It’s been a long dance between Sprint and T-Mobile, but it looks like fate has finally had her way. The two companies announced on Sunday that they will, after all, merge into one venture, with T-Mobile looking like it is firmly in control. That’s significant for a number of reasons, with the most important being that T-Mobile has re-imagined the mobile market, driving service innovation and growth, while Sprint has a terrible reputation for managing mergers (Nextel anyone?). Of course, this deal still needs to get the blessing of both the FCC and the DoJ; and consumer advocacy groups will likely be screaming from the rooftops about how this merger could drive consumer prices upwards due to less competition, leading to potential challenges.
But we disagree. The pricing battle was never between Sprint and T-Mobile, but between T-Mobile and the Big Two. Indeed, Sprint has been steadily losing market share for years now and even though the carrier pulled out all the stops with highly aggressive promotions, nothing really seemed to work. Or rather, the promotions managed to attract new subscribers, but Sprint was still losing as many, if not more, subscribers than they pulled in each quarter. This goes to show that consumers want aggressive pricing and a strong network, and Sprint failed the consumer perception test on the latter point at least.
But if Sprint was not an influencer in terms of keeping pricing down, the carrier certainly does employ a lot of people. And with any merger comes the inevitable consolidation. Yes, both carriers are talking about how the new merged entity will drive job growth, but it’s a somewhat questionable claim. Job growth will presumably be driven by the 5G network build out in rural areas, which would happen with or without this merger. Indeed, one could argue that if Sprint and T-Mobile were to remain two distinct entities, there would be even more job growth. Furthermore, we must expect a significant consolidation of stores over time, driving more job cuts.
However, it’s not clear if Sprint would survive as a standalone entity long-term - and nothing says job cuts like a struggling carrier. So, overall, the merged solution will protect more jobs, we suspect. And let’s also focus on the positive, with the economies of scale that come from the new entity only needing to build out a single 5G network. This is likely to be a faster deployment, with deeper pockets of spectrum, than either carrier could do alone, meaning a much better consumer experience overall.
But while this deal has many positives to it and is, perhaps, inevitable, it also feels rather like a quaint, old school deal. Yes, it’s necessary, but let’s consider how Verizon and AT&T have been pushing for a broader digital content strategy through acquisitions such as Yahoo!, DirecTV, and (coming up) Time Warner. The combined T-Mobile/Sprint venture will need to pretty quickly look for a comprehensive content strategy to compete effectively against the Big Two.
Which brings us to the other news of the week, this week should see the closing arguments in the Time Warner/AT&T merger debate. Both sides have some valid points, but the deal should be allowed to go through, especially as the T-Mobile/Sprint news changes at least part of the debate. Sure, the two deals are fundamentally different (one vertical, one horizontal), but they both demonstrate the need for mergers and acquisitions as the very foundation of the competitive landscape continues to shift in this digital economy. Having said that, rational digital arguments don’t necessarily sway the day, so many of us will be watching the events unfold with great interest.