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How Many Wireless Networks Can the U.S. Support?

Sprint (s s) and T-Mobile are reportedly back at it again, talking about a possible deal that would have Deutsche Telekom selling T-Mobile USA to Sprint in exchange for a stake in the combined company. And if the story wasn’t T-Mobile in talks with Sprint, it would likely involve one or the other in talks with LightSquared, the startup network backed by Harbinger Capital Partners, Clearwire or even MetroPCS (s pcs). In fact, you can pretty much shuffle the players around and still find a story about them in some sort of talks or negotiations around spectrum or an outright merger.

So why are you reading the same essential story time and time again? It’s about spectrum and the growing demand for mobile data access. In order to meet the needs of movie-streaming tablets, constantly updating smartphones and even the plain vanilla demands of voice, operators need access to airwaves. Fundamentally, a mobile operator can only cram so many bits of data into one megahertz of spectrum, and there are only so many megahertz to go around. So while AT&T (s t) and Verizon (s vz) have a huge swath of spectrum, other providers such as T-Mobile and Metro PCs are relative paupers when it comes to the airwaves. T-Mobile says it’s fine for the time being, but future iterations of LTE will call for even more spectrum blocks.

Meanwhile, Clearwire through its joint venture with Sprint, and maybe LightSquared have spectrum to spare. However, Clearwire doesn’t have cash; Sprint doesn’t have a lot of cash, and LightSquared has some troubles associated with its spectrum that have it looking for new airwaves instead. Plus, it doesn’t have a network yet. So the folks at these companies and their assorted bankers and advisors are circulating a never-ending parade of leaks about deals in the hopes of pushing the other players into action.

However, the fundamental question here is: What can the U.S. market support, both in terms of carriers and in terms of the amount of spectrum available? The FCC clearly isn’t worried about Verizon and AT&T, judging by its wireless competition report released last year, but how many more nationwide networks will survive?

The latest deal report comes from Bloomberg, which said that Sprint and T-Mobile have resumed talks. Deutsche Telekom Chief Financial Officer Timotheus Hoettges told Bloomberg that “all options are open in the U.S. — the sale of the whole business or of parts.” The sticking point appears to be putting a value on T-Mobile, which lost subscribers last year.

For Sprint, the challenge is to sort out its network plans. It announced its Sprint Network Vision blueprint back in December, outlining a new network of base stations that could handle multiple bands and could eventually support LTE. The goal would be to find one network to standardize on. By buying T-Mobile, it could pick up some more momentum in a migration to LTE, unifying under one technology. But it would mean some tough years in the interim as it supports CDMA, WiMAX through Clearwire and T-Mobile’s HSPA network. That was a huge headache that emerged with the Nextel acquisition, something it has dealt with for years, until it announced that it finally retiring iDEN last year.

But the deal could ultimately be worth it, allowing Sprint to compete with rivals Verizon and AT&T. Adding more subscribers and T-Mobile’s HSPA+ network could ensure that Sprint can offer great 4G coverage if it elects to go with LTE as well as give it a backup 3G network that’s faster than its CDMA network. And some added heft in subscribers could also help in getting more hot devices like the Apple iPhone (s aapl).

The question is what happens to Clearwire? The provider, which counts Sprint as a majority owner, is looking at selling off some of its spectrum. T-Mobile is reportedly talking to Clearwire about buying some spectrum, which means it could perhaps make it as a standalone entity even as data demands skyrocket. We’ve discussed the merits of Sprint buying Clearwire. But if Sprint were considering a deal with T-Mobile, it might explain why it hasn’t invested more in Clearwire in the last year as Clearwire looked for cash.

But ultimately, the latest rumors confirm that the wireless market is evolving quickly and what worked before — four national carriers with a gaggle of smaller competitors — may not work in the future as spectrum becomes more difficult to find and data usage booms. T-Mobile and Sprint may be today’s speculative couple, but this is a high-stakes game with a lot of players running down the clock waiting to see who they will team up with before their cash runs out.

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7 Responses to “How Many Wireless Networks Can the U.S. Support?”

  1. i can think of only one positive possible result from this. maybe sprint would allow boost mobile and virgin mobile customers to migrate their prepaid service onto GSM SIM cards.

    virgin mobile for example has some really great price plans on some pretty terrible phones. but their $25/unlimited prepaid data and text migrated to a SIM card that could be dropped in a mytouch 4G would be a dam good deal.

    prepaid in america would be a very different game if GSM carriers with SIM card swapping had been a bigger part instead of the CDMA domination we have seem for prepaid over the years.

