T-Mobile seals merger deal with Sprint
cnbc.com
cnbc.com
We've seen in other markets that going from four to three results in increases in costs for consumers, while keeping investment levels flat: https://www.economist.com/news/business/21699143-country-mer...
I knew nothing about this. My irritation towards the airline industry is entirely based on poor quality / service, which seems (to me) to be the result of my having no meaningful options as a consumer.
Try starting an airline with free checked baggage, free meal and more legroom. If your ticket price reflects the added cost you'd be bankrupt in a few months.
Would it be so terrible if the legacy airlines were thinned, and more Southwest/JetBlue/Virgin America-type newcomers showed up? As it is American, United, and Delta are the largest three airlines in the world because they all had fairly sizable mergers.
This makes me wonder if those advantages of scale aren't greater than I thought, and maybe the merger would be beneficial.
But as a great admirer of what T-Mobile has done, and a since-voicestream customer, I'd hate to lose their scrappy underdog nature.
"First, merger is presumptively illegal under the 2010 Merger Guidelines. Based on data from Statista, HHIs will go from 2825 (already a highly concentrated market) to 3258. The 400+ increase more than double what triggers presumptive illegality."
It’s hard to imagine a merger that would make more money.
I think this is as much of a “throw shit at the wall and see what sticks” merger, but for the comapnies it makes perfect sense and it’s worth a shot.
I was part of an early Beta for T-Mobile using Nokia flip phones that would work over a regular WiFi router. Part of the testing involved originating calls on WiFi and then transitioning to Cellular and vice versa.
T-mobile's sell was offering no-contract service and having a network that you could buy broadly available GSM phones for (where with Sprint, you to switch carriers, you had to throw your phone away).
I really hope the merger will be more a mass transfer of Sprint customers to T-Mobile (and the existing T-mobile approach) but it could well involve the opposite; A big accumulation of customers could wind-up be squeezed for all they have as the combined effort is run into the ground. (that is a strategy that yield cash for investors, it's not more "irrational" than spending a bunch for growth, indeed, "build monopoly with low margins, exploit monopoly with high margins, little service and little capital investment" is natural for many companies and industries.)
I mean, keep in mind the two carriers have incompatible networks, incompatible phones and so-forth so soon or later, there will have to be a "reconning" where one ex-carrier's phones become useless, yay!.
I'd argue quite the opposite, for the next five years at least they'll have to work twice as hard after merging with Sprint, to make sure they don't implode. Sprint is carrying a giant debt bomb around its neck and has negative $24 billion in net tangible assets and $32 billion in long-term debt. Sprint has basically done nothing but lose money perpetually.
T-Mobile only recently got to a position of passable financial footing. Before that they bled red ink perpetually as well. It's a small miracle they weren't crushed by the duopoly. Their considerably negative balance sheet still shows the scars of that.
Combined the two will have $44 billion in long-term debt, with only T-Mobile's modest recent profit credibility to support it. They're likely to lose money, or close to it, initially as a combined entity until the Sprint side of the business is cleaned up.
Mistreating customers and abandoning what has worked so well for T-Mobile, would likely result in a financial disaster for the merged entity.
On the flip side, if they just do the obvious thing and keep doing what worked so well for T-Mobile - a few years out they've got a hundred billion in sales, a hundred billion dollar plus market cap, and $6 billion in annual net income, with the scale and resources to legitimately stand toe to toe with AT&T and Verizon.
This actually is increasingly not true. This deal also allows for Sprint customers to roam onto TMobile starting today, so the networks and phones are not as incompatible as you believe.
At one point T-Mobile had better plans for the public than Sprint had as a private perk.
I sometimes wonder what would happen if a Bezos or Walton wandered into telecommunications, seeking the lowest possible margins, what mad havoc it would wreak.
Oil and gas as a sector has pretty mediocre margins. Energy generally, even when it's not a utility with government stipulated rates.
https://seekingalpha.com/article/269679-oil-industry-profit-...
It's possible that the counterexamples are just outliers and you're still right.
Or maybe there's another factor, like you mention, how static is the industry and how much continual innovation or development is required.
Regardless, padded margins isn't necessarily an indicator of long term health. If you can safely charge your customers a significant premium, to pay for research or expansion for the health of the business in 10 years, there will be pressure from some shareholders and short term execs to raid the piggy bank. Keep prices high while lowering future investment.
The other odd thing about this as a hard law is MVNOs. Low cost competitors are renting space on existing networks. They're probably not paying lower than cost? I suppose they could be, but subsidized by the high paying customers of that network...
Hmm. I generally have a visceral feeling of being gouged any time I've paid any telecom provider, but maybe you're right and that's not entirely fair. I'll definitely have to give it some more thought.
Indeed, and I've been considering switching from T-Mobile to Verizon for exactly that reason, much as I like T-Mobile.
I'm a long haul trucker, and there are long stretches of I-90, I-80 and I-70 where I have to roam, and therefore data is capped. It's not a disaster, but it makes it more difficult to stay firmly and broadly (pun intended) connected to the web, my employer and my family when I'm roaming.
