T-Mobile and the Dish Network: Please Let It Happen!

The corporate merger dance can be a protracted one, with partners eyeing each other and making inviting gestures, before suddenly leaving the dance with another partner; or, it can be a case of eyeing each other and suddenly the suitor aggressively carries off the apple of his eye.

T-Mobile badly needs a merger partner, and more than that it BADLY needs spectrum, more towers and better service for its growing, but often poorly served customers.  Dish Network needs a merger partner, although their mercurial CEO isn't sure what he wants to merge and what industry he wants to dominate, e.g. wireless, home entertainment or content.  It has plenty of spectrum that is essentially sitting around like excess cash, it makes shareholders antsy.

Regulators, for some unknown reason want four strong wireless companies.  Right now the former Bell stepchildren, Verizon and ATT are the giants, and Sprint and T-Mobile the runts of the litter. Absorbing T-Mobile would give them a much stronger third player, and it would satisfy the long-held desire of Deutsche Telekom to divest its investment.

As a long-suffering T-Mobile customer, I am hopeful, but listening to the T-Mobile CFO talk about a potential deal or "partnership," I wonder if anything will come of this.  Watching for my text of the deal being done!

Telecoms Start Racing to the Bottom

We wrote a while back about Masayoshi Son's potential impact on US retail cellular phone users, particularly because he wants to become number one in his markets.

Predictably, his first efforts at taking over T-Mobile met federal regulatory veto.

T-Mobile has forced some innovation on the industry by making it easier for consumers to get phone upgrades and by doing away with contracts. Their subscriber growth turned around.

Meanwhile, however, spectrum auctions are indicating that others perhaps have a better economic model and can pay more for spectrum that ATT, Verizon, T-Mobile, and Sprint.

So, the major carriers have put forward their "race to the bottom" business model of promising to cut monthly bills in half while offering unlimited data and phone service.  Clearly, this is not sustainable, as we have noted for years.  With spectrum prices rising, the cost of building out different network or adding other services is becoming prohibitive.

So, the WSJ notes,

"What difference does a month make? In telecom, the answer is about $45 billion.

That’s how much market value Verizon Communications Inc., AT&T Inc., Sprint Corp. and T-Mobile US Inc. have lost collectively since mid-November amid a fast-moving reassessment of the industry’s value by investors. The lost value is greater than the current market capitalization of Sprint and T-Mobile combined, and it reflects concern that cellphone service will be costlier to deliver and less lucrative to sell."

The carriers also got dinged on behalf of consumers by the Feds because although they promised "unlimited text and data" to all customers, heavier users faced slower download speeds, of course a form of rationing and making the whales pay for their consumption. If the fines levied are paid, then they either have to adopt some kind of utility pricing which is transparent, or face growing losses because their business models don't create value. 

Softbank: Mr. Son Channels Muddy and Bo.

I like Softbank CEO Masayoshi Son's style.  It is a very definite break with the general behavior of Japanese CEOs of multinational companies, with the exception of some of the Japanese auto makers.  The Wall Street Journal quoted Mr. Son saying, "I'm a man."  Since he went to school in the U.S., and since the blues are popular in Japan, it just hit me that he must be referencing Muddy Waters' iconic anthem of the same name.  It fits well with Mr. Son's message that he strives to be number 1.  Muddy performs with Little Walter and Bo above.

The Journal, echoing our sentiments from yesterday, characterizes the deal as "one of the more unusual deals in U.S. telecom history."  A decade long business relationship between Mr. Son and Sprint CEO Hesse dates back to when Hesse was CEO of TerraBeam and Mr. Son was a Cisco board member.  This is pretty traditional in most cross-border megadeals.

In an investor presentation yesterday, the WSJ reports Mr. Son telling investors,

"When two rich firms rule the market like a duopoly, we see this as a real opportunity for a challenger," Mr. Son said during a two-hour presentation to reporters Monday, referring to the two largest U.S. carriers, AT&T Inc. and Verizon Wireless."

Amen to that.   When he bought Vodafone's Japanese business, Mr. Son introduced discount marketing and quickly went from losing customers to rapidly gaining share.  Sprint went on the same kick in the U.S., but it hasn't proved sustainable, and they bet the farm, late in the game, on the iPhone.  It remains to be seen if SoftBank, which is now the third largest cellular carrier worldwide, can pull off a disruptive model in a U.S. market duopoly and thrive.

Mr. Son has a pretty good sense of humor, as the Journal reports him saying,

"In the last two days, Softbank's market capitalization fell by ¥1 trillion. That means we provided ¥1 trillion worth of anxiety to you. But when that money returns from its journey, it will come back to you many times larger in the form of multiple trillions of yen," said Mr. Son. "That's how I want you to see it."

U.S. consumers will benefit if Mr. Son can pull this off.  I'll be rooting for him.

Moshi Moshi!: Softbank Calling

More head scratching news from the U.S. cellular industry: Japan's Softbank is apparently close to a $20 billion deal for Sprint.  Despite the Sprint CEO's valiant attempts to make the company more relevant as a major player, Sprint's leadership, if you can call it that, is in the lower margin, prepaid customer base.

In the meantime, it seems that it is holding on to existing post pay customers by giving away unlimited data and calling plans.  It doesn't seem like a good business model for the long term. Softbank's acquisition seems to solve Sprint's problem of how to finance its 4G network build out  which analysts say will require $8 billion.

U.S. regulators, in the short term, should be pleased because nominally, the U.S. industry doesn't become anti-competitive, as Sprint gets life support.  The Wall Street Journal suggests that the end game for Sofbank/Sprint would be a consolidation of T Mobile.  This would seem to be anathema for regulators and seems unlikely.

Perhaps because of our legacy with wired telecom, our wireless industry business model has not delivered a world class service to consumers.  Sprint and T Mobile are devolving into low end players.  Verizon seems to be on the way to becoming like the old ATT, while ATT seems to be looking like the old MCI.

No carrier has spotless national, or even major metro signal coverage.  We pay too little for our phones, and too much for our monthly service.  Ordinary phone customers are subsidizing the "eat all you can" data plan customers.  Phone only consumers are being forced to upgrade to smart phones, with a minimum commitment to a $10 data plan, even if the consumer wants a new phone and no data plan. What happened to consumer choice?  What about listening to your customers?

Sprint's $8 billion investment is being made for the benefit of a relatively small number of users who aren't paying their freight.  It's hard to understand Softbank's motives for making this transaction  unless they are going to tear up Sprint's business model.  This, however, would not be the traditional Japanese style.  I would guess that Softbank analysts downgrade their ratings if this deal goes through.