Who Will Buy Sprint's Boost? And Will It Even Matter?

Mike Dano
5/21/2019
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The chairman of the FCC signed off on the proposed merger of Sprint and T-Mobile with one major condition: that the combined company sell Sprint's Boost Mobile prepaid business. However, it's unclear whether there's much interest from anyone in purchasing that business, and whether a spin-off of Boost would create much additional competition in the market anyway.

What is clear is that FCC Chairman Ajit Pai's support for the merger is undoubtedly cause for celebration in T-Mobile's Bellevue, Wash., headquarters -- the operator is not only receiving FCC approval for its Sprint merger but it's also getting to keep all of its enormous spectrum holdings across 600MHz, 2.5GHz and other bands. As the analysts at Wall Street research firm Wells Fargo pointed out, the combined Sprint and T-Mobile -- dubbed New T-Mobile -- will own an average of 316MHz of nationwide spectrum. That's roughly twice as much as AT&T and Verizon.

However, the deal isn't done yet. New T-Mobile still needs sign off from the Department of Justice -- and Bloomberg recently reported that Pai's proposed conditions haven't mollified the regulators at the DoJ. That's noteworthy considering the FCC and the DoJ have never taken opposing positions on a merger before. (See DoJ 'Leans Against' T-Mobile/Sprint Merger – Report.)

Further, even if New T-Mobile gains support from the DoJ, it could still face opposition from some state attorneys general. "We do think there's a real chance of a state AG lawsuit because 1) State AGs view themselves as guard rails against Trump across many policy areas; 2) States probably would win a challenge if they brought it; 3) State AGs have dropped public hints of deep concerns," wrote the analysts at Wall Street research firm Cowen in a note to investors following Pai's announcement.

However, others offered a more positive outlook: "While the state attorney generals could still object to the deal, the divestiture of Boost Mobile should help with any AG objection, as the concentration of New T-Mobile's combined prepaid business was a major hot-button issue for them," wrote the analysts at Wells Fargo.

Public-interest opposition
Already the relatively lightweight conditions that Pai is proposing on the transaction are generating concern among public-interest groups. They're worried that reducing the number of nationwide wireless providers from four to three will ultimately result in a less competitive US wireless industry -- especially in 2022 when New T-Mobile will no longer be subject to a freeze in service pricing.

"Ajit Pai doesn't even try to pretend that he works for the public. He seems to take smug pleasure in being a blatant telecom shill. No one is surprised by today's announcement, but we will keep fighting to block this merger -- which simply put will lead to crappier, more expensive internet for millions of people," said Fight for the Future Deputy Director Evan Greer in a statement. "The promise to spin off one of the companies' three prepaid subsidiaries still does not resolve the problem that the evidence on the record demonstrates that prices for postpaid subscribers will also go up if this deal is consummated."

Gigi Sohn, a distinguished fellow at the Georgetown Law Institute for Technology Law & Policy, agreed: "The handful of unenforceable promises made by the merging companies does no more than put lipstick on a pig. This classic 4-3 horizontal merger is bad for consumers and competition and the DoJ and the FCC should block it," she said in a statement distributed by the 4Competition Coalition, a group comprising the likes of C Spire and Dish Network that was formed to oppose the merger of Sprint and T-Mobile.

Regardless, Sprint's Boost business probably wouldn't have fit well into the prepaid operations of "New T-Mobile" anyway. Sprint's roughly 8 million prepaid customers stretch across brands including Boost, Virgin Mobile, Assurance Wireless and Sprint Prepaid, while T-Mobile's own "Metro by T-Mobile" prepaid offering counts around 18 million customers. New T-Mobile probably wouldn't have kept all those different brands.

"New T-Mobile would have wanted to rationalize its prepaid brands and would have considered migrating Boost subs into Metro, so divesting Boost now as part of pre-merger approval process makes sense if concessions are needed to ensure T-Mobile will not have such a dominant position in prepaid if the merger is approved," said Strategy Analytics' Susan Welsh de Grimaldo, a longtime wireless industry analyst.

Questions abound in prepaid and MVNOs
Indeed, the prepaid sector of the US wireless industry isn't the hot spot it once was. For example, the analysts at Wall Street research firm Cowen recently wrote that prepaid sales across the US wireless industry grew at their slowest pace since 2015, and that the total number of prepaid customers in the US recently declined for the first time since 2014.

