Sprint and T-Mobile merger fails. What it means for cellphone users. (+video)
Sprint announced Wednesday that it will no longer pursue buying T-Mobile. Normally, that wouldn't be important news to the average cellphone user, but whoever buys T-Mobile could drive down the price of a monthly plan.
Sprint offered to buy T-Mobile for $32 billion, an attempt, it said, to create a third viable company to compete against industry leaders, AT&T and Verizon Wireless. But the Federal Communications Commission (FCC) told Sprint that even if it was able to make a deal with T-Mobile, it would have a hard time getting it approved by regulators due to anti-trust laws.
“Four national wireless providers are good for American consumers,” Tom Wheeler, the chairman of the FCC, said in a statement on Wednesday. “Sprint now has an opportunity to focus their efforts on robust competition.”
Even though the Sprint and T-Mobile merger is no longer a possibility, there is little doubt that someone will buy T-Mobile, which is currently owned by Germany-based Deutsche Telekom. That could have a major impact for the average cellphone user.
Americans pay some of the highest rates for cellular coverage in the world, an average of $48.17 a month versus $32.51 in France, according to research firm Informa Plc. The lack of competition has allowed Verizon and AT&T to set high prices for monthly coverage.
“I think what it takes [to drive down the price of monthly coverage] is competition," said Scott Dinsdale, a vice president at KDP Advisors. "All you need is one company to set a much lower price and people will switch.”
But, Mr. Dinsdale adds, the price of entering the US mobile market is tough, really tough. Companies like Century Link and Windstream were expected to break into the mobile market but never did because they couldn't quite afford it. Cable providers, Cox Communications, Comcast, and Time Warner Cable, all tried to make their name in the mobile market, only to sell all of their cellular infrastructure over the past few years. They opted instead for packaging cable, internet, and land lines, and then adding cellular in with partnerships with existing companies, according to Dinsdale.
“The big guys just have too much of the market [for other companies to enter],” Dinsdale said. “They have saturated the market. They have enough [subscribers] to cover almost everyone in the US.”
That's why the average mobile user needs to pay attention to the future of T-Mobile. Whoever buys T-Mobile has the opportunity to challenge the current duopoly and drive down the price of a monthly cellphone plan.
Iliad, a French mobile upstart, offered to buy a 56.6 percent stake in T-Mobile for about $15 billion last week. It's reported that Deutsche Telekom turned down the offer because Illiad lacks a presence in the US. Another possible suitor is Dish Network, the satellite TV operator. The company has suggested in recent months that it may also be interested in buying T-Mobile.
“To the extent that Sprint either dropped out, or wasn’t interested, or the government wouldn’t allow it,” Dish's chairman Charles Eugene said in an earnings call on Wednesday, “then T-Mobile is something that we’d have an interest in.”
T-Mobile knows that an investment from another company can boost the company. John Legere, T-Mobile's CEO, told Bloomberg Television, “If I really want to bring long-term competition and lead this entire industry, capital is important. One of the accelerants could be a transaction.”
T-Mobile is already showing signs that it is gaining the trust of customers. In the second quarter of this year, the mobile carrier added almost a million new monthly subscribers, more than experts expected. But they will have to do more to challenge AT&T and Verizon.
“At some point it has to demonstrate that customers are choosing T-Mobile because of its underlying performance as a carrier and not because of gimmicks and giveaways,” Jan Dawson, an independent telecommunications analyst for Jackdaw Research, told The New York Times.
As T-Mobile waits for a buyer, Sprint, and its new CEO Marcelo Claure, must begin upgrading its services if it plans on staying competitive in a tight US market.