T-Mobile's Marketing Campaign Shows Why a Sprint Buyout Is a Bad Idea

 
 
By Wayne Rash  |  Posted 2014-01-07
 
 
 

T-Mobile's Marketing Campaign Shows Why a Sprint Buyout Is a Bad Idea


T-Mobile CEO John Legere will announce on Jan. 8 the next step in the wireless carrier's "Un-carrier" marketing campaign. This time, apparently, T-Mobile will announce that it will pay the contract termination fee for customers who decide to join T-Mobile. The amount being talked about amongst the wireless cognoscenti is that T-Mobile will pay $350 per line, including lines for family plans if everyone in the plan agrees to switch.

The chances that T-Mobile would indeed make this offer were only bolstered by AT&T's announcement that it would pay up to $450 per line for T-Mobile customers who switched to that carrier. The difference is that AT&T will put you into a 2-year contract. This is all interesting, of course, but it's what's going on in the background that's the real story.

What John Legere is doing is showing the wireless industry that the FCC and the Justice Department were right when they pulled the plug on the attempt by AT&T to buy T-Mobile for $39 billion in 2011. At the time, AT&T said that preventing the acquisition would be bad for consumers. What Legere is doing is proving that allowing T-Mobile to remain independent provided an important market alternative for wireless customers.

But Legere is also doing something else. He's making it almost impossible for Sprint owner SoftBank to get approval to buy T-Mobile. The question is no longer open for discussion—clearly an independent T-Mobile is good for consumers.

Under Legere's leadership the wireless industry has been transformed. Contracts are disappearing, monthly rates are down, roaming charges are disappearing and even extravagant data charges are coming down. The wireless industry is now dancing to competitive T-Mobile's tune, and it's a tune that consumers are paying attention to. The company's offers brought T-Mobile an additional 1 million subscribers in the past quarter.

So if everything is going so hunky-dory for T-Mobile, why is SoftBank drooling at the prospect of taking over the company? Oddly enough, it has nothing to do with T-Mobile's new customer-focused efforts. In fact, Legere's efforts to disrupt the industry may stand in the way of SoftBank's effort to have Sprint buy T-Mobile. But it may not stop Masayoshi Son's efforts to try anyway.

It's important to realize that investors such as Son aren't particularly interested in T-Mobile as a wireless company as much as they are in finding a way to buy stock, have it go up in value, and then selling it again. Because Sprint and its owner SoftBank are already wireless companies, a purchase seems to make sense. But in reality, it makes no sense at all.

T-Mobile's Marketing Campaign Shows Why a Sprint Buyout Is a Bad Idea


Steven Pearlstein, writing in The Washington Post, explained this seemingly odd behavior by describing the effort to break up a non-wireless company, Darden Restaurants, as a way to increase shareholder value. As Pearlstein points out, these investors don't care about the customers, the employees, or the company's place in the community. They are driven strictly by greed. In the case of Son, that greed appears to be helped along by ego.

What's standing in the way of Sprint and SoftBank's efforts to take over T-Mobile is one big protection that Darden Restaurants doesn't have—the U.S. government. For SoftBank to acquire T-Mobile, it must have government permission on several fronts. First, it must have the FCC's permission to acquire the radio licenses currently owned or controlled by T-Mobile. Second, it must get permission from the FCC because SoftBank is a foreign company and third, it must get approval from the U.S. Department of Justice.

The only reason that SoftBank and Sprint haven't already announced their intentions is that they're trying to gauge their chances of success with regulators. Apparently Son and SoftBank have lined up financing and they've held at least some preliminary talks with Deutsche Telekom, although it's not clear to what depth those talks have gone.

The essential problem and the reason that nothing has happened so far is what T-Mobile's charismatic and aggressive CEO is showing about what real competition can achieve in the wireless market. He is disrupting the wireless industry's comfortable and highly profitable way of doing business that basically soaked consumers and made the carriers rich. Problem is Son and SoftBank are going to have trouble convincing the FCC that they are somehow going to be better for consumers.

In fact, if Sprint and SoftBank are allowed to take over T-Mobile, all of that will change. The new Sprint will once again settle down into a comfortable third place while it expends its energies on the nearly impossible task of merging two incompatible wireless technologies—something that nearly killed Sprint the last time it tried it, which is when it bought Nextel.

Unfortunately, if Son, et al., even attempt a merger they will also drag two companies through a protracted and expensive series of legal processes that will hurt both and help neither. The only thing that would be worse for all concerned is if the acquisition were to be approved. That would kill the T-Mobile resurgence, raise prices for consumers and send more business to Verizon and AT&T. There simply isn't a good outcome here, except for one that involves rejecting any proposed merger and allowing Son and SoftBank to find something else to do.

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