Analyst says Sprint and T-Mobile have to merge for both to live

April 11, 2014
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A new report from analyst firm New Street Research says that T-Mobile and Sprint will have to merge lest one of them is forced to fold.

According to the report neither Sprint nor T-Mobile can last for too long, saying that both lack the revenue needed to cover fixed costs. The firm also doubts if either carrier can gain enough new revenue, saying both need to raise an additional $10 billion in the next 18 months to stay competitive. “Both companies aren’t independently viable at the same time,” the report says. “We show that there simply isn’t enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share.” Remaining competitive, according to the analyst firm, would include buying more spectrum for both carriers.

New Street Research also makes an argument that in other countries such as Greece, the Netherlands, and Austria, consumer prices dropped when the wireless market consolidated to fewer competing carriers. The argument seems to echo Sprint chairman Masayoshi Son’s comments that Sprint would start a “massive price war” if it was allowed to merge with T-Mobile.

The biggest obstacles to that merger, as New Street points out, and most of us know by now, are the FTC and FCC. Neither government agency wants to see the U.S. carrier market shrink to three carriers. And their arguments make sense. From its current position T-Mobile has been able to shake up the industry with its Un-carrier plans. There is a legitimate fear that a combined Sprint/T-Mobile wouldn’t make the moves the current T-Mobile is making.

Maybe if one carrier was on the verge of failing the government agencies would be more receptive to the idea of a merger, but by then it may be too late. New Street says that at that point the merged carrier wouldn’t be able to challenge the AT&T and Verizon duopoly.

The New Street report is fairly depressing in that it makes a fairly reasonable argument for a Sprint/T-Mobile merger. It’s hard to see that merger being great for us as users. Sure, there’s promises of a “massive price war,” and the examples from other countries hint that maybe it would be a good thing, but there’s always a risk that promises won’t be kept and that the U.S. will prove the exception to the rule.

For now we’ll just have to hope that at least one of them can pull in the revenue needed to live and compete against AT&T and Verizon. The question is, which one would you like to see survive if one of them has to fail?

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