US regulators aren't a fan of wireless companies buying other wireless companies or cable companies buying other cable companies. But what about a cable company coming together with a wireless company?
That's a marriage they just may accept, according to T-Mobile CEO John Legere, who was talking about industry consolidation on his company's first-quarter conference call Tuesday. He alluded to a potential tie-up between T-Mobile and a cable company.
Combining T-Mobile with a cable company could offer benefits to consumers. The combination would be a viable alternative to AT&T and Verizon, which both offer wireless services as well as broadband. Cable companies such as Comcast have built extensive Wi-Fi networks that could be used to add more capacity to wireless networks or provide better coverage indoors. This could lead to faster wireless networks capable of handling more data in more places, all for a reduced price.
"I've always said it's not a matter of if, but when. Now I'm going to add who," he said.
Legere's comments come just days after. AT&T gave up its acquisition of T-Mobile in a similar fashion in 2011 when regulators . In both instances, government officials at the Federal Communications Commission and Department of Justice feared consolidation among these providers would choke off competition and innovation in their respective markets.
The failed deal was a boon for T-Mobile, helping breathe new life into the company that had been bleeding customers. With a generous breakup fee and a stash of wireless spectrum given to T-Mobile by AT&T, T-Mobile was able to turn the lemons the government handed them into lemonade. T-Mobile has been growing at a rapid clip while its two biggest rivals, AT&T and Verizon, have been losing their most valuable subscribers. It is currently the fastest-growing wireless company in the market.
But Legere has long maintained that consolidation was critical for wireless companies to survive in the long term. A year ago, it looked like Sprint's parent, Japanese carrier Softbank, was interested in buying T-Mobile. Softbank Chairman Masayoshi Son tested the waters with US regulators, who flatly rejected the notion.
For Sprint, which has been struggling to keep up with rivals, the desire to combine with T-Mobile smelled of desperation. In a speech last year, Son said that it would be nearly impossible for Sprint to compete in any significant way with AT&T and Verizon if it does not merge with another provider. But this is not the case for T-Mobile, Legere said in an interview following the investor conference call. While the company's future is not dependent on a merger, the right deal could open up new possibilities for the company, he added.
"There is no correlation between M&A and desperation," he said. "There is plenty we can do on our own. But I like the idea of looking at this in an expanded way and looking at partnerships in a new way."
Wireless and cable matchmaking
On the call with analysts, Legere explained there is a "synergy between" what T-Mobile is doing and what companies in other communications industries, such as cable, are doing.
He said thus far no one has appreciated how relationships between these two tangential industries might be combined to take on AT&T and Verizon, which already have broadband and TV businesses that compete directly with cable operators.
"The tangential players are touching mobile players in a way that makes a go-to-market strategy," he said.
Cable operators have been interested in the wireless market for years, and there have been several attempts to create partnerships with wireless companies. Some of the largest cable companies, Comcast, Time Warner Cable and Bright House formed a joint venture to buy wireless spectrum in 2008.
The joint ventures and partnerships all failed. And the cable companies ended up selling their spectrum to Verizon four years later. Still, the time is approaching when wireless and cable could look like a more natural fit, said T-Mobile Chief Operating Officer Mike Sievert.
"There was a time when everyone thought there was a need to bundle wireless and TV," he said in an interview. "I think the industry has graduated from that mentality."
He said the synergies now go way beyond bundling services, like wireless voice, broadband and TV, as people rely on Internet connectivity for entertainment and use social-networking services to stay connected. Wireless is a key component to the growth of Internet use.
More than 55 percent of all Internet traffic goes over a wireless device, according to the CTIA Wireless Association. Cable operators see wireless as an important opportunity, but they're not quite sure yet how to take advantage. For now, they are concentrating on their Wi-Fi offers that provide Internet connectivity to broadband subscribers when they leave home.
T-Mobile executives believe there could be an opportunity for T-Mobile to partner or one day combine with these cable companies.
"The pairing of cable with wireless could really bring some significant innovation," T-Mobile CFO Braxton Carter said in an interview. "And T-Mobile is uniquely positioned for this opportunity."
T-Mobile was the first major wireless operator to dabble in Wi-Fi calling. And it was the first mobile operator to support Wi-Fi calling that can hand off calls to a cellular network connection using voice over LTE technology. T-Mobile is also one of two major wireless carriers that is partnering with Google's Project Fi to improve Wi-Fi technologies so that it can be used seamlessly with a cellular service to augment coverage and offer faster-speed connections, when available. (Sprint is the other.)
It seems that regulators would be more willing to swallow this type of consolidation rather than allowing companies within the same vertical industries to combine. While the FCC and Justice Department put the kibosh on Comcast's purchase of Time Warner Cable, AT&T executives on the company's first-quarter earnings call last week said they were confident that regulators will approve the company's acquisition of satellite TV provider DirecTV. In that case, it's a combination between two companies in different fields.
But it may not be a slam dunk for cable and wireless with regulators in Washington either cautions Craig Moffett, a senior analyst at Moffett NathansonResearch. He thinks the combination of cable's gigabit broadband network with its widespread Wi-Fi networks coupled with a high-speed wireless network like T-Mobile's would be a powerful combination, but he said regulators may already see the industries as competitors.
"You could make a good argument for it being very consumer friendly, but remember that we just had a Comcast/TWC deal rejected precisely because the FCC found a lack of competition in the broadband market," he said. "Wireless broadband is clearly the FCC's best hope for a counter to cable's wired advantage. They might decide that they aren't ready to allow a combination like that."
Legere was not specific about when he thought a cable/wireless deal might happen. But he made it clear that T-Mobile is open to any and all opportunities.
"I think you need to think about the cable industry and players like us as not competitors, but potential partners and alternatives for each other in the future," he said on the call. "There's a far more broad set of potential partnerships, integrations and mergers that the United States could be looking at. And in that case, I think you will see consolidation of a much broader set."