eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
The other shoe has dropped. A series of news reports leaking out of Japan and Germany indicate that Deutsche Telekom has reached at least a tentative agreement to sell most of T-Mobile US to the Softbank and merge it with Sprint.
This likely explains the appearance of Masayoshi Son, the billionaire owner of Japanese telecommunications company Softbank and chairman of Sprint, at the Code Conference May 27 to 29. Son used the conference as a platform to launch his public relations campaign that appears to be aimed at gaining public support for his merger quest.
Why a PR campaign? Probably because a proposal by Sprint and Softbank earlier in 2014 to buy out T-Mobile was rebuffed by the U.S. Department of Justice and the Federal Communications Commission, which indicated that it was unlikely that such a merger would win regulatory approval.
This should be no surprise to Son. It wasn’t that long ago that AT&T attempted to buy T-Mobile and only to pay Deutsche Telekom billions of dollars in breakup fees and spectrum when it was forced to withdraw its buyout offer in November 2011.
The reason: reducing the top-four carriers to three carriers was seen by both the Justice Department and the FCC as bad for competition. Since then, T-Mobile has been the very definition of competition and, in the process, has forced its larger rivals to lower prices, eliminate some contracts and be more responsive to customer needs.
The obvious next question is how adding Softbank as the third carrier in a three-carrier wireless universe would help competition. The answer is by reducing the number of national carriers to three, you’d be more likely to end up in a situation like the one that exists in Canada.
For those of you who don’t live in Canada, the wireless situation is unhappy, at best. A Canadian technology executive told me that the lack of competition there is resulting in high wireless service prices and contracts that are restrictive and have terms far worse than in the United States or Europe. The executive, who asked not to be identified because her company does business with Canadian wireless carriers, said that she envies U.S. and European wireless services because of their features and low prices.
Other Canadians echo those sentiments. Retired insurance executive Adele Williams said that it almost seems as if the wireless carriers agree among themselves to maintain prices and wireless plans at the same levels. Williams recited prices that are far higher than even the most expensive U.S. carriers for relatively low levels of service.
Lest you think that this is a version of “Blame Canada,” from the cartoon series “South Park,” it’s not. In fact, the situation in Canada is frequently cited as a reason not to allow a reduction in the number of U.S. carriers in testimony at the FCC.
Sprint Chairman Masayoshi Son Renews Effort to Buy Out T-Mobile
The downsides of such a merger attempt are many. They end up costing the carriers a lot of money, for example, which is why T-Mobile has insisted on a billion-dollar break-up fee if the merger doesn’t happen.
“With the deck seemingly stacked to such a significant degree against Sprint’s T-Mobile bid, the $1 billion break-up fee could be throwing good money after a bad deal,” writes The Motley Fool’s Andrew Tonner. And he’s right because what would happen in the real world is that T-Mobile would use that extra billion dollars to introduce even more competitive programs in the mobile industry to the detriment of Sprint.
What Son appears to be trying to do is to raise enough popular support in favor of his buying T-Mobile to overcome the objections of the Justice Department and the FCC. He’s doing this by playing on everyone’s dislike for their cable companies. What Son is saying now is that, by buying T-Mobile, he can bring better, more competitive Internet service than is currently available from the likes of Time Warner, Comcast and Verizon.
How exactly Son plans to equate wireless communications, even Long Term Evolution (LTE), with cable Internet providers remains a mystery. Neither Sprint in the United States nor Softbank in Japan are bandwidth leaders. Neither is a major Internet service provider, nor has either company shown any leadership in providing Internet access.
Meanwhile, Son has been championing Internet freedom using net neutrality phrasing. Apparently, the idea here is to get neutrality advocates on his side in his effort to sandbag the FCC. Perhaps, he saw the reaction of Chairman Tom Wheeler in the face of net neutrality concerns before releasing the FCC’s Open Internet NPRM (or Notice of Proposed Rulemaking).
But just because the FCC adjusted its proposals in the face of a regulatory vacuum doesn’t mean it’s going to significantly change its policy in an area where the regulatory groundwork is in place. The FCC recently has been very clear in its stand on telecom competition.
The bottom line when it comes to wireless competition is that both the FCC and the DOJ clearly feel that more competition is better than less competition. The FCC knows that a third large wireless company like Sprint isn’t going to provide that level of competition.
So where does this leave Sprint and T-Mobile? Clearly, Softbank and Son have decided to move ahead on the merger. But Son isn’t the type to back down when he decides he wants to spend his billions on something new. Now that Son has found a way to restart the acquisition process, it’ll get shot down, and he’ll still have to pay T-Mobile a billion dollars—something he would like to avoid doing at all costs.
T-Mobile may be a little weaker because of the distraction caused by the merger maneuvering, but all that break-up money will make up for the inconvenience. But that’s better than the oblivion planned for Sprint if the merger succeeds because then T-Mobile will become the surviving corporation, and its high-profile CEO John Legere will take over. When that happens, Sprint would eventually vanish as a brand in the U.S. telecommunications industry.