I've taken to having my phone look for existing networks whenever I stop. Verizon is almost always available, and T-Mobile is often not. I don't pay attention to Sprint's availability; I left them long ago because they're Sprint.
It's a good deal now that Softbank gave up on keeping control of the combined org and is satisfied with a minority stake.
Citations:
https://www.reddit.com/r/tmobile/comments/5usle9/exclusive_s...
https://allfor5g.com/ (combined Sprint/TMO 5G info microsite)
Disclosure: T-Mobile customer for 18+ years, no other relation
Sprint and T-Mobile are now mostly LTE carriers with each of them having a certain (small) percentage of their spectrum allocated for either GSM or CDMA carriers.
This slide deck makes it clear that their plans are to rapidly refarm the CDMA only subs to VoLTE as soon as possible.
https://allfor5g.com/content/uploads/2018/04/CREATING-ROBUST...
More than $6 billion expected run-rate synergies
JOB CREATOR FROM DAY ONE
How? Magic!
-source: run a large MVNO.
Remember- MVNOs exist solely to sell excess capacity, and the contracted rate for service is often renewed ever 3-5 years. This merger provides an opportunity to accelerate that review.
EDIT: I'm down-voted as well? Are my observations incorrect?
I didn't downvote you, but your observations are incorrect.
Sprint is going bankrupt, nothing is going to stop that as things are now for the independent entity. They're incapable of earning a profit, and are drowning in so much debt that it now is larger than their market cap - a classic inflection point that practically guarantees their business is going under. The public shareholders are being wiped out by the debt. That inevitable bankruptcy guarantees consolidation.
Sprint's annual debt interest expense:
2015: $2 billion
2016: $2.2 billion
2017: $2.5 billion
While they simultaneously bleed immense red ink year after year and their top line sales show zero growth for years. They're gradually being put down by the other three carriers. It was bad enough competing with AT&T and Verizon, now T-Mobile is kicking their ass too. This is happening in a market with near zero growth (ie heavily saturated), it's a near zero-sum outcome competition. For T-Mobile to keep growing like it has been, that growth has to come out of the pocket of competitors; Sprint loses, it's that simple.
In more realistic terms Sprint is already a failed business. Softbank is willing to sell into a minority position because they're very desperate, which should tell you everything you need to know about just how bad Sprint's situation is.
Consolidation is coming no matter what. The only actual choice is in how that looks. Here are the choices:
Merge with T-Mobile. Consolidation.
Sprint goes bankrupt and its pieces are sold off to competitors. AT&T, Verizon, T-Mobile emerge that much stronger. Consolidation.
Sprint is acquired by a very financially rich, massive company in the telecom space (ie Comcast, AT&T, Verizon). Few have shown an interest in buying them, where consolidation wouldn't be involved. There's a reason for that: they're a horrific money pit, which Masayoshi Son has discovered as everyone else before him did as well. Comcast is the sole hope outside of T-Mobile (AT&T and Verizon would not receive anti-trust approval to buy them), and that's a really terrible outcome. Comcast buying Sprint would be a consumer outcome far worse than consolidation with T-Mobile.
People are willing to pay Verizon prices for that guaranteed coverage. There are also places in north ga with bad coverage by T-mobile. They just happen to go out of their way to have coverage in college towns, but once you veer to far away - nothing.
The trade off is worth it for me, but not to other people.
The conventional wisdom is that Verizon has the best coverage, followed by AT&T, T-Mobile, and Sprint. But coverage is like politics -- everything is local. Or in this case, hyper-local.
For example, T-Mobile has outstanding coverage in the middle of the country thanks to its early acquisitions of PrimeCo and VoiceStream.
But I know a resort on the west coast where there is no Verizon, no AT&T, and no T-Mobile coverage. The only thing that connects is Sprint, because of an old Nextel tower in the middle of nowhere that was put in for the Forest Service back in push-to-talk days.
I'd rather them just block these things like they did up until the early 2000s ... but it's not unreasonable for them to break up the government granted monopoly on spectrums if they do allow mergers.
It concluded that markets with 4 or more providers were far better served (price, quality, coverage, etc) than those with 3 (which effectively is what the US will have now).
The UK blocked the merger of 3 and O2 on these grounds, as it would leave only 3 providers.
But expecting competition from the cable companies is a bridge too far. The cable companies are the most anti customer friendly companies in the United States.
My assumption so far is that things are shifting such that LTE/5G are largely replacing CDMA, US govt would still prevent a GSM monopoly situation.
Cable companies are competing though - comcast started in 2014 'xfinity wifi' rollout via leased modem then got into mobile in 2017. If I'm reading https://www.xfinity.com/mobile/ correctly, it's cost-competitive ($45/mo unlimited compared to $70/mo on tmobile) - and works with the iphone myself and many US consumers already have.
I'm guessing verizon may already be doing something similar with fios modems.
I don't see that happening. Xfinity Mobile is not a competitive product. It's just a Verizon MVNO. It can't seriously compete against Verizon, because it is Verizon.