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November 6, 2017

Unpacking the doomed T-Mobile / Sprint merger

by John_A

The T-Mobile / Sprint merger isn’t going forward … for now.

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For what appears to be the third time in under four years, a proposed T-Mobile / Sprint merger has fallen apart, leaving the U.S. wireless market in the same confused state it’s been in for a long time. According to a press release issued by T-Mobile, “the prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders,” but those reasons were not elaborated upon.

The truth is that U.S. mobile customers have never had it better: T-Mobile’s ‘unlimited’ gambit in February largely upended the way AT&T, Sprint and Verizon do business, putting pressure on all three to offer more value for its users’ monthly fees, or risk them leaving for pinker pastures. And, as true competition tends to do, that’s exactly what happened: T-Mobile has led the industry in net smartphone additions throughout 2017 (and for many quarters before that), while Verizon and AT&T have been forced to match it feature for feature.

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But T-Mobile’s success has not precluded the advancement of its biggest rivals. While AT&T struggled to add new wireless customers in the third quarter, its wireless business is very healthy, and its churn (the number of customers that leave for another carrier) remains quite low at 0.84%. Verizon added far more postpaid smartphone customers (the ones that pay more per month) than AT&T in the third quarter, and earned a tidy sum of money in the process, but it too is struggling against the unceasing momentum of T-Mobile.

Sprint also added more postpaid wireless subscribers than analysts expected (PDF), but that’s because it’s been undercutting everyone else by a considerable margin, a move that’s not sustainable in the long-run.

So, yeah, a lot of numbers and stats to throw at you on a Sunday, but the upside is this: competition is good for the whole industry, and the more T-Mobile does to entice wireless customers to sign up for its compelling T-Mobile ONE unlimited plan, the harder the other three will work to prevent that from happening.

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A T-Mobile / Sprint merger wouldn’t have automatically killed competition in the U.S., but it would have had major implications in the long-term. Many analysts that supported the merger used other countries like Canada and Australia to show that three wireless providers can still foster healthy competition, but as someone who lives in Canada I can tell you that’s not necessarily true. A lot depends on the country’s size, the regulatory environment, and the way that people buy their phones.

A study conducted in late 2016 by Nordicity Group on behalf of the Canadian telecom regulator, the CRTC, found that Americans (and Canadians) pay among the highest costs for mobile service in the developed world, and while the unlimited plans that debuted in early 2017 increase the amount of data available per dollar spent, cheap high-speed data is still out of reach for many Americans. Those who don’t need unlimited plans have access to MVNOs, or alternative carriers, either owned by the Big Four carriers themselves (Boost Mobile, Cricket Wireless, MetroPCS) or licensed out through a network sharing agreement.

It’s never been better to be a wireless customer in the U.S.

Consolidation in the wireless market would not only eliminate choice in the high end, reducing the number of unlimited data providers from four to three, but it would have major implications for the dozens of MVNOs that rely on T-Mobile and Sprint — and their fierce pricing war — to balance out the prepaid market.

At the same time, consolidation may be good for those less price-sensitive; a combined T-Mo/Sprint would offer an incredible amount of capacity, bringing together a treasure trove of low- and high-band spectrum that would give the combined entity the strongest LTE network position in the country. With both companies moving towards 5G, capacity is going to be more important than ever.

Some MVNOs, like AC favorite Project Fi, which relies on both T-Mobile and Sprint, would likely benefit in both speed and coverage from a combined SprinT-mo, even though wholesale costs per gigabyte would rise in the long-term. And it’s important to realize that, even together, the two carriers would still be behind AT&T and Verizon in terms of total subscribers — Verizon and AT&T have around 148 and 139 million subs, respectively, while SprinT-mo would have a combined 125 million or so.

The network nerd in me is kind of sad to see this merger fall apart — I think it would have been very interesting to see just how much better T-Mobile’s network would become with Sprint’s incredible capacity. But the consumer in me, the Canadian that knows how disastrous a three-carrier system has been for the country to America’s north, is relieved.

A few more thoughts on this week:

  • I picked up an iPhone X. It’s the best iPhone by a mile, and the notch stops being distracting after an hour or so. The hardware is unimpeachable — Apple and Samsung are really the leaders in this regard. I’m a big fan of the stainless steel band, and the OLED screen is fantastic.
  • Moreover, I think Face ID is transformational; this is nothing like Samsung’s eye-scanning half-measures. It’s not “accurate most of the time” the way it is on the Galaxy S8 or Note 8 — it’s 100% accurate in basically every lighting situation. And it’s fast; I barely even realize I’m being authenticated since I just swipe as soon as I pick up the phone and it usually lets me right in. Every Android user should want something like Face ID.
  • Before I get murdered in the comments, I’m not suggesting that Android OEMs get rid of the fingerprint sensor; there are numerous situations where a finger is both faster and more subtle than sticking your face in the path of a camera. But I hope Face ID forces Samsung to overhaul the way it approaches facial biometrics, because this year’s phones don’t even come close to the iPhone X.
  • I am so ready to give the Essential Phone another try. At $499, this thing is a deal.
  • I’m totally smitten with the HTC U11+, which probably won’t come to North America in any official capacity. Shame, though: it’s exactly what I wanted the U11 to be.
  • I’m using the Pixel 2 XL as my daily driver, and I think the attention being paid to the screen is ridiculous. The OLED issues come nowhere close to overshadowing the phone’s numerous upsides.
  • As for the Razer Phone? Yeah, no.

Take care of yourselves.

-Daniel

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