Mobile phone companies Sprint and T-Mobile have been the subject of numerous rumors over the years as to when and if they would ever join forces. Kind of like Scully and Mulder in the X Files. Recently the mobile environment has started to liven up even more.
The Mobile Landscape
There are really only five mobile phone networks in the US. Verizon, AT&T, T-Mobile, and Sprint are all national carriers and there is US Cellular that operates in about half the US states.
All of the other mobile phone companies are on one or more of these networks. Some of the smaller mobile phone companies are owned by one the main four. These smaller providers rent time on the major provider’s networks.
Comcast and Charter are now rumored to be in talks with Sprint about some sort of deal where they buy the company or rent access. But Comcast and Charter, the second and third largest video providers respectively, actually already have reseller agreements with Verizon, the number one wireless provider and number five video provider. Comcast currently delivers mobile through Verizon’s network with its Xfinity Mobile. Charter is looking at offering mobile soon. They have agreed with each other not to move forward on wireless by themselves for one year. Their two of their biggest rivals with video and Internet service are Verizon and AT&T. AT&T is number one in video and two in the wireless arena.
Cast of Characters
Sprint
Sprint is the fourth largest mobile phone service provider in the US. Sprint can trace its history back to the Brown Telephone Company founded in Kansas in 1899. Brown Telephone Company became United Telecom in the 1970s. It took the name Sprint in 1991 after acquiring US Sprint from GTE.
The name Sprint is an acronym of Southern Pacific Railroad Internal Network Telecommunications. Southern Pacific Railroad had gotten into the telecommunications business when it ran fiber optic cables along its railroad tracks and then rented traffic on them. Southern Pacific Communications Company (SPC) was the unit of the railroad that managed the phone lines. SPC was acquired by GTE and was renamed GTE Sprint which was later purchased by United Telecom. Many mergers and acquisitions later, Sprint is now mostly owned by Softbank, a Japanese telecom company. SoftBank purchased 80% of the company in 2013.
Sprint owns Boost Mobile and Virgin Mobile prepaid wireless companies. Sprint also provides network connectivity to other mobile phone companies like Republic, Straight Talk, Net10, NetZero, and Kroger i-wireless.
T Mobile
T-Mobile is primarily owned by the German telecommunications company Deutsche Telekom. It is the third largest mobile phone provider in the US. T-Mobile was created from VoiceStream Wireless PCS in 2001 after Deutsche Telekom purchased it. They subsequently merged with Metro PCS in 2012. AT&T attempted to purchase T-Mobile in 2011 but withdrew the offer due to US Government opposition. Sprint was also looking at an attempt to buy T-Mobile in 2013 but that was also withdrawn due to regulatory concerns. Now there is talk about T-Mobile buying Sprint. The combined subscriber count of the merger of T-Mobile and Sprint would be just about equal to AT&T’s subscriber count of 134 million. T-Mobile owns MetroPCS and provides connectivity to Liberty Wireless, Republic and TracFone among others.
Comcast
The largest home Internet and cable provider and the second largest pay-TV provider, after AT&T; Comcast was founded in 1963 in Tupelo, Mississippi. Comcast also owns NBC and Universal Studios. Comcast recently partnered with Verizon to provide connectivity to Comcast’s Xfinity Mobile. They had previously provided mobile phone service via Comcast Cellular from 1988 to 1999 when it sold its mobile business to SBC Communications. As traditional cable falls victim to “cord cutting” Comcast is looking to other business models with future. Comcast is the number one broadband Internet provider in the US.
Charter
With Charter Communications’s purchase of Time Warner Cable and Bright House Networks last year it became the second largest cable company and third largest pay TV provider, behind Comcast and AT&T/DirecTV. Charter is also the number two broadband Internet provider in the US. They are reportedly currently in talks to buy Cox Communications. Charter has signaled that they are definitely looking at adding to their portfolio of business ventures as they lose traditional cable subscribers.
Masayoshi Son, of Softbank (the largest share holder of Sprint), recently made overtures to Charter expressing interest in joining forces but Charter responded by saying “Charter has no interest in acquiring Sprint." It may happen that SoftBank purchases Charter though.
