Author(s): Raghu Gopal
About three years ago, CCS Insight believed that further consolidation in the US mobile industry was likely (see The Incredible, Inevitable Number Three). Specifically, under the right conditions, it seemed that an alliance between Sprint and T-Mobile seemed unavoidable in order for them to approach the scale of competitors AT&T and Verizon.
Now as talk of a potential tie-up between T-Mobile and Sprint is circulating again, it's fair to wonder if the conditions are right this time. There's a new presidential administration in the US, another generation of mobile infrastructure to roll out and what could be a motivated seller.
Sprint has reported negative margins for 10 quarters in a row, was surpassed by T-Mobile at the beginning of 2015 in total number of connections and has lost 1.5 million prepaid subscribers during 2016 alone, although it did pick up 700,000 post-paid phone subscriptions during the year.
These were not the turnabout results that SoftBank was looking for when it acquired Sprint in 2013. The US market has become increasingly competitive and returning to profitability could take more than cutting expenses and revising pricing. SoftBank might be suffering from a case of buyer's regret, but there is an opportunity now to make Sprint a profitable investment.
Things are certainly different this time. Sprint is now the number-four player in the US looking for a fresh strategy. T-Mobile has moved into third place and Sprint appears to be on the prey side of the acquisition equation this time around.
SoftBank and T-Mobile aren't able to make comments at this point owing to a current spectrum auction, but both carriers are well aware that the US wireless industry is still a two-tier market. T-Mobile's success over the past few years has been impressive, but it still has only half the subscribers of AT&T and Verizon. A combined T-Mobile and Sprint would allow the pair to approach the numbers of their larger competitors, and also create the scale required to reach the same level of profitability.
To be clear, this is speculation at this point and stories of acquisition talks between SoftBank and T-Mobile US could have been a Friday market movement rumour. Such things happen. Yet we'd be surprised if both parties — and providers like Dish Network and Comcast — weren't eyeing the market and weighing their options.
A consolidated US market could put the brakes on any fall in prices, a plus for all three major carriers, though an undesirable effect for consumers who have grown accustomed to providers leapfrogging each other in price and gigabytes. But things are changing at an increasing pace and the dynamics now are very different to three years ago. Given the daunting levels of investment in 5G networks on the horizon, there's a strong argument that three healthy players will be better for consumers in the long run.