T-Mobile US is Not Sustainable, Long Term, Its Owner Says

T-Mobile US is not viable long term, as an independent firm with its current position in the market, Timotheus Höttges, Deutsche Telekom CEO now says in public. For observers of the attempted effort to merge Sprint and T-Mobile US, that might be a predictable statement by the CEO of one of the two firms in favor of the merger.

Others, including T-Mobile US CEO John Legere, agree that additional scale is necessary, longer term, but that there are many ways to gain such scale. What many might assert is that gaining sustainable scale solely or primarily through organic growth is unlikely to work. Growth at the expense of margin can happen, for a time.

But that is not sustainable long term. And that means the issue is how long T-Mobile US can attain its current path. Some would argue the U.S. mobile market is fundamentally unstable.

Longer term, the current T-Mobile US positioning is not sustainable, especially given the need to invest between $4 billion and $5 billion each year just to keep up, Höttges said.

Some of that opinion argue that T-Mobile US does not, at present, earn enough revenue, or have a profit margin, that allows it to compete effectively with AT&T Mobility and Verizon Communications. If so, some future reduction of the number of leading players in the U.S. mobile market still remains inevitable.

Others argue that the recent strong subscriber growth provides evidence T-Mobile US does not need to bulk up by means of a merger.

That can take a while, though. Many of us argued in the 1990s that the ultimate fate of the two leading U.S. satellite TV providers was likely absorption by a telco. Whether that happens, and if it turns out to the ultimate case, is hard to say, yet. Regulatory and antitrust authorities have yet to approve or deny the AT&T purchase of DirecTV.

Still, the strategic logic was hard to ignore. Satellite is not a platform able to compete effectively in the triple-play services business, or support on-demand streaming delivery of video. Conversely, absorption of the satellite providers immediately would make the owners major providers of entertainment video, on a nationwide basis neither Verizon, nor AT&T, can reach, at present.

In other words, some of us always have seen the two leading satellite TV companies as strategic sellers, AT&T and Verizon as strategic buyers.

The same logic might apply in the U.S. mobile market. Long term, many would argue three leading contestants is desirable and sustainable, where a four-supplier market is not sustainable.

Regulators prefer to retain the four-provider market structure. Sooner or later, those preferences are likely to collide directly with sustainability questions.

Deutsche Telekom’s favored outcome would be an exit from the U.S. market, and a merger would allow DT to sell its majority stake in T-Mobile US to a new set of owners.

DT has an incentive to argue T-Mobile US is not viable, long term. It wants to convince regulators and antitrust authorities to allow some future merger that would reduce the number of leading U.S. mobile service providers.

But it still is unusual to hear the owner of a sizable business argue that business is not sustainable, long term.