With the Department of Justice hip deep in a review of the proposed Sprint/T-Mobile deal and news this week that several state attorneys general are suing to block it, it’s clear that things are coming to a head. In my 30 years as an industry analyst, I’ve certainly covered – and been involved in – a great many telecom mergers and acquisitions. In many of the more controversial ones, including the most recent high-profile proposed deal between AT&T and T-Mobile, I could see both sides of the argument. But boy, I’m having a hard time seeing why T-Mobile acquiring Sprint is a bad idea.
My argument in favor of this proposed transaction boils down to three simple words: 5G, broadband, enterprise. I then ask those who oppose this deal to explain what the industry looks like if this deal does not go through.
1. 5G. Over the past year, 5G has become about a lot more than just an improved wireless network. It’s gotten caught up in a much broader geopolitical discussion, and rightly so. The prospects for 5G competitiveness are much better with new T-Mobile than without it, for two reasons. First, the combination of T-Mobile and Sprint spectrum holdings would allow them to build a broader and deeper 5G network, and much more quickly. We would be much better off with three good 5G networks than two (AT&T and Verizon) good ones, one mediocre one, and then who knows what with Sprint.
Second, without this transaction, and assuming Sprint survives (a big assumption), there will be a lot of duplication of infrastructure. A situation that is already a problem in a 4G world becomes much more extreme in a 5G world, given the significantly greater number of outdoor and indoor small cells that will have to be built. Permitting will be a nightmare, and 5G networks will take longer to get built and will be less ubiquitous.
2. Broadband. I’ve been incredibly puzzled by the government’s intense focus on the “level of competitiveness of the U.S. Wireless Industry,” while broadband remains a monopoly in half the country and a duopoly, at best, in the other half. Plus, U.S. prices are on the high end compared to peer countries, and our average speeds are decidedly middle of the pack.
Now, I’m not 100% convinced that wireless offers a viable alternative to fixed broadband, especially in well-served areas. BUT, wireless might be about the best option for the foreseeable future, in large part because there isn’t a lot more fixed broadband being built. Verizon isn’t building more FiOS. Google isn’t building more fiber markets. AT&T is focused mainly on rural areas and upgrading some U-Verse plant. Starry, and the likes of them, are only in small parts of a handful of markets, so it doesn’t look like they’re going to be a broad-based alternative anytime soon. So that leaves us with fixed wireless as the most viable alternative for additional competition in broadband or bringing broadband to underserved areas.
3. Enterprise. This is an area that I believe has not been the subject of enough focus among those looking at this deal. The most significant long-term potential for 5G is in the enterprise and in Industrial IoT. Today, AT&T and Verizon are the only major real players in that market. It will take significant investment and scale to take them on in the enterprise market. First, in terms of network resources – not only the outdoor small cell infrastructure, but more importantly, indoor networks. And as we’ve learned from the disappointing indoor small cell market to date, companies don’t want four different operators’ infrastructure in their facilities. Second, it will take significant people resources (read: jobs) to mount a viable competitor to AT&T and Verizon in the enterprise. It would be near impossible for T-Mobile and Sprint to do this independently.
Now, let’s take on the other elephant in the room, competition. Those opposing the deal appear intent on having at least four facilities-based wireless providers. I’ll reiterate my argument that they have not fully considered what the long-term prospects for Sprint are if this deal does not go through. It is difficult to envision Sprint competing effectively as a stand-alone entity, especially in a 5G world. And Softbank, its majority owner, has shown little appetite to provide Sprint with the resources needed to build a competitive network.
Again, it’s curious to me that there’s so much focus on competition in wireless, given the relative lack of competition in broadband. And, here you have DISH, which has spent billions of dollars amassing spectrum and owns enough of it to build a quite good 4G/5G network, if it so chose.
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So here, two questions must be asked: If the government is so intent on having another competitive wireless network, why has it not put more pressure on DISH to do something, rather than treating its spectrum as a development parcel to ultimately sell and profit from? And why have recent auctions drawn so little interest from new potential entrants, such as cable, other telecom, or even the well-heeled FANG gang?
So if the government is intent on preserving or increasing the level of competition in telecom, it should look at two options. First, it should look at this as a longer-term issue and consider broadband connectivity (wired and wireless) as one market. If it does, the logical conclusion is that the best prospects for more competition in broadband (including mobile broadband) are via some form of wireless.
Another approach could be to help promote a more viable resale/MVNO market. This has been a successful approach in the European broadband market and was a big miss in the 1996 Telecom Act that allowed cable/telecom a captive market and no requirement to permit resale. Requiring Sprint to spin out Boost is a small fry, relatively disingenuous option. More ambitious would be to require New T-Mobile to offer wholesale prices that would help create a more viable MVNO market. Naturally, this requirement would have to be extended to other facilities-based providers as well, which could be tricky. But this would create the opportunity for a potentially creative upstart.
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I’ll close with a question as to why the disproportionate focus on concentration in wireless compared to other industries, such as airlines, cable broadband, online advertising, ticketing services…the list goes on. For some reason, this transaction has become somewhat of a cause célèbre across multiple constituencies, even though there are few, if any examples, globally, of countries with four healthy, prosperous facilities-based wireless operators.
So at this fork in the road moment, I recommend those tasked with making a decision to ask three questions, in terms of New T-Mobile vs. Status Quo: 1) Which structure is better for 5G, as a matter of innovation and broader U.S. competitiveness? 2) What’s better for competition in broadband? 3) What are the long-term prospects for Sprint, and what does the industry structure look like, if this deal does not go through?
DISCLOSURE: I am not, nor have I been, engaged by T-Mobile or Sprint in relation to this transaction.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.