Nonetheless, if Pai's proposed conditions on the Sprint and T-Mobile merger are enacted, the action would erect a for-sale sign over a significant wireless brand and several million wireless customers, thus creating what would probably be the nation's second-largest MVNO. Moreover, Sprint and T-Mobile promised that whoever buys Boost will get sweetheart access to New T-Mobile's network. "New T-Mobile will offer the Boost buyer terms for a six-year wholesale MVNO agreement that will include wholesale rates that will meaningfully improve upon the commercial terms reflected in the most favorable of T-Mobile's and Sprint's three largest MVNO agreements," Sprint and T-Mobile wrote in an FCC filing.

Sprint and T-Mobile said they hope to finalize a sale of Boost within three months of the close of their merger. The analysts at Cowen estimated Boost counts 7-8 million customers, which they said implied a transaction value of $4.5 billion.

However, questions remain about how Boost might be spun off. For example, would AT&T or Verizon be able to bid on the so-called "New Boost?" Would New Boost be able to access New T-Mobile's 5G network or would it be restricted to Sprint's existing LTE network? And would New Boost be the only company that could get cheap access to New T-Mobile's network, or would New T-Mobile be able to offer similar wholesale terms to other MVNOs?

The biggest question though is who might actually make a bid to purchase New Boost.

Potential bidders for Boost
So far, there's only one bidder who has officially stepped forward: Boost founder Peter Adderton, who founded the company in Australia in 2000 and still operates a Boost wireless business there from his home in California. Now, Adderton is hoping to return to the helm of the business he helped start; Adderton said that he has already lined up investors to fund a bid for New Boost, though he declined to name his financiers. "They're going to need someone like me to come in and put it all together," Adderton said, arguing that he would be able to leverage his experience in running Boost in Australia to create a competitive offering in the US market.

But Adderton probably won't be alone in chasing New Boost. America Movil's US MVNO TracFone has also expressed interest in purchasing any prepaid assets divested by Sprint and T-Mobile. Such a move by América Móvil has precedent: The company previously purchased US MVNOs Simple Mobile and Page Plus Cellular. América Móvil is the largest MVNO in the US with around 21.6 million customers; its MVNO brands include Tracfone and Straight Talk.

"TracFone certainly has a history of acquisitions, plus TracFone subscriptions have been on a decline. The last quarter in which Tracfone had positive growth was 3Q16," said Ovum analyst Kristin Paulin. But she added: "I'm not sure if TracFone's size in the prepaid space in the US would be a problem with approval of such a deal, if the whole reason is to ensure competitiveness in the prepaid space."

But a Boost purchase would supercharge TracFone in the US, noted Global Data analyst Tammy Parker: "TracFone has grown considerably through acquisition and Boost Mobile would be a great purchase for it. Not only is Boost a competitive brand, but its vast brick-and-mortar dealer footprint would totally change TracFone's business. TracFone has some 258 Total Wireless-branded dealer stores in the US (which also sell other TracFone brands) and adding Boost's ~8,000 stores would be a huge boon to the overall TracFone physical presence."

Other companies that might be interested in purchasing New Boost include cable companies like Comcast and Charter. Both companies have already entered the wireless industry through MVNOs with Verizon. However, most analysts argued that New Boost likely wouldn't fit into cable's business model for mobile.

"Comcast and Charter only offer mobile service to their existing or new Xfinity Internet/Spectrum Internet customers. For this reason, I don't know if I really see either of them buying Boost, unless they plan to update their business model," said Ovum's Paulin.

Dish Network too has been eyed as a potential bidder for New Boost, though most analysts argued that company is currently focused on its IoT business strategy and spectrum assets, and probably wouldn't be interested in purchasing smartphone customers on prepaid plans.

Finally, analyst Mark Lowenstein of Mobile Ecosystem suggested that other companies that might be interested in Boost include Amazon, which could use the purchase to dip its toes into wireless, or Google, which might want to expand the existing Google Fi MVNO it already offers through Sprint and T-Mobile. Lowenstein also said Boingo might make a bid for Boost considering the company has a new CEO and might be looking for ways to play a broader role across the mobility landscape.

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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