The third largest U.S. carrier Sprint (S, Financial) is desperate to get a bigger share of the wireless market. Softbank CEO Masayoshi Son, who decided to enter the U.S. wireless market last year by acquiring majority stake in Sprint, is building various strategies to uproot the tyranny of Verizon (VZ, Financial) and AT&T (T, Financial). The Kansas player is assisting rural carriers by offering them access to the company’s spectrum, while they improve their own network. What’s the purpose? What’s it that Sprint’s expecting to gain through this move? Let’s try and unearth…
Delving deep
The U.S. telecom is by and large dominated by Verizon and AT&T, while Sprint and T-Mobile (TMUS, Financial) are distant competitors; thanks to their size. Son understands it quite well that Sprint, in isolation, stands little chance to challenge the likes of the top two. It’s only when it would combine with T-Mobile and win the confidence of others that the company would be able to fight the larger rivals.
The company’s entered into an agreement with Competitive Carriers Association (CAA), representing tiny mobile operators, through which smaller mobile providers would be able to utilize Sprint’s nationwide network until they build their own. On the other hand, Sprint customers would be able to use the better network of smaller players. At the trade show in San Antonio Son said that the program’s aimed at providing high-speed internet service to areas which were devoid of it. This would intensify competition in the market.
By aiding rural carriers in their network spending, Sprint is trying to build support and create a lobby that would endorse the telecom major’s combination with T-Mobile. Son believes that it’s time to raise resources, concluding his presentation by saying “Let’s fight back!”
Combination solution to end tyranny
Sprint is bent on joining forces with the fourth largest carrier. However, the government officials don’t look that excited about the proposal. The FCC and the U.S. Department of Justice's antitrust division are very cynical about the implications of the prospective merger. In an ideal wireless market there should be four national carriers, and a combination would reduce the number of players to three. But Son puts this in a different way.
He says that the merger would boost competition in the duopoly market. Son is so ambitious to increase Sprint’s competitive strength that it’s ready to defer profits for the time being as it’s pouring in billion to deploy a strong network. The company is keen on increasing its market share to such an extent that it’s ready to offer service at price cut level.
Whether or not the FCC would agree to the merger proposal remains a question. A few years back the FCC and the Department of Justice turned down AT&T’s proposal to acquire T-Mobile in a $39 billion deal, which clearly shows that the regulators dislike sanctioning big deals that threaten competition.
Parting thought
Although the regulators are acting like a roadblock on the way, there’s no stopping Son. He is trying various ways to convince the regulators that the merger is for the betterment for the industry as a whole. The fate of the deal is unknown, but in case it’s successful, both Verizon and AT&T would have a good run for their money.