  2. this would be devastating. sprint and t-mobile are head on competitors on the more value priced side of the post paid market. take a way that competition and the new ‘t-sprint’ will be charging the same monthly fees and have the same rigid credit checks and AT&T and verizon.

    lower income Americans along with those who simply prefer to spend a bit less would be harmed greatly by this.

    we need more competition not less.

  3. evster88

    1) iDEN is not “retired”. It has been reallocated to Boost Mobile, a Sprint subsidiary.

    2) A MetroPCS / T-Mobile deal is unlikely… MetroPCS is struggling with spectrum now and T-Mobile wouldn’t really benefit from the merger/acquisition except potentially improving service in some isolated pockets around the country. MetroPCS could not buy T-Mobile currently due to their massive investment in building out infrastructure.

    3) Sprint / T-Mobile is also unlikely – Sprint has a very poor track record for maintaining multiple network architectures and I can’t see their Board of Directors eagerly jumping on another conquest that will likely cause them to hemorrhage money in the short-term.

    4) IMHO, AT&T buying stake in T-Mobile is the most likely. AT&T desperately needs more bandwidth and spectrum in several key markets, which T-Mobile can readily provide. In addition, it would supplement AT&T’s HSPA+ architecture and potentially accelerate their roadmap enough to move towards LTE.

  4. “So why are you reading the same essential story time and time again? It’s about spectrum and the growing demand for mobile data access.” there is no doubt that I agree with you. I think that will help everybody>it has a lot of useful indormation on majority number of topics, besides it gives excellent opportunities for making money on your blogs…! good luck!

  5. @Ryan & @Stacey,

    I think you both make good points, but you seem to overlook the growing demand for wireless data services. With that perspective in mind, the question becomes can our current wireless networks support the United States?

    With that question in mind, i’d say that we can all expect much upheaval in the make up of the wireless networks. I think it is reasonable to expect a stronger push by the large cable companies as they attempt to add “wireless bundles” for voice and entertainment content as the market continues to fragment across smartphones, laptops, tablets, portable gaming systems, and eventually modes of transportation such as cars, trucks, buses and the like. You must consider the fact that the cable companies have their businesses under direct assault by wireless data networks and devices.

    We can also expect significant impact to the large incumbents given the growing data demand. The spectrum crunch exists simply because allocation has not been efficient, it has favored the rich (Verizon, AT&T), and as such the middle class (Sprint, T-Mobile) and looking at ways to work with the poor (MetroPCS, LightSquared, Clear, regional carriers) to come up with an allocation of spectrum to meet the growing data demand.

    Now to be clear, I’m not in any way saying that the wireless companies I described as middle class or poor means that they aren’t good companies. In fact, I think highly of all wireless carriers with respect to the challenges they face in their markets. However the middle and lower tier wireless companies will absorb the brunt of the challenges required to deal with the growing demand for wireless data. As a result, some of these middle and lower tier companies will be absorbed by larger wireless companies, or by larger cable companies seeking a foothold in the growing market for wireless data.

    My $.02.



    • Curtis, that’s a good point. I was more focused on explaining why the same old names get brought up time and time gain around each other. I had hoped Comcast was making a bigger wireless push outside of WiMAX, but I seem to have been mistaken so far.

  6. I can understand that DT might want to sell T-Mo, as it doesn’t perform as well as other carriers, but I don’t get why they would sell it for a stake in a company managed by Sprint. If they received cash, it might make sense, but stock in the combined company is like firing T-Mo’s management, replacing them with Sprints’, and then having them acquire another struggling carrier. They would not only still own the problem, but also a piece of another problem.

    I don’t think T-Mobile’s problems are necessarily due to mismanagement, but rather lack of spectrum, whereas Sprint’s woes can be blamed on their executives. I have service with both companies, and while there doesn’t seem to be much difference between the two (I do like T-Mo’s customer service better, though), Sprint does a horrible job of marketing and positioning their service. They were the first carrier to introduce 4G service in the US (although in limited areas), and instead of using that advantage to attract subscribers from their competition, they charged more for service that used a 4G phone, even if you didn’t live in an area with4G service. They have totally blown the fist mover advantage of a faster network, and I wouldn’t want them to run my business (which, btw, is what would happen if this deal went thru, as I own shares in DT).

    T-Mo needs to sell the fact that have unbundled services and phones, and educate consumers that it is cheaper for them. And upgrading their network wouldn’t hurt.