We’ve been trying to ignore this story since it first surfaced for over six months ago, but now Bloomberg reports that Sprint (or possibly its parent company) is nearing a deal to buy 85% of T-Mobile. The resulting company would still be the third largest cellular provider in the country.
We’ve said it before and will say so again, this makes no sense from a technology perspective. It may make tons of sense for current stockholders looking for a bump in their wallets, but it doesn’t seem to give a lot of value to the customer and long-term, we think it will hurt the combined company as it seeks to integrate YET ANOTHER technology into an already confusing basket that includes leftover assets from Nextel and Clearwire.
If the combined company is more like T-Mobile, they’ll pursue a globally-standard technology (GSM) which will make it possible for them to use a wider variety of phones. This will also let them continue to siphon customers from both Verizon and AT&T by accepting other carrier’s phones. They’ll need to transition current Sprint customers off their phones over a period of years as they did with Nextel, a move that cost them almost every former Nextel subscriber.
If the combined company is more like Sprint (which is more likely) then they will probably use T-Mobile’s technology to add yet another level of complexity to their already convoluted and industry non-standard phone technology, possibly by using T-Mobile’s available bandwidth for data while relying on Sprint’s for voice.
Following the Sprint path will probably serve to further weaken the combined company, especially if they also abandon the guerilla tactics that have helped T-Mobile rebound over the last few years. We suspect the combined company will shed subscribers due not only to Sprint’s poor perception in the market but also due to the need to recoup costs due to network development, which should see rates rise. If the new company is not able to raise rates, the stock price would have to suffer as profits drop.
In a different time, the FCC would probably step in and stop the deal due to its having no practical benefit to the customer. While it seems at first that a strong #3 provider is better than having a weaker #3 and #4, we think that T-Mobile has a better chance of succeeding by going it alone than a combined T-Mobile/Sprint would, and as subscribers defected to AT&T and Verizon it would make those carriers stronger. That hurts competition instead of helping it.
In the meantime, you have our promise: we will devote only the necessary amount of time to this story — we’ve learned our lesson from last year’s DISH/Sprint/Softbank/Clearwire fiasco and we won’t be bombarding you all with articles about this one.
