Oddly enough, whether Sprint decides to bid for T-Mobile US, and whether that deal is approved or rejected, the U.S. mobile market is may likely retain its current structure. Only the names might change.
Over the longer term, Comcast may emerge as the number-three provider, no matter what happens with Sprint and T-Mobile US.
The reason is a fundamental change in consumer communications and video entertainment markets, putting a premium on the ability to sell a quadruple play or triple play package that is functionally equivalent to a quadruple play.
More than 97 percent of AT&T’s 5.7 million video customers subscribe to bundled services, according to the company. “This consumer preference is not unique to AT&T, as 78 percent of basic subscribers of the six largest cable operators take at least a double-play of services, predominantly video and broadband,” the company says.
In 2006, cable TV operator bundle adoption was 56 percent. Since then, adoption has grown, globally.
Mobile Telecom M&A
If Sprint bids for, and wins approval for a purchase of T-Mobile US, the new firm would have close to a 30 percent share of the U.S. mobile market. That would make it the biggest “pure play” mobile service provider.
But pure plays face huge obstacles. The reason DirecTV is willing to sell to AT&T, and the reason Dish Network is contemplating moving into the mobile business, is that “single play” service providers are at a major disadvantage in a market characterized by bundled services, ranging from quadruple to dual-play offers.
Let’s assume regulators and antitrust authorities approve a Sprint purchase of T-Mobile US. The top three providers would be Verizon, AT&T and the merged Sprint plus T-Mobile US. But Dish Network may launch within a year or so.
And Comcast also may enter the mobile market at some point in the medium term. So even in the event of a reduction of the present mobile market structure to just three national providers, we soon could see two more entrants, leading to a potential market of five providers.
Conversely, assume Sprint’s bid does not win approval. In that instance, Dish Network may try to buy T-Mobile US. A successful bid of that sort would still leave the market with four leading national providers.
And then Comcast still could enter the market, potentially using a disruptive Wi-Fi approach.
Those sorts of outcomes explain why Sprint owner Softbank reportedly is willing to risk making the deal at all and potentially paying a deal breakup fee of between $1 billion to $2 billion, even when some think the odds of approval are as low as 10 percent.
Sprint/T-Mobile Odds
Moffett Nathanson estimates there is only a 10 percent chance that the Justice Department and the Federal Communications Commission will approve any Sprint acquisition bid.
Others disagree, arguing the odds could be as high as 50-50, in part because, as Sprint and T-Mobile US believe, the other big deals will change the market. And a few actually think the odds in favor are as high as 70 percent.
“We now think the chances of regulatory approval are about 70 percent, based on our analysis of the DOJ complaint against AT&T, and the emergence of Comcast (Wi-Fi) as a provider of mobile wireless telecom services, as defined by the DOJ, which sharply reduces HHI and mkt. concentration concerns in top CMAs,” according to Kevin Smithen, Macquarie equity analyst.
All that noted, the U.S. mobile market structure is unlikely to remain at leading three national providers for long. In the near term, four is the more likely number, even if Sprint acquires T-Mobile US.
In the medium term, the market might feature five leading national providers, no matter what happens with any future Sprint bid to buy T-Mobile US.
