Sprint, T-Mobile: Separate Equals Better

Sprint has ditched its effort to acquire T-Mobile, hired a new CEO, and set a new course. This is all good news for consumers -- if it makes the right moves.

Eric Zeman, Contributor

August 7, 2014

4 Min Read

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Sprint has officially bagged its goal of acquiring or merging with smaller rival T-Mobile. The change marks the end of a year-long effort to convince regulators and others that a combined Sprint/T-Mobile would be better for US consumers. Sprint also named a new CEO, who has promised to take the company in new directions. Things can only get better from here.

One of the issues facing Sprint is size. Sprint has about 55 million customers, which makes it the third-largest operator in the US. Verizon is the largest, with about 122 million customers; AT&T is second, with 116 million; and T-Mobile is fourth, with about 51 million. By themselves, Sprint and T-Mobile are about half the size each of AT&T and Verizon. Sprint owner SoftBank contended Sprint and T-Mobile could compete with the larger two companies only if they worked together. Regulators didn't see it that way.

Masayoshi Son, CEO of SoftBank, began floating the idea of buying T-Mobile almost as soon as the company closed its acquisition of Sprint in mid-2013. Son and Dan Hesse, Sprint's now-former CEO, starting pitching the idea in earnest earlier this year and quickly met with resistance. Both the FCC and Department of Justice voiced opposition, making it clear they prefer a four-carrier marketplace. It took a while, but that message finally sunk in.

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Government concerns aside, there a number of reasons Sprint and T-Mobile aren't a good fit. To start, they use different technologies for 3G service. (LTE 4G may be all the rage, but 3G will be around for some time.) Resolving the technology differences would have been expensive, as the two carriers have incredibly varied spectrum holdings.

Also, Sprint and T-Mobile couldn't be further apart culturally. T-Mobile sees itself as the upstart competitor breaking all the rules, while Sprint is more staid and conservative.

The economics behind any merged/combined entity were never very sound, no matter how many lenders Masayoshi Son lined up. A merger would have required massive spectrum and customer divestitures in markets where Sprint and T-Mobile overlap, which would have reduced the possible benefits of combining.

Sprint is now starting a new chapter, and it has the opportunity to dramatically change the US wireless industry.

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Dan Hesse, who led the company for six and a half years, is out. He will be replaced by Marcelo Claure, founder and CEO of Brightstar, on August 11. Claure wasted no time in setting the tone for his tenure at the top of the company. Claure says he "looks forward to leading the Sprint team as we mobilize to become the wireless carrier of choice in the US. In the short term, we will focus on becoming extremely cost-efficient and competing aggressively in the marketplace. While consolidating makes sense in the long term, for now we will focus on growing and repositioning Sprint."

Sprint spent years wasting time and money on WiMax, the ill-fated 4G technology. When the rest of the industry sided with LTE, Sprint had no choice but to drop WiMax and start all over with LTE. Sprint trails even T-Mobile in deploying LTE around the country and often finishes last in speed tests and network reliability ratings. If Sprint really wants to compete aggressively, the first thing it needs to do is fix its network -- a task the company has already spent too much time and money on. A better network will be better for customers and for competition.

Pricing is the other big problem. Sprint is the only carrier to offer truly unlimited data plans, but its plans cost more than similar offerings from the other three carriers. The unlimited data idea is a nice gesture to Sprint's customers, but Sprint needs to drop its prices (and maybe drop those laughable "Framily" plans too). A better network and lower prices from Sprint could have a ripple effect across the industry.

We've already seen that ripple effect, thanks to T-Mobile's "Un-carrier" campaign over the last 18 months. AT&T, Sprint, and Verizon have been forced to match many of T-Mobile's initiatives, such as monthly payment plans for devices, to keep up. T-Mobile's bold actions have had a measurable impact on the industry -- to the benefit of consumers. If Sprint joins T-Mobile in shaking things up, consumers could benefit even more.

There's no question that a dark cloud still hovers over Sprint. The company needs to pull itself together, tighten the straps, and plow forward as fast as it can. But for the first time in years, there might be a break in the storm clouds. If Claure and Sprint can find it, consumers will be the winners.

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About the Author(s)

Eric Zeman


Eric is a freelance writer for InformationWeek specializing in mobile technologies.

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