Sprint’s Dreams of T-Mobile Merger Miss the Big Picture

by Matt Klassen on March 10, 2014

I have little doubt that Sprint and T-Mobile find their efforts at pricing, marketing, network development, expansion, and performance to all be left wanting in the face of the two-headed behemoth that is the current Verizon/AT&T duopoly in the American wireless market. It’s a concern that Sprint chairman Masayoshi Son plans to take straight to Washington in his attempt to assuage initial regulatory concerns over his company’s planned merger with T-Mobile; it’s a concern that will likely go unheard.

Further, I have little doubt, as Son argues, that its unlikely Sprint or T-Mobile will ever truly be able to compete with AT&T or Verizon on their own, meaning at least on the face of it Son has a strong case for further consolidation of the wireless market.

But try as he might to convince the policy makers and regulatory bodies of the soundness of his consolidation strategy, Son will ultimately have a hard time selling anyone on the merits of this proposal for the simple fact that it does nothing to solve the problem that currently prevents Sprint and T-Mobile from competing: it won’t effectively expand their nationwide coverage.

Son’s argument for the necessity of wireless consolidation rests on one simple foundation: bigger is better. With the Verizon/AT&T duopoly effectively controlling two-thirds of the American wireless market—and almost all of the profits—it means that no single smaller player can effectively compete with those incumbents, and such a paucity of competition stifles innovation and advancement—the reason American’s pay considerably more than other nations in the development world for considerably less wireless network performance.

To compete, Son argues, company’s need scale; the size to effectively establish themselves as a nationwide competitor. “With scale merit, we don’t have to settle with No. 3. We can compete fiercely,” Son said during the company’s earnings call last month.

But it seems in all this that Son has missed the reason that AT&T and Verizon dominate the American market like they do, because they are the only two to truly offer nationwide service, covering urban and rural markets alike. Its not simply their large subscriber bases that keep both company’s at the top of the market, it’s because they’ve worked to create this nationwide footprint, acquiring the necessary spectrum and building the necessary infrastructure to reach everyone.

It is primarily in regards to coverage and spectrum holdings that neither Sprint nor T-Mobile can truly compete, and given that both companies have the same sort of national coverage and the same sorts of spectrum holdings, a merger wouldn’t help solve either of those problems.

As CNET’s Marguerite Reardon explains, “Even though a merger with T-Mobile would effectively double Sprint’s customer base, it does very little to improve its spectrum position or expand its footprint. And it’s these two factors — footprint especially — that determine success in the wireless market.”

In the end, as regulators debate whether or not such a proposed merger will actually benefit customers it will likely hinge on these very concerns: will such a joint venture allow Sprint or T-Mobile to effectively improve their service coverage or quality? Sadly, it seems, the answer is ‘no’.

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Written by: Matt Klassen. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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