Rumors of a new wave of US mergers and acquisitions are swirling, encouraged by the assumption that the new government will take a laisser-faire approach to telecoms and media consolidation. As well as a potential Verizon-Charter deal, T-Mobile USA is also, once again, at the heart of the speculation. Japan’s Softbank may be preparing to make a new play for TMO, say some sources, and may even be ready to jettison Sprint to secure the more successful cellco. But TMO could also turn predator, and snap up a TV firm to help it wave its disruptive Uncarrier wand over the US pay-TV sector.
Since Softbank acquired Sprint, TMO has overtaken that company as the US’s third largest MNO, and has enjoyed a growth spurt thanks to CEO John Legere’s dynamic leadership and a string of attractive mass market propositions under the label ‘Uncarrier’. Meanwhile, Sprint has missed targets for its high cost, high risk network modernization programs and while it has seen some improvement in performance – notably in its long-running bugbear, postpaid churn – it is struggling to keep pace with its rival.
According to Reuters, Softbank is now willing to surrender some or all of its 83% stake in Sprint, if that would remove antitrust barriers to a TMO purchase. When the Japanese operator was last poised to bid for TMO, in 2014, it withdrew, because it seemed likely the acquisition would be barred by the Department of Justice’s competition regulator.
Even in the more flexible M&A climate which the Trump administration is expected to introduce, there would still be issues with the same company owning the third and fourth MNOs. And selling Sprint – if a buyer could be found – would help finance the purchase of TMO, whose value is considerably higher than in 2014, up from $30bn then to more than $50bn. Sprint is worth about the same as in 2014, around $36bn.
Currently, Softbank will not be able to conduct formal talks with TMO’s largest shareholder, Deutsche Telekom, because consolidation negotiations are barred by the FCC during spectrum auctions, so meetings will have to wait until the final phase of the 600 MHz sale is over, probably in late March.
Legere has insisted, since the collapse of the Softbank deal – and other possible acquisition bids, including one by France’s Iliad – that TMO does not need a buyer and will continue to grow and disrupt as an independent. So far, he has proved his point, and his next step may be to bring his disruptive approach to the pay-TV space.
Legere said of the TV sector, during TMO’s earnings call last week: “Talk about a poster child for an industry that has really kind of ignored customers and ignored customer cares and gouged at every corner. Clearly, I salivate when I think about the possibilities of changing some of those industries.” He claimed that AT&T had done little with its DirecTV purchase, saying it had “pretty much let it sit on the side, and still be an old, crappy linear TV that they bundle weakly with their unlimited offer.”
By contrast, TMO could bring versions of its Uncarrier deals in mobile – which include the axing of contracts and subsidies, and zero-rated streaming music and video – to the TV market.
This could drive it towards an M&A approach of its own, harnessing its increased market value to become predator rather than prey. Dish Network has long been rumoured as a possible merger partner, but TMO could also eye a video distributor or pay-TV provider, especially if Verizon does the same, said analysts.
“The data on this is really clear. The cable industry is statistically one of the most unloved industries in the history of the consumer economy. So, obviously, it’s ripe for innovation in this area,” TMO’s COO Mike Sievert said on the results call. “I’ll tell you one thing, in 2017 we will reach the point where people have more screen time on mobile devices than on any other kind of screen, that’s really something incredible when it comes to watching their video. So we’ll see how this convergence unfolds, but in it we’re where the industry is going, not where it’s coming from, and we’ve got a brand that really resonates with people and possibly could resonate in an industry that’s even more maligned than we found ours four years ago when we got here.”
So the tail is now wagging the dog. This is finally perhaps a US MNO that understands what mobile-first TV actually means, and we could see a cellular operator using its grip on a highly personalized service to own the TV relationship. Watch this space.