The proposed merger between Sprint and T-Mobile is an interesting Catch 22, according to analysts from New Street Research. Both carriers acknowledge they can’t compete with the likes of Verizon and AT&T separately, as their buying power for spectrum is just overwhelming. Together, T-Mobile and Sprint would still represent the number three carrier in the US, but the FCC is likely reluctant to let it happen.

New analysis from New Street suggests that without a merger, one of the carriers will fail. In a statement to investors, New Street paints a dim outlook for a quad-carrier existence:

Our analysis shows that neither Sprint nor TMUS [T-Mobile] have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so. Both companies aren’t independently viable at the same time. We show that there simply isn’t enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share.

They note that to remain competitive, both companies need to raise about $10 billion in the next 18 months. Given market saturation in North America, that’s simply unlikely to happen, according to them. New Street also suggests consolidation lends itself to lower pricing, a sentiment we’ve heard from Softbank’s CEO. To back that up, New Street points to other markets — specifically Greece and Netherlands — where carrier consolidation led to a 15-40% price drop for consumers.

New Street went on to note “If the companies are only permitted to merge when one has faltered or failed, the combined company will be less well-positioned to compete against the two well-funded incumbents.” The FCC doesn’t seem to feel the same way, and are on record as being against any less than four carriers stateside.

If New Street is right, the two carriers need to merge — something the FCC is unlikely to allow. If the FCC doesn’t allow them to merge, New Street thinks one will fail, which leads to customers fleeing the carrier, and eventually an auction of their spectrum, etc. That would defeat the FCC’s purpose of fair comeptition, as it would only drive customers to Verizon or AT&T, strengthening their position. A true Catch 22 — if New Street is right.

Via: Fierce Wireless

  • Matt Hay

    Let Sprint fail. I fled to T-Mobile after 13 years because Sprint was so terrible to work with.

    • gijoe12345w

      The point is you let one fail and they will both ultimately fail.

      • BigAppleGuy

        That’s not the point at all…even the headline says ‘one will fail.’ Then the survivor will soak up many of their customers…

      • Matthew Prendergast

        The FCC has only been consumer friendly when AT&T tried to buy tmobile and they almost got away with it. Just in case everyone forgot, when att tried, the fcc entertained the idea and almost passed it. With sprint they aren”t even letting a conversation start. Why? because att and verzon have friends on the hill that need money. Sprint doesnt and tmobile has less because of there cut throat honesty on pricing which is making many rich people scared. They will allow tmobile to fail so then att and verizon will have a legitimate argument to soak up the spectrum. When this happens, they will have so many experts with convincing arguments on why the spectrum is only workable with there networks and none of the smaller carriers. The only competition in the mobile industry in the USA is with the mvno carriers. The regular market is lopsided and alway will be unless sprint and tmobile merge or att and verizon are forced to shrink or are broken up because of how big they are. It’s insane how other countries have many carriers and still complain about low competition, we have 4 nationwide and only 1 has true coverage coast to coast but the fcc says we have a healthy market. NOOOOOOT!!!!

    • BigAppleGuy

      T-Mobile is more likely to be the one that will fail. They are losing money on every new customer they get, their network is the least built out and they don’t have an owner with access to billions in both personal capital and cheap financing.

  • Matthew Prendergast

    I agree. I may not like the idea of a merge but at this point it is the fault of the fcc that we are here. They should have never let att buy cingular. They should have never let voice stream be purchased by anyone to begin with. In my opinion, we have cable vision, dish network and Google all starting there own mobile subsidiary. Let Sprint merge with t-mobile then the fight would be equal to how pay tv is now. TWC, Cable vision, opt online and all the other cable operators are fighting Verizon, att and google from having a cable entity. They aren’t cable though, they are fiber, which is the same but different and this allows them to dominate and coexist at the same time which is good for the people.

    • BigAppleGuy

      The FCC, to best perform its fiduciary relationship to the American consumer, wants to increase competition. What better way to do this than to allow a company to be created that can effectively compete against the current duopoly of VZ and T? I don’t know if the DOJ and FCC are just putting up a front, but after allowing Comcast/TWC how can they possibly say no to S/TMUS?