Sprint and T-Mobile: The Marriage of Figaro

In 1784, the story of two servants getting married despite the best efforts of their superiors debuted. In 2018, two underdogs in the wireless marketplace have announced their intent to marry, and the deal has all the makings of a brand new opera. From regulatory challenges to betting on 5G acceleration, it’s clear the transaction between T-Mobile and Sprint is chock full of opportunities, hurdles and drama. It’s also clear from the announcement that 80% shareholder Softbank has conceded the inevitable need for a transaction to benefit from their position in Sprint. T-Mobile will get a much needed infusion of subscribers, spectrum and infrastructure to accelerate growth and 5G deployment. What does this mean for consumers and businesses? With limited competition in the marketplace already, their are positives and negatives for everyone in this $26B deal.
Why Now
I have authored a number of articles over the years about Sprint and, bottom line, it’s been a slow avoidable death. Sprint has historically demonstrated an aggressiveness with disruptive technologies – usually so far ahead of the curve, it was impossible to monetize at scale. Just look at their early IPT and virtual network offerings. Or WiMAX. Now combine that with intermittent network quality, the botched Nextel acquisition and year over year financial metrics that fall far short of what’s required to be a leader in the marketplace. This transaction is a must-have for Sprint. T-Mobile, on the other hand, has earned a significant share of the marketplace with sharp marketing and branding, investments in spectrum and network quality, a go to market strategy that provided strong growth, and financials that demonstrate healthy margins and metrics. Sprint gets the business savvy (and edginess) they sorely need, while T-Mobile gets spectrum and acceleration.
Regulatory Approval
While it’s clear the two organizations have come to an agreement, there is no guarantee they will get the regulatory blessing to move forward. We have seen this happen before, such as the AT&T – T-Mobile deal in 2011. Sprint is by all measures the “bargain” carrier, offering unlimited plans at a significant discount compared to their competitors. With T-Mobile and Verizon leading the pack in charging a premium for service, this deal could be construed as a blow to access and competition. In addition, it limits the “big carrier” options to just three. That’s problematic given AT&T and Verizon both have bundled options beyond wireless service – essentially leaving T-Mobile as the only non-bundled option aside from their nascent Layer 3 offering. The Justice Department and the FCC have significant antitrust issues to navigate. It will also be interesting to see how the pending net neutrality repeal weighs on the FCC, given the sharp criticism they have received over stalling the legal process to the benefit of AT&T and Verizon.
Market Competition
For consumers and businesses alike, this is a deal that could seriously impact your wallet. Part of Sprint’s struggle has been with financial performance, especially in terms of margin, churn and ARPU. If T-Mobile is going to benefit (and not be drained) by the Sprint customer base, they will need to adjust the business model and pricing structure significantly until the deal “efficiencies” take hold (read reduced headcount and internal infrastructure costs). On the positive side, the deal may hopefully trigger a market-wide reaction from all players, meaning AT&T and Verizon could both be forced to offer aggressive plans and pricing to offset any potential or realized customer churn. T-Mobile has proven itself as an entity who can shift the status quo in mobile business models, a lesson AT&T and Verizon have already learned the hard way.
What About Wireline?
The hidden opportunity here for T-Mobile is the Sprint business and enterprise IPT business. It’s healthy, it’s growing, and it has Fortune 1000 clients with deeply embedded networks using Sprint services and technology. This could prove to be a benefit for business customers of both organizations. If T-Mobile can apply the business model innovations it has created in mobility to this segment, we could see some much-needed excitement in the space. This portfolio is also a new weapon for T-Mobile in terms of winning large enterprise business, which has not been a strong point to date.
5G Acceleration
Let’s say your everyday car is a 1972 Chevy Vega. Now, imagine you wake up one morning and your Vega has been replaced with a 650 horsepower Corvette. Aside from the obvious, your options and potential have changed. This is exactly the case with 5G, which once deployed will provide a viable foundation for the volume of coming data created by Internet of Everything. Both Sprint and T-Mobile have invested heavily in the spectrum required to deploy 5G on their respective networks, so the combination of the two should drastically accelerate their ability to realize deployment. Competitively, it could help them get to market faster with 5G than AT&T and Verizon.
Getting Ahead and Taking Action
While we know the parties are committed, it’s unclear if this transaction will be formally executed given pending regulatory review. In addition, it will likely take two or three years to realize the impact of the deal if it does happen. Nonetheless, it is recommended that clients of both Sprint and T-Mobile take action right now to ensure opportunities can be exploited, risks are mitigated and future planning includes potential merger outcomes. A necessary first step is a comprehensive review of your commercial terms and condition in current master agreements focused on change of control, pricing stabilization and termination rights. In parallel, develop a thorough assessment of your asset inventories for both wireless and wireline, the financial and operational metrics of each, and build a risk / disruption profile based on findings. Finally, given the uncertainty of the transaction, you should consider testing the market and garnering competitive options for your existing services. Knowing your options and the impact to your business will prove valuable as the outcome of the merger is finalized.

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