Verizon
Verizon started out in telecom. It can trace its lineage back to Bell Atlantic, and NYNEX of the old Bell System. They combined with General Telephone in 2000 to make up Verizon. It is now the largest mobile phone provider. Verizon recently bought Yahoo and AOL to boost its content ownership. Verizon is number four in pay television subscribers, behind Charter, Comcast and AT&T/DirecTV. It is also number four in Internet subscribers. Verizon has contracts with both Comcast and Charter to provide mobile connectivity. Comcast has activated the contract but Charter has not yet. Verizon also provides mobile connection to US Mobile, TracFone, Total Wireless, and Credo Mobile among others.
AT&T
Again this company goes back to the Bell System. It includes Ameritech, Bellsouth, Pacific Telesis and Southwestern Bell from after the breakup. AT&T owns DirecTV and is in the process of buying Time Warner Inc. AT&T offers landlines, mobile, Internet and video through Uverse and DirecTV. AT&T ranks second largest in the US as to mobile phone service and is the number one pay TV provider. It is the third largest Internet provider in the US. AT&T owns Cricket Wireless and provides connection to TracFone, Boom Mobile, and Best Cellular. If the purchase of Time Warner Inc is approved, which seems likely, the new company will be the nation’s largest entertainment company.
New Street Research has actually put the odds of Sprint being acquired by either T-Mobile or a cable company at 70%. And I guess you place your bet in the stock market.
Japanese telecom, SoftBank is the majority owner of Sprint. Recently SoftBank’s CEO, Masayoshi Son, met with Warren Buffet and Liberty Broadband’s John Malone. Liberty Broadband owns about 20% of Charter Communications. Buffet’s Berkshire Hathaway owns about 3.5% of Charter.
Any Objections?
It is unlikely that the various government agencies would approve a Sprint acquisition by either Verizon or AT&T, the top two mobile providers in the US. T-Mobile may stand a chance of acquiring Sprint even though Sprint withdrew from its desire to purchase T-Mobile in 2013 due to regulatory opposition. Many people feel a T-Mobile/Sprint merger stands a better chance of approval these days due to a Republican administration. Even though Sprint was looking at taking over T-Mobile last time things have changed. T-Mobile has surged ahead of Sprint to become the third largest mobile carrier and Spring has hinted that they would be willing to let T-Mobile run the show if they merge. There have been rumors that either Charter or Comcast or both may attempt to acquire the company. The two largest cable companies have agreed not to proceed with a mobile plan without consulting the other. The FCC and other government agencies might look more favorably at a merger or acquisition that doesn’t consolidate and already consolidated field so they might more easily approve a match up from disparate areas like cable.
The legislative and regulatory reception to mergers and acquisitions cycles back and forth. It is not just which party is in the White House that determines the results. Most of the mergers of the last thirty years are the result of the Telecommunications Act of 1996 passed under the Clinton Administration which allowed for media cross ownership. The Charter/Time Warner/Bright House merger was while Obama was President as was Verizon’s purchase of AOL and Yahoo. AOL’s original merger with Time Warner was under Clinton. The original Time Inc and Warner Brothers merger was during the first Bush administration.
CDMA or GSM
Another factor that comes into play with Sprint’s ultimate owner is the radio system in use. Sprint, Verizon, and US Cellular all use CDMA while AT&T and T-Mobile use GSM. GSM phones can be used on any GSM network but CDMA phones are not always compatible. A lot of the newer phone can be used on both networks but not all of them. If it ends up that T-Mobile is the ultimate owner of Sprint, all the Sprint customers would eventually need to switch over to a GSM phone. Comcast’s Xfinity Mobile uses the Verizon network currently so customers would not necessarily have to switch phones. Charter too has a contract with Verizon. If Charter does dive into mobile with Verizon and then buys Sprint, their customers could probably keep their phone. Verizon has however announced that it will be completely moving to the new LTE radio system in the next few years though and Sprint may follow suit.
Bottom Line
SoftBank wants to do something with Sprint. They have slipped from third place to fourth, which is actually last place for national carriers. The more likely scenarios are that the company joins up with T-Mobile or Charter. Other possibilities are Comcast or even a dual agreement with Comcast and Charter. Less likely is a merger with Verizon or AT&T. Another less likely option is a merger with a company in a dis-related field or a smaller cable company.
It could also turn out that Charter and Comcast work out a reseller agreement with Sprint in the near future and T-Mobile ends up buying it down the line. Whatever happens will probably happen fairly soon.