T-Mobile US Inc. is trying to make the case that Sprint Corp. is on its deathbed, and that T-Mobile alone can save it. That’s rich coming from the company that happily helped put Sprint there. It’s also a misleading prognosis for Sprint.
A Sprint pity party is one way T-Mobile is defending against a multi-state lawsuit that seeks to prevent the wireless carrier from taking over its weaker rival, and it used that reasoning in a court filing last week. Even though the deal already has the backing of the U.S. Department of Justice and Federal Communications Commission, 17 state attorneys general – who represent more than half the U.S. population – are challenging the transaction because of concerns that it will lead to higher prices, discourage innovation and hurt workers. Illinois, Oregon and Texas were the latest to join the now-bipartisan suit, whose trial date is set for Dec. 9.
State officials are right to be concerned. T-Mobile and Sprint are the third- and fourth-biggest carriers, respectively, in a mainly four-carrier market. Lower prices and new features from them in recent years did a lot of good for customers, forcing industry leaders Verizon Communications Inc. and AT&T Inc. to offer more competitive data plans. But without Sprint, there isn’t as much incentive for T-Mobile to keep prices down. In fact, for T-Mobile to close its profit-margin gap with the larger carriers, it more likely would need to do just the opposite. The DOJ is looking to wireless market newbie Dish Network Corp. to help preserve some equilibrium, putting Dish on the receiving end of the concessions that T-Mobile and Sprint are required to make. However, Dish is still years and multiple billions of dollars away from becoming a formidable competitor to fill the hole Sprint will leave behind. As such, the DOJ and the FCC may not be fulfilling their duties to promote competition and ensure that corporate tie-ups serve the public interest.
T-Mobile’s argument is that if its deal gets blocked, Sprint is going to go away anyway. That’s a half-truth. I’ve written time and again about Sprint’s financial troubles and strategic missteps, including this series of charts showing just how ugly Sprint looks as a stand-alone. The data are almost sympathetic to T-Mobile’s case. But a merger between T-Mobile and Sprint doesn’t save Sprint. It does rescue an investment turned sour for many shareholders, especially a billionaire named Masayoshi Son. He’s the leader of SoftBank Group Corp., Sprint’s Japanese controlling shareholder, and he wants to remove any trace of his misguided optimism about Sprint from SoftBank’s balance sheet, equity valuation and image. SoftBank is retaining a 27% economic interest in the new T-Mobile, a superior operator on healthier footing.
T-Mobile is casting itself as Sprint’s savior, but T-Mobile CEO John Legere has been dancing on Sprint’s grave for years. Legere, a shameless yet successful self-promoter, often crossed the line in these instances beyond healthy competition, tweeting mean-spirited jokes about his rival going out of business. There were times he called Sprint “a melting ice cube,” said the company may have to resort to raising money on Kickstarter, and asked for “any guesses on what Sprint will #fruckup today” (a swipe at Sprint’s “framily plan” promotion for friends and family). He used the hashtag #SprintLikeHell.
I’m not pointing this out for the sake of it or to say Legere is a big ole meanie. It’s more about this: While Legere was dissing Sprint, he continued to boast to investors that T-Mobile was actually posing serious competition for Verizon and AT&T – something he promises a combined T-Mobile-Sprint will also do. Except the data paint a slightly different picture. For years, T-Mobile regularly disclosed so-called porting ratios, which tell how many customers T-Mobile lost to another carrier and vice versa. For example, starting in 2013, its porting ratio with Sprint mostly held above 2 and at times went above 4 and higher, meaning that for every subscriber T-Mobile lost to Sprint, it gained four Sprint customers. T-Mobile will say that the overwhelming majority of its “porting” has come from Verizon and AT&T, but that’s explained by the fact that those companies have larger subscriber bases than Sprint does. The reality is that T-Mobile inflicted far more damage on Sprint than to what it calls “the duopoly,” as this chart shows:
To be fair, T-Mobile isn’t the predominant reason Sprint is in such a desperate state now. Its problems date back to Sprint’s ill-advised merger 14 years ago with Nextel, a network that became a money pit for the company. And Sprint was never able to dig its way out from a mountain of debt, largely deal-related. Meanwhile, in 2011, regulators stopped AT&T from buying T-Mobile, a move that set T-Mobile up for a turnaround and to become the fastest-growing member of the industry. Had that deal gone through, consumers’ bills may have looked very different in the subsequent years.
Going forward, if Sprint were to get any cheaper, other deep-pocketed buyers outside of the industry would likely surface, such as Charter Communications Inc., Comcast Corp. and others. The idea of a cable giant owning Sprint might not seem like a better outcome, but it preserves a competitor in the wireless market and many more jobs. As the industry gears up for ultra-fast 5G wireless networks, there’s simply no way T-Mobile is the sole company interested in Sprint’s spectrum assets and subscriber base, even if its brand is beyond repair.
So when T-Mobile tells a courtroom that Sprint needs it, you have to laugh.
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Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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