There doesn’t seem to be much consensus about what Sprint’s decision to drop its plan to purchase T-Mobile, revealed yesterday, means for the companies and for the industry in general.
While some industry observers expect both companies to focus on internal growth and/or to consider alternative M&A options, others say this is a posturing move and the companies will take another go at merging after the next election, when they hope to find a regulatory environment more open to such a deal.
FCC Chairman Tom Wheeler, clearing hoping the deal is dead, took the time to issue a short statement, noting simply that “Four national wireless providers is good for American consumers. Sprint now has an opportunity to focus their efforts on robust competition.”
Hesse Out, Claure In
Sprint’s simultaneous ousting of long-time leader Dan Hesse was a surprise in that he is well respected in the industry, has decades of relevant experience and has frequently played the role of the face of the company, having once been the central figure in a Sprint ad campaign. On the other hand it’s not surprising, considering that there apparently has been some conflict between Hesse and Masayoshi Son, chief of Softbank, which gained control of Sprint last year. Hesse told the Wall Street Journal earlier this year that he and Son don’t always agree on things, although he also noted that the two men had mutual respect for one another.
Replacing Hesse will be Marcelo Claure, founder of SoftBank subsidiary Brightstar, who has been on Sprint’s board since January. In a press release, Sprint described Brightstar as “the world’s largest specialized wireless distributor and a leading provider of diversified services to the wireless industry.” According to news reports, Son hopes that Claure will change Sprint’s loser mentality.
Two telecom financial analyst firms had quite differing views on Hesse’s replacement by Claure.
In a research note, Bernstein Research said it expects to see Sprint “replacing most of the legacy management with new talent… as a way to accelerate organizational change” – a move Bernstein views as positive.
“Sprint as a company is better off,” wrote Bernstein researchers, who argued that management now will take the next two to three years to turn Sprint around.
Moffett Nathanson, on the other hand, argued in a research note that “Sprint’s problems are overwhelmingly structural, not cultural, and we wonder how much of a difference new management can really make.”
According to Moffett Nathanson, “Sprint is the clear loser here.” The company now will have to reduce prices to be competitive while it also spends money to continue modernizing its network, Moffett Nathanson researchers said.
Some industry observers expect Sprint, T-Mobile or both to explore other M&A options. Here, too, Bernstein and Moffett Nathanson have different ideas.
Bernstein favors a deal between T-Mobile and Dish Network, arguing that Dish would bring T-Mobile “a material amount of spectrum, a customer base, the potential for video bundling and experience in the U.S. market.”
Moffett Nathanson, however, noted that “Dish’s spectrum has real value but not to T-Mobile (which has plenty of mid-band spectrum already) and not to Sprint (which is awash in spectrum).” The Moffett Nathanson researchers argued that America Movil would be an excellent candidate to bid for T-Mobile because America Movil’s Tracfone unit, which currently resells other networks, would save considerable money by moving its 26 million pre-paid wireless subscribers to a company-owned network.
One thing Bernstein and Moffett Nathanson agree on, however, is that one big winner from the demise of the Sprint/ T-Mobile deal is the FCC. Researchers at both firms argue that the FCC will be perceived as more powerful and that the 600 MHz auction of TV broadcast spectrum will be more successful as a result.