Wednesday, February 8, 2017

Sprint is Going to Sell, Not Buy

SoftBank Chairman Masayoshi Son seems to be signaling a rational approach to any proposed
transaction regarding Sprint. In the past, SoftBank has tried to act as the acquirer of T-Mobile US. And though many (including investment bankers who profit from any transactions of this sort) believe SoftBank might make another run at T-Mobile US, the company also seems to be signaling that any other reasonable deal, including those where Sprint is the target, not the the buyer, are possible.

That seems sensible. For some of us, it never has been so clear how that particular combination would pass antitrust muster, in particular the Heffindahl-Hirshman Index used globally to measure concentration in telecom markets. By HHI metrics, the U.S. mobile market already is highly concentrated, and a Sprint-T-Mobile US merger would only concentrate it further.

Other vertical combinations would not face such immediate problems, might actually preserve or strengthen mobile market competition, and therefore would seem to make much more sense, from the standpoint of asset owners looking to gain scale and scope in the U.S. communications market.

Leading U.S internet service providers Comcast and Charter Communications already have made clear their intention to enter the U.S. mobile market. So one buys T-Mobile US; the other buys Sprint. HHI then is not an issue. Both cable companies become instant market leaders.

Some have floated the idea that Verizon buys Charter, something that raises HHI obstacles of another sort, namely in that case the need for Verizon to divest nearly its whole fixed network to avoid issues on the “share of U.S. homes passed”  front.

That outcome--Verizon divesting its Fios assets--seems unlikely, or at least problematic. On the other hand, Verizon does face strategic issues as it seeks further growth. It cannot acquire additional mobile share by acquisition. It may not want to be a bigger player in fixed network consumer services. And, so far, it has preferred a “get bigger in mobile advertising” path than a “get bigger in video content” strategy.

Nor has Verizon wanted to expand internationally. Still, if a big wave of mergers starts to happen in U.S. telecommunications, Verizon might feel compelled to make a move of some kind to bulk up. None of the rumored moves seem unabashedly “right.”

No comments:

Is Work from Home Really "More" Productive, or "Less?" How Can We Even Tell?

Though many employees express a desire to continue working from home permanently, even after there is no Covid-19 reason to do so, it also s...