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18 May 2020

Will the dust ever settle on the US mobile market?

The US mobile market has been engaged in 15 years of almost constant M&A activity, from the re-assembling of AT&T from several former ‘Baby Bells’ in the middle of the last decade; to the failed AT&T bid for T-Mobile USA; the successful takeover of Sprint by Japan’s Softbank; and now T-Mobile’s acquisition of Sprint.

Meanwhile, US operators were early to deploy 5G, but are losing their country’s imagined 5G race with China, when it comes to scale. Spectrum has been taken first from broadcasters and now from satellite operators to feed the hunger for mobile broadband. The wave of consolidation has been offset by a string of new entries to the mobile game – by cable operators, notably the formidable Comcast/Charter partnership; and by Dish Network, which is acquiring Sprint’s Boost prepaid brand, and promising to build a network at last, as a by-product of the TMO/Sprint deal.

Further M&A may follow – perhaps the ailing Dish will be snapped up, for its spectrum, by a large cableco, or even a webscaler. Facebook, Microsoft and Google are, in their different ways, getting closer and closer to controlling actual networks in their disruptive path through the mobile business model. Microsoft’s second acquisition in a month of a mobile vendor – last week it was Metaswitch (see separate item) – suggests it is getting very serious about enabling mobile enterprise services, partnering with MNOs or private network operators for connectivity, but very much in the driving seat.

The US market is certainly no longer dominated by a race between AT&T and Verizon, though they remain market leaders. Both are disadvantaged in spectrum terms for 5G, because they lack the most important type of airwaves for first-phase 5G, in the midband. They face even more deprivation because of the pandemic-related delays to this year’s auctions of midband spectrum in CBRS and C-band, and now the bankruptcy of a major C-band asset holder, Intelsat, could either accelerate or disrupt the process.

If T-Mobile can quickly exploit the huge spectrum advantage it acquired with Sprint – at least 100 MHz of 2.5 GHz frequencies nationwide – it could put enormous pressure on the big two, which are already stuck in a painful place between the disruptive consumer appeal of TMO, and the activities of the webscalers. AT&T and Verizon both have important cloud partnerships – AT&T’s most important one with Azure, Verizon’s with AWS – but in both cases, there is a risk that their value to these giants will lessen over time and they will become commoditized.

But the ability of ‘New T-Mobile’ to drive home its advantage is in doubt too, in the short term at least, while the two operators go through a difficult integration of very different networks and cultures. Already, job losses have been announced, despite promises that none would go. And while the bullish promises of building a world-beating national 5G network were strong arguments to win regulatory and public support for their merger, now they have to get on and deliver those promises, the task will not be an easy one.

And coming up behind are the cablecos, with their established networks of backhaul, video content and home user bases, and their ‘heavy MVNO’ deals with Verizon or Sprint, enabling them to add mobile services without significant build-out costs, except in locations where it is worth the investment, such as enterprise buildings. Also on TMO’s heels may be Dish, which insists that the recent decline of its core pay-TV business will not derail its 5G plans. While New T-Mobile is promising “the world’s best broad and deep nationwide 5G network”, Dish is pledging to be the USA’s very own Rakuten, harnessing open virtualized platforms to keep its costs low, its pricing disruptive, and its suppliers as homegrown as possible.