Sprint’s new chairman Masayoshi Son not only officially confirmed his interest in acquiring rival T-Mobile in an interview with PBS’s Charlie Rose Monday night, he revealed his plan of attack for getting the deal approved. Son, who took over Sprint’s board after his company SoftBank purchased control of the carrier last summer, promised Sprint would launch a price a war against AT&T and Verizon if the merger went through.
Son’s argument is that Verizon and AT&T, as the country’s two mega-carriers, have such scale they effectively face no competition. Basically Son is making the case that even though AT&T’s acquisition of T-Mobile was stillborn, the duopoly Sprint always feared still emerged. Only by creating a third mega-carrier can regulators break that duopoly hold, forcing down prices for consumers, Son claimed.
That’s a powerful argument if it falls on the right ears, but anyone that looks at what’s actually going on in the U.S. mobile market right now wouldn’t be so convinced. There’s already a price war raging, and it wasn’t started by Sprint.
Tiny T-Mobile launched that offensive on its own, and it’s having its intended effect. In the last nine months, all of the major carriers have lowered pricing to a greater or lesser degree. They’ve started offering more flexible plans for customers who buy their handsets outright. And they’ve all emulated T-Mobile’s new upgrade program Jump. Even the country’s most expensive carrier Verizon hasn’t been immune, though it’s been more insulated than AT&T and Sprint.
The average bill may not have gone down, but consumers are getting a lot more for their dollar. Son would probably make the argument that a merged Sprint-T-Mobile could redouble those efforts, escalating the price cuts to new levels. That is a possibility. But Sprint’s track record would indicate it would do the opposite.
When SoftBank and Son took over Sprint they were supposed to end the carrier’s long period of stagnation. Billions of dollars in new investment, the shedding of the Nextel albatross and the takeover Clearwire – these moves were all intended to revitalize Sprint. But so far we haven’t seen much evidence of that. Sprint grew its subscriber base in the fourth quarter, but mainly through wholesale connections. And its LTE rollout continues at its same snail-like pace.
Sprint CEO Dan Hesse maintains that it will take time to bring Sprint back on course, but it appears Son is growing impatient. In a behind-the-scenes look last week at the culture clash between Sprint and its new chairman, the Wall Street Journal reported that Son has attacked Sprint’s advertising strategy as “stupid.” Son compared Sprint to Daimyo in feudal Japan, exerting absolute power in its fiefdom of Kansas City but having no influence anywhere else. Probably not coincidently there’s been a shakeup in Sprint’s executive ranks with key executives in its marketing and network engineering groups departing.
But Son’s answer seems to be to make what is already a complex problem much more complicated. Merging Sprint and T-Mobile wouldn’t create overnight a full-fledged mega-carrier ready to wage battle in the price wars. It would take years of integrating operations and networks. T-Mobile and Sprint use fundamentally different technologies in their 2G and 3G networks and sell completely different sets of devices. The bands their LTE networks run over don’t even match up.
Son says that the government just needs to let him buy T-Mobile and Sprint will lead a mobile pricing revolution. But I’m unconvinced. I have much more confidence in T-Mobile to lead that revolution without Sprint’s help.