Sunday, 25 June 2017

US cable, wireless mega-merger could be on the horizon

By Nick Wood, Total Telecom
Friday 19 May 17

T-Mobile US finance chief Braxton Carter pitches idea of sequential deals with Sprint, Comcast and Charter at investor conference.

"What about, Sprint, T-Mobile [US], and a coalition of Comcast and Charter, and the value-creation that could come out of that?" This was one exciting, and at this moment in time, purely hypothetical scenario proffered by Braxton Carter, chief financial officer of T-Mobile US – the self-styled 'Uncarrier' – at an investor conference on Thursday. Until now, comments from T-Mobile and likewise Sprint about a potential tie-up have been largely limited to telling investors on quarterly conference calls that there is a willingness to do some kind of deal…

"What about, Sprint, T-Mobile [US], and a coalition of Comcast and Charter, and the value-creation that could come out of that?"

This was one exciting, and at this moment in time, purely hypothetical scenario proffered by Braxton Carter, chief financial officer of T-Mobile US – the self-styled 'Uncarrier' – at an investor conference on Thursday.

Until now, comments from T-Mobile and likewise Sprint about a potential tie-up have been largely limited to telling investors on quarterly conference calls that there is a willingness to do some kind of deal. Typically it has been unnamed sources and outside observers providing the really juicy speculation.

This week though, Carter was a veritable juice machine, squeezing pure, fresh – probably magenta-coloured – commentary about the merits of T-Mobile merging with its rival.

"It's not a question of will talks happen" between Sprint and T-Mobile. "Of course they're going to happen," he said, adding that "there's a huge prize when you talk about Sprint, and that's true, hard synergies."

One of the most significant areas of synergy is spectrum, Carter said.

Sprint has "a treasure trove of 2.5-GHz spectrum...that you can do amazing things with," he said.

Bringing together Sprint's and T-Mobile's spectrum holdings would see them well-placed to offer deep, broad wireless coverage, he said, which is only going to become more important in the run-up to 5G.

"With 5G, there are going to have to be extremely dense networks, and we will have to have all the ingredients, and a spectrum portfolio to leverage in the 5G world," he said.

Of course, a merger with Sprint is not T-Mobile's only option.

Cable companies Comcast and Charter have ramped up their mobile strategies with MVNO services on Verizon's network – Comcast's Xfinity Mobile service launched this week, and Charter's own mobile service is expected to go on sale in 2018.

There has been speculation that this will lead inexorably to some kind of combination with one of either Sprint or T-Mobile, the only two of the U.S.'s four nationwide wireless players without fixed-line businesses.

When asked about the prospect of merging with a cableco, Carter responded by asking: "wouldn't it be fun to do both?"

He suggested that T-Mobile could merge with Sprint, and then pursue a deal with a coalition of Comcast and Charter.

"One step doesn't necessarily preclude the second step, it could actually increase the possibility," he said, pointing out that such a combination would serve consumers' growing demand for convergence.

"That's where the world is going," Carter said.

He also seemed fairly relaxed about how a mega-merger would be perceived by regulators.

With growing competition from over-the-top (OTT) players, cable companies entering the mobile market, as well as potentially Dish Network, "it's absurd to say there are only four players in the [mobile] market," Carter said.

"That could totally change the dynamics of how you look at this from a regulatory standpoint," he said.

If Carter is this bullish about the prospect of major M&A, the rest of this year promises to be full of excitement.

What's more, if some kind of combination does happen, no doubt it will be 'Uncarrier-style' consolidation, which is broadly similar to run-of-the-mill consolidation, but with more t-shirts and swearing: s**t yeah, swap ratios! This EBITDA multiple kicks a**! And so-on.

Something I think you'll agree we can all look forward to.

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