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Sprint, Altice deal ominously akin to failed Pivot venture

By opting for a partnership with Altice USA over a merger with T-Mobile US, Sprint has missed the opportunity to access top quality mobile network infrastructure and a successfully disruptive company ethos – instead choosing a mobile virtual network operator (MVNO) deal which will do little to help the US telco’s case in chasing down AT&T and Verizon. Yet the two respective Sprint and T-Mobile CEOs have not burned all bridges; sowing the seed for a possible merger reincarnation in the future.

Sprint has struck similar cable partnerships in the past which did not end well. This week’s progressions, from a potential third-placed US mobile giant to cable MVNO, echo similarities to the Pivot venture between Sprint, Comcast, Time Warner Cable, Cox and Advance/Newhouse, which kicked off in 2004 but crumbled disastrously in 2008 due to billing and network integration issues.

The initial idea was for an integrated cable-mobile TV offering to provide customers with a unified source of live TV, DVR, programming listings, internet access, email services, while allowing users to place unlimited calls between their cable home service and mobile phones, and have one point for customer care and billing. The $200 million cable joint venture also promised to go further to the extent that the cable user base could be the primary initial target for 4G services promised at the time on WiMAX, just like how the latest deal suggests that Altice’s cable infrastructure will help Sprint build out its 5G network infrastructure and “establish a differentiated network operating model.”

Had Pivot been successful, it would have given Sprint a massively important position in US media and telecoms, in effect leveraging the cablecos’ networks and customer bases to mount a challenge to Verizon and AT&T that would be impossible on its own. Now Sprint is having a second bite of the cherry via new entrant Altice USA, the fourth placed cable provider which acquired Optimum and Suddenlink last year. A key difference this time around is that Altice USA, with 4.9 million broadband subscribers, does not represent the same cable force that the big four cablecos did some 13 years ago when Pivot was born.

Specifics are under wraps for now, but Sprint will cash in nicely from letting Altice USA jump on its network to launch wireless services, and is also expected to use Optimum’s WiFi assets to help “densification” of its network and patch some holes in its reach, while Altice is expected to make “full use” of Sprint’s network infrastructure. We expect Altice to offer a similar bundle to Xfinity Mobile, which launched in May this year, undercutting the MNOs in many target subscriber bases.

On the other hand, the failed merger between Sprint and T-Mobile could be a blessing in disguise for consumers as it keeps mobile competition fierce.

Wireless offerings from Altice USA are expected to take around a year to launch, if the MVNO deal between Comcast and Verizon is anything to go by, but Altice said it will initially only make mobile services available within its existing cable footprint, followed by a nationwide roll out at some point down the line.

Sprint CFO Tarek Robbiati said in a company conference call, “With respect to restrictions on Altice to sell within its footprint, it is restricted to sell within its footprint, but we are very happy if it is expanding its footprint and we would be expanding its ability to sell in any new footprint that it would be expanding to.”

Sprint’s parent company Softbank also said this week it will be increasing its stake in Sprint from 82% to 85%, triggering a tender offer.

After merger talks collapsed, T-Mobile US CEO John Legere said, “The prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders. However, we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding standalone performance and track record.”

Sprint CEO Marcelo Claure hinted that merger negotiations could reignite in the future, saying, “While we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination.” The combined entity would have over 130 million mobile subscribers in the US.

Legere went on to suggest that Sprint needs T-Mobile more than T-Mobile needs Sprint. “Going forward, T-Mobile will continue disrupting this industry and bringing our proven Un-carrier strategy to more customers and new categories – ultimately redefining the mobile internet as we know it. We’ve been out-growing this industry for the last 15 quarters, delivering outstanding value for shareholders, and driving significant change across wireless. We won’t stop now,” said Legere.

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