The latest round of the Sprint-T-Mobile merger has been playing out practically in public, with daily play-by-play as if it were the baseball playoffs (and at a similar laconic pace). Although it is still possible that a deal will not get done, it makes eminent sense at a strategic level and at this particular juncture in the wireless industry.
I’ll leave it to the Wall Street folks to write about the deal mechanics and the cost synergies. Instead, I’d like to focus on why this is a good fit, and what the combined entity should do going forward, competing not just against Verizon and AT&T, but also Comcast, Charter, Google and Amazon—some of whom might end up being bedfellows in our frenemied tech world.
There are few examples, worldwide, where there are four national, facilities-based wireless operators who are healthy and profitable, and the U.S. is no exception. It’s always been ironic to me that the FCC (and the DOJ) has been so focused on the level of wireless competition, when broadband is essentially a monopoly in half the country.
But since the idea of a Sprint-TMO merger was last visited three years ago, the reasons for it have crystalized, and the reasonable arguments against it have withered. First, the industry as a whole is stagnating. The modestly growing IoT segment is not going to make up for the flat-ish revenue forecast against near boundless growth in data consumption and the network costs required to sustain that.
Second, we gave Sprint a(nother) chance. And they’ve executed, actually, quite well. But Sprint has been ailing for some ten years now and it’s difficult to envision them being fully virile in this competitive environment.
Third, if we take stock of the broader competitive landscape, plus the resources it will take to get us to 5G, a combined Sprint and T-Mobile will likely be better for the industry and consumers, given that Sprint’s 4G network is just now getting there (and arguably TMO’s too, outside cities).
The rationale for this combination becomes even more compelling if one considers where the industry is going, rather than where it’s been. To begin with, the competitive landscape has broadened. AT&T and Verizon have both diversified, whereas Sprint and TMO remain mobile pure plays. Cable is getting more interested in wireless, but has not fully decided how ‘all in’ it wants to be. TMO/Sprint, with their breadth of spectrum bands and depth, would make a great potential wholesale partner for cable. And cable’s Wi-Fi, fiber, and facilities assets would be a great fit for the backhaul, capacity, and small cell needs of TMO/Sprint.
One also has to figure that the internet giants will become more active in mobile networks over time. Look at the active role Google is playing with Project Fi, in 3.5 GHz CBRS and as a leader in groups arguing for licensed mid-band spectrum and for more unlicensed spectrum next to the 5 GHz Wi-Fi band. Indeed, the company acquired fixed wireless company Webpass last year.
I think we need to look at Sprint/TMO, and at the other wireless operators (and holders of spectrum, such as Dish) as broadband companies, not wireless companies. This doesn’t mean wireless replaces fixed broadband. But the shrinking deltas between macro and small cells, licensed and unlicensed, and fixed/mobile, plus new capabilities for shared spectrum, virtualization, and network slicing, mean that cable/wireless/telco are all in the same future connectivity soup. The industry needs some sort of realignment, or at least some new business models.
Which brings us to 5G. Sprint/TMO could very much alter the 5G equation. Until this summer, we all thought of 5G as a millimeter wave, 28 GHz and above thing. Now we have T-Mobile’s commitment to use its 600 MHz spectrum as [some form of] 5G, Sprint’s still underutilized 2.5 GHz holdings, and growing momentum for spectrum in the 3.7-4.2 band to be allocated for 5G. This sets up an interesting 5G battle between TMO/Sprint, whose assets are concentrated below 6 GHz, and AT&T and [especially] Verizon, who have made some pretty big bets on millimeter wave for 5G. It’s been instructive that there’s been a lot of noise from the Pai-led FCC on broadband and mid-band spectrum, while it’s been notably quieter on the ‘Spectrum Frontiers’ front.
Finally, let’s take a broader look at what a combined TMO/Sprint could be. For the first time in their collective history, there’d be no big holes in their spectrum holdings. That’s important in this “I need coverage everywhere but also zillions of small cells in cities” era. TMO/Sprint would have a great retail network, but could also be an important wholesale provider to a cable entity, Google, or other internet giant that comes along.
And those who are familiar with my thinking know that I don’t believe wireless will become a full-on substitute for fixed broadband for your typical Netflixing, AR-ing, urban/suburban household of the future. BUT, I think there’s a Crickety/MetroPCS-Y type opportunity for a discounted combo wireless/broadband option for those price-sensitive households that don’t want to spend $400 just for connectivity. A better capitalized Sprint, as part of TMO, could more effectively leverage the 2.5 GHz spectrum than it has been able to do, to date.
"Man in the High Castle" (based on the Philip K. Dick novel) fans will appreciate the Deutsche Telekom vs. SoftBank battle shaping up on who forms the executive team. The TMO triumvirate of Legere, Sievert and Ray must stay, unless they want to ride their stock gains into the Wireless Hall of Fame.
I’ve not been that impressed with Sprint’s marketing and strategy team, but the tech team led by John Saw and Guenther Ottendorfer bring some good capabilities to TMO with the work they’ve done with HPUE, Magic Box and Massive MIMO.
Sprint also has some great retail executive talent and has been doing a nice job with their stores. And one has to think that there would be some consolidation between all of the overlapping brands MVNO/flank/prepaid brands between the companies.
With all the gargantuan moves in the mobile/telecom space over the past two years—AT&T-DTV, AT&T-TW, Verizon-AOL-Yahoo, the multiple AT&T/VZ fiber, IoT, and 5G spectrum buys—one has to think that TMO and Sprint will not each ride, standalone, into the wireless/broadband future. After all, TMO might be giving away Netflix, but they won’t be doing the same with HBO and Showtime, too.
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.