No Signs of Stability in U.S. Mobile Market

T-Mobile US unveiled a new set of initiatives aimed at attracting business customers, and an expanded program to take consumer share  from other U.S. mobile carriers, as part of its Uncarrier 9.0 announcement.

Sprint earlier this month launched new programs to encourage switching as well.

With some observers wondering how long the U.S. price and promotion war might moderate, or end, the answer seems to be “not yet,” even if no price war lasts forever.

Under other circumstances, a reasonable expectation might be that we face at least another year 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.

Under other circumstances, one might argue the price war will last as long as T-Mobile US and Sprint  believe they can continue to add net new customers every quarter.

If the rate of net additions starts to flatten, then T-Mobile US, for example, will have to begin weighing a shift in strategy from price disruption to earning profits.

One other likely predictor is that the war will end when U.S. market structure stabilizes into a structure with a clear number one, a number two that has no easy way to displace the top provider, and a number three provider large enough to sustain itself in that position, with the number four supplier far behind the other three.

Under other circumstances, one might argue we are close to a stable market.

In a classic oligopolistic market, one would expect to see an “ideal” (normative) structure something like:

Oligopoly Market Share of Sales
Number one
Number two
Number three

We are not too far from that pattern. In terms of revenue share, Verizon in early 2015 has about 39 percent share, while AT&T had 33 percent. One might argue both Verizon and AT&T will lose much incentive to engage in promotional behavior when AT&T no longer believes it can catch Verizon, and the number three contestant no longer really believes it can catch number two, for example.

The number-three supplier, in terms of revenue, is Sprint, at about 15 percent revenue share. It is almost precisely where one would predict the number-three supplier would be.

The issue, right now, is that T-Mobile US believes it must grow, or eventually be acquired. Of late, T-Mobile has been rapidly gaining share, with the intention of supplanting Sprint at the number three position.

The problem is that U.S regulators seem unwilling to allow an acquisition of T-Mobile US by Verizon, AT&T or Sprint. That means only a new contestant could do so. And that means the classic oligopoly structure cannot form.

Among the variables are Dish Network’s need to enter the market or sell its spectrum; Comcast’s expected entry and then any future moves by a large Internet player (Google, Apple or another firm).

U.S. Revenue Share
T-Mobile US

With the caveat that spectrum is not revenue, the U.S. mobile spectrum ownership picture remains likewise unstable.

Spectrum Share
Dish Network
T-Mobile US

The point is that the U.S mobile market does not presently resemble a stable oligopoly market, not do the medium term competitive prospects suggest the market will assume such a form.

That means, no matter how long the immediate marketing war lasts, the market will remain unstable.

Strategically, Comcast is expected to enter the market, at some point. Cablevision Systems Corp. already has done so, though as a niche provider with greatest potential impact in its limtied home operating area. Comcast almost certainly will have to enter as a national provider.

Dish Network either must enter the market as an operator, or forfeit the rights to spectrum that presently accounts for as much as 80 percent of its total market value.

And then there are the other contenders, including Google, which it is believed soon will be entering the mobile market, and Apple, a perennial potential actor in the market as well.

Even if the biggest current question mark is what Dish Network will do, Dish decisions will not affect the unstable market structure, since Dish entry would not eliminate a major contestant. Nor would a spectrum sale do so.

Verizon arguably has the greatest gap between revenue share and spectrum share. But some say Verizon cannot afford to buy that spectrum at prices Dish Network would ask for, or that regulators would not allow Dish to sell to Verizon.

Sprint has excess spectrum and T-Mobile US cannot afford to buy much more.

So Dish Network might yet actually move ahead and become a service provider, adding one more contestant. Dish might become a wholesale capacity supplier, which would not increase the number of retail suppliers.

It might try to buy T-Mobile US. Or it might sell the spectrum. If so, the buyer is likely to be another company not presently in the mobile business in a significant way, such as a Google or a Comcast or another firm.

Dish might also try to create a new type of mobile supplier--focusing on mobile TV.

In all those scenarios, the number of suppliers would not contract to a stable pattern.
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