Sprint the winner if AT&T absorbs T-Mobile?

commentary Sprint has done a better job than any other provider of firmly anchoring itself as a low-cost option. It's also done a better job of improving customer service.

Editors' note: This is a guest column. See Roger Entner's bio below.

In March 2011, AT&T announced that it was planning to acquire T-Mobile USA for $39 billion . This was the unexpected culmination of months of rumors about the sale of the ailing T-Mobile. Many analysts had seen Sprint as the most likely partner, but it was AT&T that made the successful bid after it was approached by T-Mobile parent Deutsche Telekom.

Proponents of the merger tout the construction of a more reliable, high-speed 4G LTE network that will be available to more than 97 percent of the country (and an additional 55 million more Americans than either company was planning to serve with next-generation services). Opponents are suggesting the merger will result in higher prices for wireless plans. Entities such as the Consumers Union are prognosticating that the disappearance of T-Mobile USA "will likely lead to higher prices, not just for T-Mobile customers, but for all customers," as it would eliminate the "largest low-cost provider" in the wireless marketplace.

These claims piqued my interest, so I decided to do some digging to determine what the facts are, as claims about price increases occur in advance of every wireless merger. It would be a serious problem if, as Consumers Union charges, T-Mobile is in fact the lowest-cost provider--merging it out of existence would eliminate the lowest-priced service plans and otherwise result in higher-priced options.

Interestingly, quick research gathered from the Web sites of various wireless providers presents a set of facts that do not support claims that T-Mobile is the lowest-cost provider. Furthermore, trend lines for wireless pricing before and after wireless mergers do not support the theory that the merger will lead to price increases. As the late Sen. Daniel Moynihan famously said: "We are all entitled to our opinions, but not our own facts."

T-Mobile is not the lowest-cost provider
Nationwide, consumers have at least three offers available to them that are lower in cost than T-Mobile's current offerings. Boost Mobile, which is owned by Sprint, and Tracfone's Straight Talk both offer nationwide plans that provide a lower-cost option. In fact, Sprint's Boost Mobile, Leap Wireless, Metro PCS, and Straight Talk are all gaining customers, while T-Mobile's higher-priced services are losing customers. It is highly doubtful that Sprint, Leap, Metro PCS, and Tracfone will raise prices while competing vigorously against each other for customers at the low-cost end of the market, just because a higher-priced competitor is no longer competing.

The best way to describe T-Mobile at this time is as "the most expensive low-cost phone provider"--an oxymoron indeed, and the exact reason for T-Mobile's customer losses. The root of T-Mobile's current churn and customer drop-offs lies in the lack of focus on a clear consumer segment. The provider's plans are too expensive to appeal to customers who seek low-cost plans, while it is unable to provide a network that will satisfy the demands of customers who are willing to pay a premium.

Mobile service pricing comparison
Recon Analytics, service provider Web pages

The lower-cost options listed above are available to roughly the same number of Americans before a merger of AT&T and T-Mobile and after a merger of the two providers. In virtually every market where T-Mobile is active, Sprint's Boost service is available, as is Straight Talk. Additionally, either Metro PCS (covering approximately 100 million Americans) or Leap Wireless (covering approximately 95.3 million Americans) are also active in these markets, providing cheaper service plans that directly compete with T-Mobile USA's offerings.

Service prices decline in wireless, regardless of mergers
Another popular argument against the merger is that prices would rise--a claim made in regard to every proposed merger. In the wireless industry, however, this has not been proved; in fact, it is quite the contrary. As previously reported, prices for wireless voice, messaging, and data services have declined consistently over the last several years despite claims that prices would rise after the multiple wireless mergers that occurred during this time period.

The below chart was included in a Recon Analytics' research note from April 13 titled "What is the price of a megabyte?"

Effective Price Per Unit
Nielsen, via Recon Analytics

Based on Nielsen's Customer Value Metrics collection of more than 60,000 wireless phone bills per month, the price per voice minute has held steady over the last two years, while the price per text message that consumers actually pay declined from about 2 cents to 1 cent per message, and the price per megabyte of data declined from 47 cents in the third quarter of 2008 to 5 cents in 2010.

To say that T-Mobile is the only low-cost provider, or is the lowest-cost provider, or that there would be only high-priced service plans available to Americans after a merger of T-Mobile and AT&T is factually incorrect. There may be reasons to oppose the merger, but fear that it will eliminate the lowest-cost competitor should not be one of them.

Sprint: the biggest beneficiary?
What is perhaps even more interesting is that Sprint, while loudly opposing the acquisition, will in all likelihood be the biggest winner from T-Mobile's disappearance. It is already the best-positioned value provider in the wireless industry. Sprint's postpaid plans are providing great value, while its Boost brand is a leader in the disruptive unlimited segment, and its Virgin Mobile brand is well represented in the per-minute prepaid segment. No other provider has as firmly anchored itself as the low-cost provider as Sprint has, and no other carrier in the U.S. has done a better job of improving its customer service.

When Dan Hesse took over Sprint, it was dead last in customer service . In the last four years, the company has gone from being the worst to being tied for the best in customer service, and this has helped to attract and retain customers. When the remaining, value-conscious T-Mobile customers are looking for a new carrier, Sprint and its fighter brands will be at the top of their consideration list, and unless Sprint raises its prices, they will most likely become Sprint customers.

For Sprint, the merger (and opposing it) represents a win-win opportunity . By opposing the merger, Sprint makes the lives of two of its competitors more difficult and increases the chance Sprint will secure extensive and favorable conditions on the merged entity. If it succeeds in blocking the merger, Sprint will have forced AT&T and T-Mobile to waste an entire year of valuable management time that could have been used to make Sprint's life more difficult. T-Mobile would be in a particularly difficult position to reinvigorate a workforce and attract new customers. After all, how do you gain customers when your company is viewed as uninterested in staying in the United States and without a vision for the future, but was forced by regulators to still compete?

In sum, opposition based on fears of price increases or a sense that T-Mobile is the lowest-cost provider, and therefore needs to remain a standalone company, is wrongheaded, because it's not based in reality.

 

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