Will T-Mobile’s Gains Stand in the Way of a Sprint Deal?
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Once again, T-Mobile is boasting about how its wireless growth outpaced the rest of the industry combined. And rarely does a week go by without CEO John Legere touting all of the many ways that his un-carrier is shaking things up.
“Obviously, this was just a record quarter by almost any measure,” Chief Marketing Officer Mike Sievert told Re/code on Thursday, following the company’s report that it gained more than 1.3 million postpaid customers. “The business is firing on all cylinders.”
But the question now is whether those market share gains — and all that bluster — will actually make it harder for T-Mobile and Sprint to complete a merger that many say the companies need to become a long-term competitor to Verizon and AT&T.
“The answer is 100 percent yes,” said wireless industry analyst Chetan Sharma. “It would have been easier to push through a deal if T-Mobile was weaker than it is today. In an ironic twist of fate, the recent success of T-Mobile has worked against them.”
In addition to its own gains, T-Mobile has clearly had an impact on the broader market. It led the way in shifting from two-year contracts and subsidized phones to a setup in which service providers separate the cost of monthly service and the cost of the device. AT&T, Sprint and Verizon now all offer such arrangements as an option for customers.
None of that, however, has dampened the interest of Sprint and its Japanese backer SoftBank in a deal.
In Washington, federal officials pretty much expect SoftBank to make a bid for T-Mobile at some point. SoftBank officials have been quietly lobbying to change regulators’ minds. Sources familiar with the matter say the company’s interest has been unwavering even in the face of opposition.
Weeks before, SoftBank Chairman Masayoshi Son gave a high-profile address in March to regulators and congressional aides just a block from the White House at the U.S. Chamber of Commerce, and SoftBank hired Bruce Gottlieb, a longtime FCC lawyer, to head the company’s Washington office.
Gottlieb was one of former FCC Chairman Julius Genachowski’s top aides, but he left the telecommunications industry in 2010 for a stint in the media industry at Atlantic Media. Since joining SoftBank in March, he has been leading the company’s efforts to change regulators’ minds about a possible deal.
This week, the company has been running ads in “Morning Tech,” an email newsletter from DC news site Politico popular with FCC officials, legislative aides and telecom attorneys.
“A true disruptor,” the ad reads. “SoftBank is a pioneer of next-generation mobile devices and helped drive wireless prices down more than 28% in Japan. With SoftBank, you should always expect the unexpected. Learn why at http://softbankusa.com/.”
Despite the quiet lobbying campaign, SoftBank officials don’t appear to have changed FCC Chairman Tom Wheeler’s mind about the deal. In February he told Son in a meeting that he had doubts about the wisdom of allowing such a deal.
Last week, he reiterated those concerns to reporters at a press conference, addressing a question about whether a Sprint/T-Mobile deal might be approved given some research suggesting that the companies might not be able to make it on their own in the future.
Wheeler dismissed the research, saying that you can always find research to make a particular point. “We are for a competitive marketplace,” he said. “We’re interested in making sure that ‘competition, competition, competition’ is the watchword in the industries over which we have responsibility.”
T-Mobile, for its part, is trying to walk a fine line, touting the impact it is making, while also suggesting that a merger would benefit consumers. Executives said allowing a Sprint deal would be like putting the current, scrappy T-Mobile “on steroids.”
“We believe this is a scale industry,” marketing chief Sievert said. “It would allow a disruptive player to become even more disruptive.”
One of the big questions is whether the moves that T-Mobile has made in recent months are the kinds of things that can be maintained long-term.
T-Mobile, for example, is offering to pay the early termination fees for customers who break their contract with another carrier. Sievert said the offer is worth it because it brings in customers that have higher credit worthiness and are bigger spenders.
“It will continue,” he said of the company’s “un-carrier” strategy. “It is sustainable.”
Others, though, doubt that.
“T-Mobile’s growth is actually coming at a significant cost,” said telecom analyst Jan Dawson. “Its margins, which were never great to begin with, have declined steadily in the last few quarters. So it’s not like T-Mobile is firing on all cylinders.”