Does T-Mobile really “need” a Sprint merger to be competitive?

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Image Credit: CNN

The dust has settled, and we’ve started a new week. But don’t let that fool you in to thinking that T-Mobile and Sprint’s rumored merger won’t be mentioned. Predictably, after the earnings call and Q1 results were announced, analysts jumped on the news with their view on what the carrier’s doing right, what it’s doing wrong and what it needs for future success.

One such analyst is well-respected Walter Piecyk who reports on T-Mobile’s return to revenue growth for the first time in two years. As we published a couple of months back, it was clear that – at some point soon – T-Mobile would shift from dropping revenue to growing again, and it’s delivered. Magenta’s 2.4 million new subscribers, helped onboard by the ETF payment program, has boosted T-Mo’s revenue, although it still lost around $150 million last quarter. Revenue is up, but profits aren’t quite catching up. Piecyk – however – sees this loss as a good thing:

“Telecom is a scale business,” Piecyk told International Business Times. “You want as much revenue for your fixed costs as possible, so it’s very important to grow revenue.”

But, in this market, it’s not all about revenue and profits. It’s also got to be about market share. Logic would state that you can’t really have one without the other. The higher the percentage of the available market you have, the more money you’re going to make. And Verizon – despite having a poorer quarter in terms of additions – still grew its market share in what was T-Mobile’s best ever quarter.

And his analysis doesn’t really get any cheerier from there. Verizon’s CEO, Lowell McAdam believes the ETF scheme doesn’t buy loyalty, and that those Verizon customers who did switch over to T-Mobile will eventually switch back for its coverage. A point with which Piecyk agrees.

“With the growth of wireless data usage … it’s going to be increasingly difficult for Sprint and T-Mobile to individually be competitive with companies that can spend more than both of them combined on their network.”

At any moment, either of the big two companies could percievably become just as competitive as T-Mobile in terms of pricing. They both have large enough subscriber bases, with large enough revenue streams to compete with T-Mo “…if they elected to…”

So what’s the answer? How can T-Mobile continue to compete effectively, start making profit and keep its customers loyal? Apparently, a T-Mobile/Sprint combo.

“Competition is not always about the lower price, its also about building a better network,” Piecyk said. Since T-Mobile and Sprint pay competitors to access their wireless networks, it increases both companies’ costs. By combining their spectrum and revenues, the two “would have an opportunity to build networks that have faster speeds than existing operators … and the capacity to handle it.”

Does he have a case? Undoubtedly. If T-Mobile could keep its brand, merging with Sprint would more than double its subscriber base and put it on even terms with Verizon and AT&T in the market share war. And, with the spectrum and infrastructure in place, it could give its network a boost too. It would be a short-term, and immediately visible improvement.

I think the worry here for T-Mobile fans is that the merger somehow, magically gets over all the regulatory, and then the Magenta brand disappears. And everything good just disappears.

Truth is though, that there are huge regulatory hurdles. No matter how much Masayoshi Son, SoftBank’s CEO, wants the deal to go through, the FCC and DoJ are clearly not in favor. And here’s the other kicker: If T-Mobile continues on its path, it will still be successful. It’s just returned to revenue growth, it’s got new A-block spectrum available to improve its coverage reliability, it’s re-farming MetroPCS’ CDMA network and using its spectrum to boost its LTE. What’s more, there’s a major spectrum auction upcoming, giving T-Mo a chance to improve even more.

If it continues the trend it’s on, T-Mobile will eventually overtake Sprint as the #3 carrier. And let’s not forget, Sprint’s not the only other carrier in the States T-Mo could merge with. We’ve seen a trend in recent years for larger carriers to merge with regional/prepaid ones. T-Mobile did it with MetroPCS just 12 months ago, and it’s reaping its rewards now.

More importantly, as far as T-Mo goes, it doesn’t “need” a merger with Sprint. It might need one to immediately compete with the two big guys. But it doesn’t need one to be a great carrier. As long as it keeps making the moves it’s making, adding subscribers, increasing revenue and boosting coverage, the only way is up, surely?

What do you guys think? Would you like a merger if it meant T-Mo was right up there with the two big guys, or would rather keep the identity and network as it is and just focussing on overtaking Sprint?

