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Regulators are skeptical that eliminating the uncarrier, rolling it into Sprint would be "good for consumers"

Japan's Softbank Corp. (TYO:9984) is used to winning, and doesn’t take no for an answer very often.  Last year it climbed from third place up to second in Japan's mobile subscriber rankings and it also entered the U.S. market, taking a majority stake (78 percent) in Sprint Corp. (S) with a cash-heavy $21.6B USD offer.
 
I. The Death of an (Un)Carrier?
 
But the new Sprint is looking a lot like the old Sprint over Softbank's first couple quarters in charge, bleeding money and customers.  In the face of this growing headache, Softbank isn't backing down. It's instead opting for an unusual and some would say troubling solution to Sprint's problems.
 
It's in serious pursuit of America's fastest growing carrier, Deutsche Telekom AG's (ETR:DIE) T-Mobile USA.  Deutsche Telekom has been eager to dump T-Mobile for some time.  Despite its recent success -- the payoff of 2013's merger with MetroPCS -- T-Mobile USA's German owner reportedly remains fairly interested in a sale.
 
One crucial question is whether such a deal would possibly fly.  Just a couple years ago, the U.S. Federal Communications Commissions (FCC) and U.S. Department of Justice (DoJ) won a hard-fought war against AT&T, Inc. (T), who had sought to gobble up T-Mobile.
 
This week, Softbank's Chairman and CEO Masayoshi Son was in Washington, D.C., trying to convince federal regulators at the FCC that a Sprint-T-Mobile union would be good news for consumers.  Mr. Masayoshi brought Sprint's embattled CEO Dan Hesse in tow.

Sprint and Softbank
Softbank CEO Masayoshi Son (left) and Sprint CEO Dan Hesse [Image Source: Kyoto Newscom]


According to Reuters, the crux of the Japanese executive's argument is that Sprint and T-Mobile are too small to compete separately.  T-Mobile has 45 million customers, while Sprint is currently at around 54 million subscribers.  Both are still a long ways away from AT&T's 76.2 million subscribers and Verizon Inc. (VZ) subsidiary Verizon Wireless's 96.2 million customers.
 
But there are a couple weaknesses in the argument.  First, Sprint is midway between AT&T and T-Mobile in subscribers, raising the question of why it should be allowed to buy T-Mobile if the AT&T purchase is verboten.

T-Mobile wide
Sprint

Softbank wants to put an end to the "uncarrier" and roll T-Mobile into its Sprint brand, according to reports. [Image Source: Flickr (top); Getty Images (bottom)]

Second, it would be an odd couple to say the least.  Compared to deals like the Softbank-Sprint tie-up -- which leveraged international business synergies -- or T-Mobile USA and MetroPCS -- which combined largely non-overlapping businesses -- Sprint and T-Mobile USA are direct competitors.  And the idea that handcuffing the market's brightest rising star (T-Mobile) to the biggest loser in the U.S. mobile market currently (Sprint) is also rubbing many the wrong way.
 
II. FCC Stands Opposed
 
For new FCC Chairman Thomas ("Tom") Wheeler -- an official who hails from a background as a former wireless industry lobbyist -- the talks mark a key test. 
 
Despite his background, Mr. Wheeler has called himself an "unabashed" supporter of competition, and hinted that he will follow in his predecessor Julius Genachowski's footsteps, looking to wield his authority to block further concentration in the mobile market.  The potential bid to consolidate America's third and fourth largest carriers is perhaps the new Commissioner's biggest chance yet to leave his own regulatory mark on the industry.

Tom Wheeler
FCC Chairman Tom Wheeler is reportedly "highly skeptical" of a Sprint-T-Mobile merger.
[Image Source: Reuters]

Reuters reports that an unnamed FCC official, who was not at the meeting, but was familiar with Mr. Wheeler's discussion with Mr. Masayoshi and Mr. Hesse, said that the FCC Chairman was "highly skeptical" of the deal. Reuters also cites an anonymous high-level source close to Softbank as saying:

I'm not unduly surprised by the FCC chairman's skepticism. I feel it's a rather typical reaction.

If Sprint's majority owner did score a majority bid in T-Mobile USA, a key question would be what its strategy would be.  While it might make sense to merge the brands under the faster-growing, more positively perceived T-Mobile USA banner, sources indicate that Softbank might instead look to tuck T-Mobile into Sprint, rebranding its stores and devices.
 

Sprint and Softbank are reportedly eager to bury the "uncarrier" campaign, which is costing them (T-Mobiel US CEO John Legere). [SOURCE: The New York Times]

Likewise, with T-Mobile forcing Sprint and AT&T to get more competitive with pricing, it is rumored that Softbank is keen on ditching T-Mobile's "uncarrier" strategy and aggressive rates, before it creates further woes for the Sprint brand.
 
T-Mobile might also have to sell off its MetroPCS unit if it were to be acquired.
 
All in all, any of these moves on their own could crippled T-Mobile USA, who is showing impressive growth, but remains a fragile recovery story. 
 
If Mr. Wheeler's stony silence was viewed as bad sign for Sprint and Softbank, then comments this week by William Joseph "Bill" Baer, the head of the DOJ's antitrust division, are an even harsher warning.  In a speech he praised T-Mobile's role in driving competition, not so subtly adding:

Merger litigation is costly and time consuming.  But the last few years demonstrate that we will not hesitate to challenge in court anticompetitive transactions where that is the right course.

It's increasing looking like even if Mr. Masayoshi does view T-Mobile as Sprint's ticket to fiscal rejuvenation, that Mr. Wheeler and Mr. Baer, along with the rest of the DOJ and FCC are unlikely to meekly bow to the plan.
 
As Lee Corso says, "Not so fast, friend!"

Source: Reuters



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This article is over a month old, voting and posting comments is disabled

By Reclaimer77 on 2/5/2014 9:02:41 AM , Rating: 2
Well there are other ways buddy. I heard if you call them up and say you're leaving the country, they can terminate the contract.

I just have this thing about lying, so I can't do it lol.


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