Sprint, T-Mobile Merger Rumors Are Nothing More Than a Trial Balloon

 
 
By Wayne Rash  |  Posted 2013-12-16
 
 
 

Sprint, T-Mobile Merger Rumors Are Nothing More Than a Trial Balloon


Last week a set of rumors popped up in an occasionally reliable newspaper called The Wall Street Journal to the effect that Sprint was considering a purchase of its smaller rival, T-Mobile.

The newspaper didn't attribute the report to specific sources, but only stated that it was told by "people" that this could be true. I'll avoid a discussion about unattributed and unsourced stories other than to suggest that we might want to take this report with a grain of salt.

Here's what likely happened. Somebody at Softbank, which is the majority owner of Sprint and is the Japanese carrier run by billionaire Masayoshi Son, called a buddy who knows somebody at The Journal and said something to indicate that somebody at Softbank is thinking about adding T-Mobile to Softbank's stable.

There's no indication, either in the loosely sourced story at The Journal or elsewhere, that it went beyond this. Specifically, there's no indication that anyone has talked to T-Mobile or its majority owner Deutsche Telekom about such a plan.

The idea behind such a trial balloon is to see what the reaction by competitors, shareholders and the government might be if a merger such as this one were to be proposed and negotiations were to ensue. So far, the reception has been largely negative. It's hard to see what T-Mobile would gain from such a merger, and it's unlikely that T-Mobile's stockholders would benefit.

The most likely reason this was floated now is that there's a new chief at the Federal Communications Commission, and Softbank is testing the waters to see if the new FCC chairman, Thomas Wheeler, is any more likely to be open to a purchase of T-Mobile than his predecessor. Wheeler is, after all, on record as being in favor of the AT&T purchase of T-Mobile.

But as they say here in Washington, that was then, this is now. In those days Wheeler was a telecom lobbyist and whatever he said was at the behest of who he was lobbying for at the time. His actual beliefs now as the chairman of the FCC may or may not have any relevance.

The other reason for floating the idea of buying T-Mobile now has to do with Softbank's Son and his penchant for building his company through aggressive corporate acquisitions. Over the past 20 or so years, he's bought a number of technology-oriented companies, including the original owner of eWEEK's predecessor print publication PC Week, Ziff-Davis Publishing, in 1995 before selling the company off in pieces in 2001 in the midst of the dot-com bust.

 

Sprint, T-Mobile Merger Rumors Are Nothing More Than a Trial Balloon


He also bought the once-legendary and now-defunct Comdex computer industry trade show in 1995 and sold it in 2001 after a precipitous drop in attendance and exhibitor participation.

His cell phone operations in Japan have failed to grow beyond third place in the competitive market there, and his so far brief ownership of Sprint hasn't led to any significant growth. While Son is known for aggressively acquiring companies, his track record at actually running them isn't as stellar.

This leads to the question of why anyone might think this is a good idea, outside of the Softbank executive suite. Of course it's easy to see why Softbank might want T-Mobile. After all, the self-described un-carrier has grown faster than any of the other U.S. wireless companies. Its new contract-free pricing strategy is transforming the wireless industry. Under CEO John Legere's leadership, T-Mobile has turned the corner. Clearly Softbank can recognize success when it sees it.

But would the Department of Justice think it's a good idea? After all, T-Mobile is doing exactly what the Department of Justice wanted to see when it sued AT&T to stop the last merger attempt. It's performing in exactly the way the FCC wanted when it called the merger into question. How would reducing the competition in the United States benefit consumers? Clearly it wouldn't. In fact, a Softbank purchase would ensure that T-Mobile's challenge to business as usual would be shut down. It's likely the old, anti-consumer ways would return.

We would, in effect, see our wireless industry become like the three-way competition in Canada, where contracts are expensive and service is mediocre. Regulators in the United States have repeatedly held that four competitors are necessary to ensure a healthy industry, and that three won't do.

So the next question becomes, will Softbank try anyway? That's hard to say, but a look at Softbank's track record seems to indicate that the company believes it can do anything it wants with enough money.

If the matter were simply one of selling stock, then it could do just that. But there's more to it than that. Regulators must also believe that such an acquisition is in the public interest. It's hard to imagine a situation in which a Softbank acquisition of T-Mobile would be in the public interest.

On the other hand, it's quite clear that by diminishing competition, especially when the competitor being eliminated is the one that's the most transformative, would hurt consumers. Effectively, wireless service in the U.S. would go back to being expensive, unresponsive and uncompetitive.

U.S. consumers would suffer just so that Son could expand his telecommunications empire. But are Son's ambitions worth reducing competition in the U.S. wireless industry? I don't think so.

 

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