Industry Trend Analysis - No Easy Solution For Sprint - OCT 2017
BMI View: None of the deals mooted for Sprint will help the company regain its relevance in the short-term. It has struggled because it has lacked a clear strategy since the Softbank acquisition, and increasing in size alone will not be enough without adding a clear direction as to what the operator wants to be.
Sprint reported its first net income in three years in Q217, and revealed that it expected to announce a potential deal in the near future. We had expected more consolidation in the US telecoms market at the start of the year, because of a more favourable regulatory regime under the Trump administration, and see three major potential targets for Sprint and its owner Softbank (see ' Spectrum And Trump Potential Catalysts For Consolidation ' , January 16 2017). But whatever it chooses, none of the deals will make the company relevant in the market in the short term, as several major issues, including its reputation with customers, and its lack of a clear strategy, also need to be resolved.
|Underperforming In The Market|
|Mobile Market Shares (%), 2015-2017|
|Source: Operators, BMI|
We believe there are three potential targets for Softbank/Sprint:
T-Mobile, in what would be consolidation in the mobile market. T-Mobile has often been the main acquisition target for many companies, as it was expected that its owner Deutsche Telekom wanted to exit the market, but the success of its 'Un-Carrier' strategy, and strong financial backing, may have changed Deutsche Telekom's perspective. The deal will be expensive, and even if it were to go through, either as a full acquisition or perhaps a joint-venture, we foresee a number of issues in terms of strategy and synergies, for instance integrating the two operators' very distinct networks, which scale will not resolve.
Charter, in what would bring a new converged actor. Charter is the second largest cable provider after Comcast, and a deal would put the new company in direct competition with its rival, which is launching its mobile service, and AT&T, whose copper network is present across half the country. Charter has already said it is not interested in a deal, meaning a takeover would be both costly and hostile. And while it might allow greater convergence of content, the main usage driver in the mobile market, the structure of the broadband market will continue to be a hindrance, as the positive effects of convergence will be limited to the cable footprint.
DISH, creating a spectrum-heavy company. The deal could be the easiest to make, but also the most difficult to implement, because of the lack of synergies between the two players. DISH tried to buy Sprint in 2013, losing out to Softbank, and has struggled as a stand-alone satellite pay-TV player since then (see ' DISH: Between A Rock And A Hard Place ' , May 2 2017). Bundling pay-TV content with mobile services is a limited attraction in a market where unlimited plans have become the norm, but the two companies would also own a large amount of spectrum. Considering future demand for 5G and Internet of Things (IoT) services, and Softbank's ownership of ARM, this could be a winning combination, but only if the right strategy is put in place. Without it, it would just be the combination of two underperforming companies, with little upside to them merging.
|Spectrum-Rich, But Strategy-Poor|
|Spectrum Holdings (MHz), 2016|