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Does Sprint and T-Mobile Merger Make Sense?

February 15, 2014 | About:

Both Sprint and T-Mobile may avoid answering speculative questions with regards to their possible merger. But Japan based telecom provider Softbank that has a controlling stake in Sprint, is no way shy to express the company’s keen interest in joining forces with smaller rival T-Mobile.

Masayoshi Son, Softbank’s President, is very vocal about the fact that Sprint would find it almost impossible to surpass its bigger rivals Verizon and AT&T, unless it merges with T-Mobile, the super charged national player that has made AT&T lose its sleep over it rising rivalry.

Son said that “without industry consolidation, for Sprint alone to become No. 1 in the U.S. is literally just a dream”. This is quite true since both Sprint and T-Mobile are way behind the two industry giants. But will the merger be good enough to shake Verizon and AT&T off their current position?

Source: phonenews.com

Evaluating the situation
Subscriber count -

At the moment, Sprint has a subscriber base of 53.9 million customers. Both Sprint and T-Mobile are distant competitors of the two larger national carriers when it comes to the customer count. Presently Verizon boast of a postpaid subscriber base of 97 million, with a total customer base of 122 million. Second largest U.S. telecom player AT&T has 73 million postpaid customers under its belt that brings up the total subscriber base to 110.4 million.

In case Sprint and T-Mobile merge, the combined subscriber base would increase to around 98 million customers. This means that the new combined entity would still trail behind the virtual duopoly of the Big Red and the Dallas carrier.

Source: dyn.politico.com

Are Pocket friendly plans enough to beat rivals-
T-Mobile has indeed revolutionized the wireless industry with its significantly less expensive plans against Verizon’s and AT&T’s pocket pinching wireless plans. The Bellevue based carrier shook up the industry by doing away with phone subsidies, and being the pioneer in introducing the early upgrade plans. All the other carriers Verizon, AT&T, and Sprint followed the footsteps of their compatriot. The company’s reasonable plans have actually become disruptive for the other carriers, AT&T in particular.

But offering cheap plans isn’t all that is required to top the industry. Had that been the case, Sprint and T-Mobile would have topped the wireless ranking charts as both Verizon’s and AT&T’s plans are way costlier. So what is more important that offering cheaper plans? It is the network service and its strength that counts the most in this industry. T-Mobile’s network coverage is much lesser and the speed is much slower than other providers.

Even if the combined entity offers economical plans it may not be able to contend with the likes of Verizon and AT&T. It is essential for the entity to improve the quality of its service and offer stronger and wider reception to its network users. This calls for mammoth investment in network infrastructure. Even Softbank’s planned investment of $16 billion over the next 2 years may not suffice.

Network incompatibility -
Sprint recently got risk of its cursed association with Nextel that proved disastrous due to network compatibility. We should not forget that both Sprint and T-Mobile run on different networks, so the stake is really high again. I am sure Sprint wouldn’t like history to repeat itself. There is also the risk of network compatibility.

The odds to the proposed merger
FCC not keen –

Several analysts feel that the Federal Communications Commission, or the FCC, would prefer T-Mobile to run as a standalone entity because of its recent success to stir the wireless industry by posing threat to much bigger rivals including AT&T. Also, as earlier emphasized by the FCC, the U.S. wireless industry needs four players to keep the spirit of competition alive.

Another transition not welcome –
Gartner analyst Bill Menezes also considers that Sprint T-Mobile merger isn’t advisable. Sprint, which recently sold its majority stake to Softbank, is in a transition phase and is already running behind schedule. Another combination at the moment could prove disastrous if not handled efficiently.

Also it is still unclear if the merger transaction would benefit customers at all. There is no doubt that the combined subscriber base would increase drastically, but making the current customer base of Sprint, that includes large enterprise users, undergo another transition could expose the company to risk. Several customers are already annoyed and have shifted from Sprint network as the carrier’s service was spoilt by the network disruption due to the Network Vision upgrade program. If there are no synergies of combination, customers would ditch Sprint’s network in no time.

So Sprint would have to weigh the consequences well and decide whether or not to proceed with the merger.

Rating: 4.5/5 (8 votes)


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