 2016.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.