Charter and Comcast only get one go at this – getting on to an equal footing with AT&T and Verizon in cellular – so they plan to leave no stone unturned. However the idea that they will take seriously the fairly mouldy old stone of working alongside Sprint – not this time as a pure MVNO, but as a full partner with privileged access – remains a long shot.
We agree they must look at it. If the price of getting Sprint and all of its much -treasured spectrum is low enough, it may end up being the right deal for the two to go through with. Already it is fairly clear that if T-Mobile and Sprint merge it will be on the basis of the T-Mobile management team being the more active and gaining control – not as the cosy US investor establishment had assumed, the other way around.
And in the event of such a deal being agreed, the US would have 3 equal sized cellular operations, doubling the price for the big cable groups to enter the quad play market with an MNO acquisition. Already we have seen investors suggesting that cable has had its long run of upwardly sliding valuations – meaning that now is the time to strike, not after investors heed the advice and begin to depart cableco stocks, if indeed they do.
But we only have to look at the fate of Pivot after Sprint and Nextel merged and went courting the cable companies. At that time the illusion that Sprint had a vision and that it controlled its destiny was still in play. Today it has failed to respond to countless failings of both its network and its business model and it has lost customers and its value is down at around $32 billion. Back in 2008 when Pivot was formed, it had new management, controlled the fledgling WiMax network Clearwire and offered the cable companies what was seen as a weak service, which it had solely devised, as MVNO services specifically developed for cable. It also developed them in such a way that they were cumbersome to sign customers up for, while Sprint had a reputation as the poorest US network by a margin – in coverage, performance and in cash terms.
Since then Sprint has developed an LTE network, and worked through the issues surrounding its’ disastrous merger with Nextel, which had customers who loved their existing services (remember Push to Talk?), which Sprint completely failed to keep alive.
While the management has changed through acquisition by Softbank, it is hard to see that the corporate culture, which tends to discourage innovation or deviation from the market norm, has changed sufficiently. Softbank has been unable to push through much in the way of innovation in its business model and instead has been led by T-Mobile USA here, with its Uncarrier policies which have taken the US MNO market by storm. Sprint has no video strategy, and yet is surrounded on all sides by MNO operators which embrace video, and Sprint has no fixed line proposition except for an ancient long lines business.
There is no doubt in our mind that any sane businessman, finding themselves owning Sprint in the current climate, would draw up a list of requirements beginning with 1) Get more fixed line backhaul 2) Gain access to video content 3) Extend marketing reach 4) Get even more spectrum 5) make it so money is not a problem – and would find a compelling match from Comcast and Charter.
But from the Comcast/Charter point of view it would be buying a network with a continuing poor reputation and reach, with plentiful spectrum, but no marketing nous, which brings no fixed line revenues with it, short on cash, and which begins fighting the Mobile First video war from last place. It’s like picking someone with a short arm, and who runs slowly as your quarterback – the rest of the team has to work that much harder.
The two US cable firms need to decide if this is the best place to begin from, taking more control for less money and keeping their cash flow up their sleeves, or if the best approach is to wait until the US market has merged to create a more sustainable 3 MNOs, which will all be more or less self-sustaining, and who are well into their 5G investment plan, and then look again, paying a much higher price for a much stronger company.
So news this week from the Wall Street Journal that such talks are now exclusive are hardly surprising. Our favoured outcome is that the increasingly disruption-struck management team at Verizon, will allow its stock to fall and fall and that in 18 months to 2 years, Comcast Charter go there with a proposition – otherwise all of their spectrum dealings with Verizon which resulted in their MVNO, will have been wasted and the wait to get into cellular would have been for nothing (that particular MVNO could not be triggered until now). But with the right elements of corporate control in place, there are less regulatory hurdles against a Sprint deal – barely any.
Do not be surprised to see Comcast and Charter walk away from this deal and then engage T-Mobile USA in similar discussions and then walk away from those too, and build a closer relationship with Verizon, involving share ownership, in the more distant future.