Tuesday, August 12, 2014

As Sprint Withdraws T-Mobile Buyout Offer, Uncertainty Abounds

After months of speculation and high-level negotiations, Sprint, the third-largest U.S. operator, suddenly withdrew its offer for T-Mobile, the fourth-largest carrier in the country. While Sprint’s parent company, Japan’s SoftBank, had long expressed a desire to acquire T-Mobile in order to augment Sprint’s oft-bemoaned network and give the company the scale to compete with U.S. heavyweights Verizon Wireless and AT&T, regulatory concerns proved too great for the merger. On the topic, Tom Wheeler, chairman of the FCC (the U.S. telecommunications regulator), stated, “Four national wireless providers are good for American consumers. Sprint now has an opportunity to focus their efforts on robust competition.” Apparently the disintegration of the deal was not without some bad blood, with T-Mobile CEO John Legere making several inflammatory tweets afterward, including “Join T-Mobile now and jump off the Sprint bus before it crashes.”

T-Mobile has thrived through a combination of aggressive pricing and advertising and the extensive inclusion of add-ons to their plans, like its current offer of free data for streaming music services. While these tactics have served it well for poaching other carriers’ dissatisfied customers, ultimately for T-Mobile to continue its gains it will have to have a strong national network that can compete with the country’s largest players. Even Legere himself has recently implied that T-Mobile may struggle to continue its expansion without finding a partner: “If you look at the long term of the wireless industry, it is a scale game.”

The market is now left in an ambiguous position. There are other suitors for T-Mobile: Satellite television provider Dish Network has expressed interest, and French discount carrier Iliad (owner of Free Mobile) has made a US $15 billion offer for 56.6 percent of the company. The Iliad offer is particularly interesting, since, when it was made last week, it was largely seen as showmanship and taken lightly. While parent company Deutsche Telekom appears to have rejected Iliad’s offer for T-Mobile (which was a significantly lower valuation than discussed with Sprint), the French carrier may come back with a new offer, particularly since there are currently no other bidders. In announcing its initial offer, Iliad stated that it believed it would save US $10 billion annually through cost cutting and synergies. While we fail to see how these savings will materialize (particularly since Iliad has no U.S. presence), we must admit that there appears to be some commonality in corporate culture and strategy between the two operators. “T-Mobile has successfully established a disruptive position, which in many respects, is similar to the one Iliad has built in France,” stated Iliad founder Xavier Niel. Since arriving in the French market in 2012, Iliad’s Free has snagged a 12 percent market share largely on the promise of cutting household mobile bills in half. It appears that we will soon see if the U.S. market will face this kind of heightened price competition.

The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:

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