Sprint and T-Mobile Merger: Are Spectrum Assets Actually Convincing?
SoftBank Corp. chief executive and Sprint chairman Masayoshi Son has been on the offensive recently, having taken his case for a merger with T-Mobile directly to the Chamber of Commerce earlier this week. One of his arguments, that Sprint's spectrum assets lend itself to a merger, however, may not be so convincing.
During an hour-long speech Tuesday, Son appealed to industry officials and Washington suits for approval of a merger with T-Mobile. One of Son's major talking points involved a "price war" he hopes to bring to the United States with a larger network.
"I brought the network war and price war (to Japan). I'd like to bring that to the States," Son said at the U.S. Chamber of Commerce to industry officials.
"I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."
Son pointed out that Sprint's 2.5GHz band of spectrum is the same as the one SoftBank utilized in Japan to provide higher-bandwidth wireless networks. Having had experience expanding SoftBank's spectrum to compete with Japan's then-dominant carrier NTT DoCoMo Inc., Son believes he can apply the same lessons in the United States, but will need to scale up to compete with the two largest wireless service providers Verizon and AT&T, which together account for more two-thirds of the U.S. wireless market.
"We have the spectrum. We have the technology. But we need scale, efficiency to make an investment for the network," Son told reporters after his speech.
"We are already free cash-flow negative. So we can start a small fight but it does not scale, it does not last, it's not sustainable. We need to have a real fight, a long and deep and heavy fight. And for that, we need scale."
The true story, however, behind the Sprint and T-Mobile spectrums aren't as rosy as Son makes it out to be. As CNET's Marguerite Reardon points out, both Sprint and T-Mobile tend to provide coverage in the same areas, and lack coverage in similar locations around the country as well. Combining the two won't necessarily increase Sprint's footprint around the United States as much as the company publicizes it. On top of that, Sprint and T-Mobile lack a solid portfolio of low-frequency spectrums that can be expanded for less cost than high-frequency spectrums and provide indoor reception. In fact, T-Mobile just purchased its first low-frequency last year from Verizon.
Reardon hounds in one point: coverage is important. If combining Sprint and T-Mobile doesn't drastically increase Sprint's wireless footprint, then the benefits of a merger might not be as great. Sprint and T-Mobile are largely confined to urban areas, with poor reception in suburbia compared to Verizon and AT&T -- two companies that acquired their vast network through years of consolidating and acquiring smaller carriers.
Son's argument that there is a huge disparity between the top two national carriers and Sprint and T-Mobile is no doubt true. Even after combining customer bases, a Sprint/T-Mobile wireless network would still have fewer subscribers than AT&T. Still, as U.S. antitrust officials and the FCC deliberate in allowing a Sprint takeover of T-Mobile, Son will have to consider his arguments carefully. Most skepticism stems from a fear of shrinking the national U.S. wireless market down to three main choices rather than four. If Son can indeed bring a "price war" to the United States with T-Mobile assets and lower costs for consumers, and he can articulate that properly, a Sprint and T-Mobile merger just might be able to squeak through.
What do you think of a merger between Sprint and T-Mobile? Will having fewer carriers lend to better prices for consumers, or does less competition threaten to make wireless costs even higher? Let us know in the comments section below.
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