ANALYSIS: Sprint vs T-Mobile US – Lofty ambitions
05 September 2014 | Kavit Majithia
August proved to be a turbulent month for SoftBank-owned Sprint.
The company was forced to drop a mammoth $30 billion bid to acquire its closest rival, it ended Dan Hesse’s seven-year tenure as CEO and saw its share price plummet by 16%.
SoftBank chairman Masayoshi Son will claim that the overhaul is a sign that SoftBank is now in charge. And by appointing Bolivian entrepreneur Marcelo Claure as its new CEO, Son has put his faith in someone that has proven experience in the US market.
Claure comes to Sprint with a big reputation, following his success in building up Miami-based mobile operator Brightstar from scratch. Sprint’s abandonment of its T-Mobile bid now leaves the new CEO with his work cut out. And John Legere, T-Mobile US’ provocative CEO and Claure’s new rival, wasted no time in sticking the knife in over the failed merger.
Legere has implemented his unique business style at T-Mobile US since 2012 and it has worked to perfection in raising the company’s brand awareness.
He sports jeans and long hair, and rarely completes a presentation without the use of profanity. His approach, described as “uncarrier” by market watchers and the US media, has transformed the fortunes of the country’s fourth-largest player. Legere took the role in 2012 and adopted low-cost data tariffs and subsidised handsets, taking the mobile market by storm with his rebellious approach.
As he revealed that T-Mobile had overtaken Sprint as the top provider for non-contract customers, Legere – true to his reputation – could not resist taking a dig at Sprint’s incoming chief. “Sorry @Marceloclaure, you’re already behind!” he said on Twitter. He then took to the social media site to claim that T-Mobile will overtake Sprint as the country’s third-largest operator by the end of the year.
While Legere talks the talk, market watchers have questioned the credibility of his aggressive pricing strategy in the long-term.
“T-Mobile’s momentum is undeniable,” said Richard Karpinski, senior analyst at 451 Research. “But it has a long way to go to reach the market leaders, and its pricing and promotions will come home to roost soon.”
Legere has inadvertently expressed his desire to remain in charge of T-Mobile US, but Sprint’s failed bid is unlikely to stop speculation surrounding the company. Karpinski told Capacity that the company must consider “some sort of investment, merger or partnership to accelerate the transformation that is already underway, to keep moving so quickly”.
French operator Iliad emerged as a late rival bidder to Sprint, but its $15 billion offer was deemed as too low by T-Mobile’s parent company Deutsche Telekom. However, analysts say it could return with a rival offer in the near future, given that the French player may face less regulatory hurdles than Sprint.
Sprint’s decision to abandon its bid was indeed welcome news to the FCC, which had been lobbying against the deal since it broke, as the merger would shrink the market to just three players. In all likelihood, Sprint would have been forced to make numerous concessions to get the deal approved.
The battle that lay ahead with the FCC, in the end, proved too problematic, and SoftBank made a call to drop the proposed merger. Tom Wheeler, FCC chairman, who has always been outspoken over the tie-up, said that the maintenance of four national mobile providers is good for US consumers.
If Iliad does come back in for T-Mobile US, the US will remain a four-player market. Satellite provider Dish Networks has also been touted as a possible potential partner. For now, Wheeler says “Sprint has an opportunity to focus its efforts on robust competition”.
SoftBank will be hoping that Claure is the man to lead the charge on its three competitors, and the appointment is crucial as Son attempts to justify the $21.6 billion he paid for Sprint.
While Legere’s claims that T-Mobile is primed to take over Sprint’s position in the market are disputable, Sprint does remain a distant third behind AT&T and Verizon. Son’s target to make Sprint a top-tier carrier hit a major setback with its failure to secure the T-Mobile deal.
However, Karpinski maintains that Softbank’s acquisition of Sprint should not be thought of as a failure so far.
“SoftBank has provided some stability to Sprint in a very volatile time, while also lighting a fire under not only its executives, but even its service and product managers to improve performance and drive innovation,” said Karpinski. “This was already beginning even before the T-Mobile deal fell through and the CEO change was made.”