No price war ever lasts forever, in the communications business. So one might well ask how long the present U.S. mobile price war will last, though some might argue there is no real price war going on.
A reasonable expectation might be that we are less than half way through, with an ultimate duration of about two years of unusual efforts at price disruption, to be followed by a period when the leading contestants have adjusted enough to show they can weather the attack, and the attacker or attackers find they have gained share, but now have to switch to improving profits.
But that forecast also assumes no other major changes in U.S. market conditions, including such mundane occurrances as a major economic recession, major changes in regulatory policy or major merger activity in other parts of the communications market that intensify or diminish the importance of the mobile price war and market share positions.
One might also argue the price war will last as long as T-Mobile US believes it should continue to attack. So long as T-Mobile US can continue to add a couple million net new customers every quarter, the war is likely to continue.
If the rate of net additions starts to flatten, then T-Mobile US will have to begin weighing a shift in strategy from price disruption to earning profits. Right now it is too early to say T-Mobile US has any reason to change course.
In fact, T-Mobile US might actually believe its rate of net additions is about to escalate.
What matters is the impact on consumer welfare and supplier strength, after such a price war. Ironically, even if number-four T-Mobile US has launched an attack aiming to vault higher in the market share rankings, history suggests the effort could well end with stronger positions for Verizon and AT&T.
Ironically, a price war launched by an upstart often ends with the top firms in a more dominant position. The reason is simply that price wars hit profit margins and gross revenue per account, something a leading service provider can afford to absorb.
Often, smaller providers simply find they are unable, at some point, to maintain profits at all, and go out of business, or are absorbed.
Also ironically, regulator and policy maker efforts to sustain a market structure with four national providers, to provide competition, however successful in the short run, likely will fail in the long run.
The argument is that any mergers between the two smaller U.S. mobile service providers should be opposed because such a move would reduce competition. But market forces alone, under conditions of a price war, will weaken both the smaller firms. True, earnings will be pressured at the two bigger carriers as well.
But AT&T and Verizon have the financial strength to take the blows. Sprint and T-Mobile US ultimately are likely not to withstand the financial pressure.
Price wars, typically launched by smaller and upstart firms, tend to reduce average revenue per account, even if generating more gross revenue.
Eventually, that tends to lead to most of the smaller firms disappearing, either through acquisition by other larger firms or bankruptcy.
Consumer welfare might also be worse, eventually, as the additional competitors leave the market.
The present price war launched by T-Mobile US therefore will not last forever, and the issue is what market structure will remain when the war ends.
Though U.S. antitrust authorities and communications regulators might well oppose any merger between Sprint and T-Mobile US, the ultimate result is likely to be no more than three larger competitors, under any circumstances.
Verizon and AT&T still will be the largest firms in the market. The surviving third carrier is likely still to be twice as small, in terms of subscribers or revenue, as either AT&T or Verizon. Nor would it be implausible that, eventually, the top provider could gain share double that of the second provider, while the second provider (in terms of market share) has double the share of the third provider.
Some idea of what could happen is provided by the French mobile market, which has endured a two-year price war, ignited by Illiad’s Free Mobile.
And Orange CFO Gervais Pellissier thinks the French mobile price war that began in January 2012 is about to taper off.
"We are maybe not totally out of the tunnel but we do see positive trends," Pellissier said.
To be sure, Orange has had to cut costs to hold profit margins steady on lower sales because of the price war. In its most-recent quarter, Orange earnings fell about 3.8 percent, but profit margins were steady at about 31 percent.
But that is the point: Orange seems to have survived the war. Illiad has gained share, but even Illiad might be reaching a point where it now wants to turn attention to profits, rather than market share gains.
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