Why Sprint’s Case For T-Mobile Merger Is Logical But Bad For Consumers

sprint-logoJapanese telecom giant SoftBank owns a controlling share of Sprint and has made no attempt to hide its desire to acquire T-Mobile USA and merge the two companies into one. It’s a plan that makes sense from a business point of view, but could be a disaster for consumers.

“Without industry consolidation, for Sprint alone to become No. 1 in the U.S. is literally just a dream,” SoftBank President Masayoshi Son said in a quarterly earnings call this morning.

And he’s correct. It’s highly unlikely that Sprint, as things currently stand, could leapfrog both AT&T and Verizon to take the market leadership position without acquiring T-Mobile’s customer base.

But even then, the two entities would still not have the most wireless customers in the U.S. So all that would be accomplished is the removal of T-Mobile.

That would be one thing if T-Mobile were just another clone of the other players in the industry, but since its failed merger with AT&T in 2011, T-Mobile has shaken up the industry — from a distant fourth place, mind you — by getting rid of phone subsidies (a move that AT&T recently began to follow) and the creation of early upgrade plans (that all four competitors have since tried launched).

That doesn’t mean that T-Mobile is a good wireless provider; customers tell Consumerist that the T-Mobile network is still slower and has more coverage gaps than what they’ve experienced with the other providers. But the company’s disruptive presence in the marketplace can not be denied, and the fact that a fourth-place competitor can exert this much influence over much larger competitors demonstrates how desperately this industry needs to keep its last shred of open competition.

Son contends that a larger Sprint would actually be a good thing for consumers.

“I’m not content for Sprint to remain No. 3 because if we could grow bigger, we will offer aggressive discounts and services, just like we did in Japan,” he explained.

A merged Sprint/T-Mobile would have to offer up these discounts and services because so much money will have been invested in the acquisition that the company would need to do anything to cut away at AT&T and Verizon’s market share.

But the fact is that simply offering cheaper service isn’t going to cut it. If it did, T-Mobile and Sprint would be the top two players in U.S. wireless, as they both offer plans that are significantly less expensive than what the current leaders sell.

It would also require a huge investment in network infrastructure to play catch up to the bigger players, much more than the $16 billion pledged by SoftBank over the next two years. Let’s not forget that the T-Mobile and Sprint networks are not compatible, meaning that customers with single-band phones would not enjoy the benefits of a combined network, and that the company would need to spend even more to make this change. Heck, Sprint is just now finishing up the winding down of the ancient Nextel network it acquired nine years ago.

The question then would be how long a combined Sprint/T-Mobile could hope to offer deep discounts and make large capital investments in its network (not to mention the massive marketing effort that would be required to convince the public to switch to Sprint)? And what happens if Sprint does become the #1 or 2 wireless provider — do the prices go up to the point where the company earns back its investment?

There is also the prospect that a merger could backfire in glorious fashion, driving millions of disgruntled T-Mobile into the more expensive arms of AT&T and Verizon, if only out of spite. Thus, SoftBank would have spent billions to acquire not that many customers, leaving the company in a tenuous third-place position.

In 2011, Sprint CEO Dan Hesse was an outspoken critic of the proposed AT&T/T-Mobile merger, saying that the deal needed to be blocked so that “wireless competition will thrive and competition, in turn, will continue to drive investment, innovation, consumer choice, and U.S. global leadership in wireless communications.”

Guess this only applies to when other companies want to acquire T-Mobile.

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  1. FusioptimaSX says:

    How do we merge two incompatible networks? Will they remain separate? I can see Sprint dropping CDMA although they are “ever expanding” their data network, so everything would need to be changed. I just don’t hink it’s worth it to them. The companies NEED a 4th competitor to keep them on their toes. Sprint is horrible with it’s large coverage holes. On the other hand, how are they going to treat their “unlimited data for LIFE” customers once they finally to have a network that works properly?

    I don’t think it’s a good idea, but for some reason I love this logo.