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