News via: IBT

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  • thepanttherlady

    Alright, I’m not as tech savvy regarding networks as some of you so I have to ask. Is it safe to assume that if Sprint and T-Mobile were to merge, the networks would end up being either GSM or CDMA? If that’s the case, how in the world does that help competition with two large GSM carriers and one large CDMA carrier (or vice versus)? I guess I’m not understanding how a merger helps the industry if essentially two carriers are eliminated (e.g. Sprint/T-Mobile due to a merger and AT&T/Verizon due to network). Thanks for any answers! :)

  • Fooser

    Son wants to limit any breakup fee if a deal did not go through. I do not think T-Mobile would go for that since their growth and good will with customers would evaporate the day any merger with Sprint is announced. Many people hate Sprint but love T-Mobile. Why would T-Mobile risk halting their business growth without a very significant payback if any deal fell through?

  • Jeremy

    This would be like a sprint and ‎Nextel . This would not be good at all. Anyone remember how bad that was? This is a click article till you have FCC saying they would even listen to this or even approve this type of deal. If merger took place it be years before it paid off as lots of work to be done.

  • josephsinger

    Even if Sprint and T-Mobile were combined it would still be a smaller combined company than AT&T and it would be a number 3 player with the same problem Sprint had when they absorbed Nextel unless Sprint becomes a GSM network (again.)

    • PMB01

      They’d only be smaller by a million or so subscribers. Not a big deal and much better than either’s position now.

  • Lan

    Have Sprint buy T-Mobile, keep T-Mobile’s game plans, convert Sprint’s tower’s to T-Mobile’s LTE and GSM network and you have a beautiful network full of coverage. I’d go back to Sprint if that happened.

  • J Torres

    My concerns are the infrastructure of the networks and the name of the merged company if it does happen. First concern I’m thinking of is the name of the company. If Sprint did purchase T-Mobile, I think they could not keep the name because it’s internationally used and SoftBank would be purchasing only T-Mobile USA. By changing the T-Mobile name to Sprint the perception by consumers wouldnt be positive because of the reputation of Sprint. That happened a lot when people stated that Cingular Wireless was “better” than AT&T after the merger. I worked with Cingular during that time and people thought the coverage and overall service was worse. Truthfully, nothing really changed until much later. Coverage actually got better with time but nothing changed, just the name. It was a challenge to explain to customers that it’s just a name change and how AT&T is more globally recognized than Cingular Wireless at that time. If, and it’s a big IF, Sprint could keep the name of T-Mobile it would gain positive growth because it’s globally recognized. But in my opinion I doubt that would happen.
    My other concern is the network. I think most of us know that the gsm network would be best to have for international use than Sprints. I’m just hoping that Softbank knows how much it would cost to convert them all back to gsm with their new sprint spark network deployed. Unless they do how T-Mobile is doing with MetroPCS towers by using their network and spectrum and converting them into LTE coverage. Then it wouldn’t be a big deal.

    Overall, I think it would take a long time for them (Sprint and T-Mobile) to truly show competition with coverage. If a merger did happen, I think with all the spectrum that Sprint has and how T-Mobile has its way of doing business will be a great positive force against the duopoly.

  • spicymeatball

    I am a very loyal T-Mobile customer and don’t want anything to mess with the trajectory they are on. Once 2G/Edge is converted to LTE by 2015 they will be positioned to become number 3 carrier. That is good enough for me. The problem with being bought by someone is usually the buyer’s business model gets forced upon the bought company. Sprint needs to adopt T-Mobiles business model and shake up the market strategy. If they do this then customers and the SEC won’t have near the problem with a merger, but to remove the only carrier driving change and competitiveness is absurd.

  • Winski

    N O …….

  • Noel

    Without even reading the article, the answer to the question is a BIG NO. Tmobile will do just fine without ATT and so too without Sprint. Sprint is the one that need to worry about being competitive.

  • enkay1

    Honestly, I think T-Mobile needs US Cellular. Those 700 and 850MHz licenses would come in handy in the Midwest. Plus, they could definitely stand to gain service in Maine.

  • mn

    Does TMo need Sprint? To quote an old line…like a fish needs a bicycle.