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Mobile Merger Changes Cable Calculus

Mari Silbey
5/7/2018
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The prospect of a Sprint/T-Mobile merger is already causing waves throughout the wireless industry. And that includes not just the traditional carriers, but the cable providers entering the mobile market as well. Sprint has regularly wooed and been wooed by US cable operators. A failed MVNO attempt ten years ago partnering Sprint with Comcast, Cox, Time Warner Cable and Bright House Networks may have made the MSOs wary, but it hasn't stopped discussions about how they might work together again.

Now that Sprint Corp. (NYSE: S) is officially tying the knot with T-Mobile US Inc. , however, the situation is altogether different. (See T-Mobile to Buy Sprint for $26.5B to Create US 5G Powerhouse.)

First, it was only ten months ago that rumors were still being floated about Sprint possibly merging with one of the cablecos. Charter Communications Inc. seemed the most likely candidate, having both the ambition to master wireless, and a greater need for a partner than Comcast Corp. (Nasdaq: CMCSA, CMCSK) to turn that ambition into reality. (See Sprint Proposes Merger With Charter – Report.)

There was also a pleasing logic to the notion that, with cable companies entering the wireless sector and carriers seeking their fortunes in video, a cable operator and a mobile company could complement each other nicely. Whether the financials made sense was a different matter, but the narrative was compelling.

It isn't anymore.

A combined Sprint and T-Mobile becomes a much larger whale to swallow. Plus, T-Mobile has already acquired Layer3 TV, which, at least theoretically, should fulfill its video needs. Merging a new and bigger carrier with one of the cable giants would be a major headache without the same potential for reward.

Second, Sprint may not have merged with a cable company, but it did sign an MVNO deal with Altice USA in November and a network backhaul partnership with Cox Communications Inc. in January. Adding T-Mobile to the mix introduces a degree of uncertainty into those arrangements. In particular, with the Altice agreement, will T-Mobile -- as the senior partner in the merger with Sprint -- want to open up its network to a cable rival? T-Mobile has plenty of MVNO partners of its own, but as it tries to make its mark in the video space, it may want to be cautious about enabling a competitor with a similar goal of bundling TV and wireless services.

T-Mobile also doesn't have the history with the cable industry that Sprint does. In fact, T-Mobile CEO John Legere has largely been dismissive of cable companies... but then again, he's been largely dismissive of all competitors.


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Third and finally, Comcast and Charter recently hinted that they may be on the lookout for new MVNO deals going forward. Both companies rely on an MVNO partnership with Verizon Communications Inc. (NYSE: VZ) today, but are developing a backend platform to make it possible to bring in additional partners more easily in the future. (See Comcast, Charter Hint at New MVNO Deals.)

Sprint would have been a prime candidate, but again, it's hard to know if a Sprint-plus-T-Mobile company will be interested. At the very least, the merged entity will need time to get its ducks in a row -- first as it tries to overcome regulatory challenges to the proposed merger, and second as it integrates the two businesses if and when the deal is done.

Comcast and Charter may not want to wait, particularly since Comcast has been in the market since last spring, and Charter is rumored to be planning to launch its mobile service as soon as June 30. (Hat tip, DSLReports.) In fact, news of the Sprint/T-Mobile merger may even cause the two cable companies to accelerate their own build-out plans as they look to further combine WiFi and cellular infrastructure. (See Don't Laugh, Charter Is Testing '6G' Wireless and Mobile Is No Passing Fad for US Cable.)

Naturally, all of the major US companies have been considering the implications of a Sprint/T-Mobile transaction for years, given the carriers' on-again/off-again merger talks. No doubt there are contingency plans in place. It just remains to be seen what those contingency plans look like in action.

— Mari Silbey, Senior Editor, Light Reading

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Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
5/19/2018 | 7:07:58 PM
Re: Hmm
The only thing is that there might not be one less competitor. The Administration has let most mergers go through, but is still blocking AT&T/Time Warner. The Administration has yet to opine on the proposed T-Mobile/Sprint deal.
kq4ym
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kq4ym,
User Rank: Light Sabre
5/16/2018 | 9:12:43 AM
Re: Hmm
It doesn't on the face of it look like there's a benefit for consumers. making me wonder if regulators give much weight to mergers when they may affect the priing down the road taking into consideration the purported costs savings and technology speedup mergers are said to eventually achieve.
mendyk
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mendyk,
User Rank: Light Sabre
5/8/2018 | 9:53:24 AM
Re: Hmm
Another reason for Verizon's feigned indifference: One less competitor to keep prices in check.
Clifton K Morris
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Clifton K Morris,
User Rank: Lightning
5/7/2018 | 5:05:05 PM
Hmm
The strange thing is that Verizon CEO, Lowell McAdam said he wasnt very interested in Sprint/T-Mobile. That is likely because Milimeter-Wave Spectrum, once built out, will directly compete with fiber and other telco-grade services.

It’s a missed opportunity because it’s Verizon’s opportunity to acquire spectrum through divestiture process. But it simply goes to show (once again) that MVNOs exist only to sell excess capacity, and not build new capacity. In 3-5 years, Verizon’s LTE Network won’t be able to support Cable MVNOs and the contracted rate will need to be negotiated up in price.

HHI scores (used in AntiTrust and competition analysis in the industry will increase 400 points after a T-Mobile/Sprint merger. So, it makes sense for the entire Cable industry, led by Comcast, Charter and Cox to build their own networks (ask for divestitures) so they can have cost control over services they provide.

Because Verizon isn’t interested in acquiring capacity from sprint, it enables Verizon to increase rates while also protecting its investment into 5G fixed wireless services.
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