The merger of T-Mobile and Sprint is a triumph for the Un-carrier
Back in 2014, we stated that a merger between T-Mobile US and Sprint seemed to be written in the stars (see The Incredible, Inevitable Number Three). Now it seems that what we called the inevitable rule of three is about to kick in: the on-again, off-again merger of T-Mobile and Sprint — the third- and fourth-largest carriers in the US respectively — looks like it’s really on.
A US federal judge has given the go-ahead for T-Mobile to buy Sprint, a decision that will completely alter the look of the US wireless market. T-Mobile’s CEO, John Legere, called the decision “a huge victory” for the two carriers. The deal had already received the nod from the US Department of Justice and the Federal Communications Commission.
The goal of the deal is to build scale, combining not just subscriber numbers and a massive retail reach, but also the two carriers’ spectrum holding, creating one of the strongest frequency portfolios among the US carriers, as all furiously build out their 5G networks.
The merged companies will operate under the T-Mobile name, an obvious move given the successful brand-building strategy that the self-labelled Un-carrier has been working on during the past decade. T-Mobile has intentionally built a reputation as an anti-establishment rebel, constantly contrasting itself with its two largest rivals, Verizon and AT&T. T-Mobile, usually with Mr Legere as its frontman, painted an image of Verizon and AT&T as two heartless mega bureaucracies from another era. It’s a strategy that worked, allowing it to increase its number of subscribers by attracting many younger customers. Indeed, T-Mobile recorded 86 million customers at the end of 2019, 53 million more than when it launched its Un-carrier initiative in 2013 (see Instant Insight: T-Mobile US Results, 4Q19).
The post-merger T-Mobile will become the third-largest wireless carrier in the US, and it’s also expected to become the 10th largest global carrier by subscriber count, falling just behind AT&T. The Un-carrier is becoming a mega carrier.
The combined T-Mobile and Sprint would have a total of about 126 million connections. This compares with AT&T’s 141 million subscribers and Verizon’s 150 million. But it’s the post-paid phone subscriber numbers that make things interesting. Based on reported results for the fourth quarter of 2019, T-Mobile and Sprint together would have some 66 million subscribers in this category, which provides a constant revenue stream. The combined entity would have a post-paid phone market share of 29%. For comparison, AT&T has about 63 million post-paid phone customers, representing almost 28% of this category. The new T-Mobile would be the second-largest service provider in the post-paid segment, after Verizon, which has close to 91 million post-paid phone subscribers for 40% of the US market.
T-Mobile certainly has Verizon in its sights and is currently challenging it with 5G coverage. Even without Sprint’s spectrum, T-Mobile has been advertising nationwide 5G coverage, compared with Verizon’s small islands of 5G.
The merger means that T-Mobile will have a portfolio of high-, mid- and low-band 5G spectrum. Sprint’s 2.5 GHz airwaves offer a balance between coverage and capacity. They will support T-Mobile’s 600 MHz spectrum for wide area coverage into rural areas and the millimetre-wave band for fast speeds in densely populated locations. More than anything, this merger was always a “spectrum sandwich” play, with Sprint providing the meat in the middle.
Hardware makers have also been following the merger closely. US wireless carriers aren’t just service providers, but also among the world’s largest retail channels for smartphones. And although Verizon has a larger number of subscribers, T-Mobile has been gaining the most net additions, growing its total faster than rivals. This means new phone activations, thus new phone sales financed by the carrier. It’s likely that T-Mobile will become the largest seller of smartphones in the US. Apple, Google, LG, Motorola, OnePlus, Samsung and many smaller brands have been working with both Sprint and T-Mobile to build devices that work on both carriers’ LTE and 5G networks.
We note that there’s one final hurdle for the deal to clear: the California Public Utilities Commission needs to approve the merger and could push for more concessions. T-Mobile also might look to offer a lower price as the time to complete the deal expired in November 2019.
Given the momentum that T-Mobile has been enjoying, we believe that the merged entity, to be led by T-Mobile’s chief operating officer Mike Sievert, will really be a formidable rival to AT&T and Verizon. It will have a robust 5G network and will work hard to attract subscribers from other providers with competitively priced devices and service, boasting of better coverage and better deals. If 5G and foldable devices weren’t enough to make things interesting this year, the coming together of two large rivals will make 2020 a pivotal year for the US wireless market.
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