Enjoy it while it lasts.
Corporate mergers promise many upsides to shareholders and customers — that’s why consolidation happens. Those efficiencies include streamlined operations, the need for fewer employees, infrastructure improvements, better customer service, job creation, and, in some cases, lower costs for consumers.
In reality, though, it’s nearly impossible to check all of those boxes at once: lower prices may stem from internal efficiencies, but they often come with job losses or a reining in of capital expenditure. Consolidation in an industry like telecommunications leads to fewer competitors, which usually comes with pricing spikes, not dips.
So it’s with no shortage of hubris that, six years after a failed acquisition of T-Mobile by AT&T, the third and fourth largest carriers in the United States, Sprint and T-Mobile, are set to merg without the ensuing consumer bloodbath we’re all bracing for.
Bombastic and confident as ever, T-Mobile’s CEO, John Legere, who will retain the chief executive position at the combined T-Mobile, promises “a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience – and do it all so much faster than either company could on its own,” while Sprint’s CEO, Marcelo Claure (whose future at the company is surely in doubt), proclaims the unification will “only benefit the U.S. consumer.”
On the surface, one can see how the companies could make it work without ending this uncharacteristically competitive era in the U.S. mobile market: together, New T-Mobile will still have fewer postpaid customers (70 million) than AT&T and Verizon while maintaining the fervent desire to grow its customer base, increase average revenue per user (of which T-Mo currently boasts the lowest of the Big Four) by convincing more people to switch to higher-cost postpaid unlimited plans, and expanding its LTE (and, soon 5G) network into rural areas with additional low- and medium-band spectrum.
5 reasons to switch away from Sprint
And with promises of network investments of $40 billion in the first three years — 46% more than the two companies guided individually for the same period — there is reason to hope we’ll have yet another Verizon-quality network on our hands by the early 2020’s. Plus, there will be thousands of new jobs created to fuel said network expansion, capped by a 5G arms race that New T-mo intends to win. Win, win, win.
There’s a lot of bluster over job creation and long-term efficiencies, but it’s rare to find both in mergers like this.
But what speaks loudest are the things unsaid. With consolidation comes efficiencies, which inevitably leads to job cuts in the most costly and vulnerable of places: retail; customer service; technicians; middle management. Some analysts estimate that up to 30,000 jobs will need to be cut from the combined entity, which is more employees than Sprint currently holds on its books. Many stores, including hundreds or perhaps thousands of franchised dealers, could shutter. And despite a dual-headquarters strategy, it’s inevitable that some corporate jobs will be shed. The companies already promise $6 billion in “run-rate cost synergies,” and while much of it will be achieved by scaling upkeep-heavy projects, the people maintaining those projects will have to find new jobs, either within or without the combined entity.
5 reasons to switch away from T-Mobile
Of course, the main reason for concern for most people, excluding shareholders, is the reduction in competition. Yes, there will be one fewer large player in the U.S. mobile space, but T-Mobile and Sprint each owns a predominantly prepaid carrier in MetroPCS and Boost Mobile, both of which will no longer be as interested in stealing customers from the other. The prepaid market, while relatively small, is still a sizeable part of both companies’ revenue.
And with promises of network upgrades and huge swaths of 5G-ready spectrum, New T-Mobile will find ways to justify the higher costs of its faster, wider-reaching network. These are upgrades that both companies would have been forced to tackle on their own — T-Mobile’s push to cover rural America began well before it purchased the bulk of available 600MHz spectrum in 2017 — but will be able to do so faster and more efficiently as a single unit. New T-Mobile’s network will inevitably be better than it is today, but T-Mobile has outranked Verizon, AT&T and, indeed, Sprint, in network quality for a year, and has been relentlessly absconding with its competitors’ customers for half a decade.
So much about this deal hinges on the near-term demand for 5G, which is still incredibly nebulous.
In early 2017, AT&T and Verizon were forced to reckon with an aggressive T-Mobile intent on reintroducing the unlimited plan to American wireless customers. It had done the work to fortify its network in existing markets will utilizing new spectrum to push into untapped ones. With Sprint shouting, “Wait for me!” in the rearview, T-Mobile looked unphased as it continued to morph a newly-unregulated market into something of its making. It partnered with MLB, Netflix and others to offer content alternatives to AT&T’s Dish and Verizon’s … Oath? … and in December of 2017 announced the acquisition of Layer3 TV so it could soon offer its own over-the-top streaming service.
Which unlimited plan should you buy? T-Mobile, Sprint, AT&T, or Verizon?
The T-Mobile of today is not perfect by any means — it was just fined $40 million for faking call connections to rural customers where it didn’t actually offer service — but it’s the best we’ve got in a market that’s known for overcharging and under-delivering. So it’s not surprising, nor unjustified, that many customers and pundits are concerned that a T-Mobile/Sprint merger will be bad for everyone but shareholders.
Looking at the Canadian wireless market as a model, even with a small number of new entrants, networks will mature but prices will rise. Decreased churn comes not from happy customers but lack of pricing diversity.
— Daniel Bader (@journeydan) April 29, 2018
For some context, let’s look at Canada, where despite a few smaller players, three entrenched network providers control over 90% of the wireless market. Because demand for data is so high, business is good, so pricing competition is almost non-existent. Instead, the companies — Rogers, Bell, and Telus — have built mature, expansive LTE networks that offer excellent coverage and outstanding data speeds in exchange for the highest monthly costs in the developed world.
There is no unlimited data in Canada, and the “soft cap” of 22GB that Verizon and AT&T maintain would cost someone over $150 USD per month. While the comparison is not apples-to-apples — Canada lacks an MVNO market, for instance, and there are strong net neutrality rules preventing carriers from zero-rating services — there is ample evidence that a weakly-regulated market needs more than three players to thrive.
On the other hand, New T-Mobile is moving quickly towards 5G, which will completely transform the way we use and pay for mobile services. A robust nationwide 5G signal and the proverbial doors it opens could (and looks likey to) coincide with price increases that customers are willing to pay for, fuelled by a selection of freemium, zero-rated services that are only possible to deploy in a market with weak Net Neutrality rules.
The New T-Mobile may add so many customers so quickly, just by keeping prices low for the first few years, that layoffs won’t happen, or will be offset by significant investment in other parts of the company. It’s possible that, given the breadth of their agreements, T-Mobile and Sprint’s MVNO clients will find themselves with more wholesale resources with which to offer even better low-cost wireless LTE, padding New T-Mobile’s bottom line as it invests in the next-generation.
Maybe we’re being too hasty in judging this deal.
Or maybe I’m giving publicly-owned corporations far too much credit, and the best isn’t yet to come.
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