With growth slowing in a saturated wireless market and growing concerns about the duopolistic environment that the industry is heading towards, some of the smaller incumbents may be looking for ways to consolidate and grow through acquisitions. While none of the smaller carriers has so far gone public with any such plan, Sprint (NYSE:S) CEO Dan Heese believes that the FCC and the DoJ may be more open to such a development than they were towards the AT&T (NYSE:T) / T-Mobile merger proposition last year.  This comes on the back of rumors in the industry that AT&T and T-Mobile have been trying to woo Leap Wireless and MetroPCS respectively. Sprint itself has been rumored to have almost approved a deal to buy the latter of the two in February this year.
While Sprint may want to hold off on any M&A deal until it completes its expensive network upgrades and sees some returns for the iPhone come in, others such as T-Mobile may be moving much more aggressively in this direction.
- Despite Sprint’s Recent Operational Improvements, Significant Risks Remain
- Which Carrier Stands To Gain The Most From iPhone 7 Promos?
- This Year’s iPhone Promos Are Great For Customers, Costly For Wireless Carriers
- Were The U.S. Wireless Price Wars Just A Mirage?
- Can Sprint’s Recent Margin Expansion Continue?
- How Did The Prepaid And Wholesale Businesses Of U.S. Carriers Fare During Q2?
Like Sprint, T-Mobile has been losing a lot of wireless subscribers every quarter, but it doesn’t have to worry about high iPhone subsidies for the time being. Moreover, it will be getting a windfall of $4 billion in cash and wireless assets that AT&T will pay it for the failure of the merger deal last year; so cash won’t be a constraint.
However, T-Mobile’s options are pretty limited considering that most of the network operators in the U.S. use the CDMA standard as opposed to the GSM standard that its networks are based on. Maintaining two incompatible networks would become a nightmare for the carrier as Sprint discovered after acquiring Nextel’s iDen network in 2005. Neither would the acquisition help create synergies of any sort nor will T-Mobile benefit from economies of scale since the networks will be different and it will have to maintain two different handset portfolios. T-Mobile may therefore be better served if it tries to go for the iPhone with the extra cash that it will receive rather than snap up an incompatible network.
With Sprint and T-Mobile therefore most likely to stay away from the M&A scene for the time-being, the smaller carriers, MetroPCS and Leap, may look to merge and consolidate their position in the industry. The possibility of a larger carrier such as AT&T buying out one of these carriers looks remote with the FCC maintaining a hawkish stance over any such anti-competitive step.
The wireless industry seems to be at an interesting transitional stage with growth slowing in an increasingly saturated market (there are more number of wireless connections than subscribers currently) and insufficient spectrum to meet the high data demands of smartphone users. Consolidation in the form of mergers or spectrum swap seem to be the way forward but first the FCC needs to bring back spectrum from the cable company hoarders to the wireless industry through the Verizon deal. (see The Verizon-Cable Deal Will Go Through Despite FCC Delays)Notes:
- Sprint’s Hesse: Regulators will be open to more industry consolidation, FierceWireless, May 16th, 2012 [↩]