4 and 3: Why Sprint Purchase of T-Mobile US Faces Challenges

Regulators do not like the idea of mobile markets dominated by three carriers, preferring the number of four. So it is that Telefonica's proposed €8.6bn purchase of E-Plus, the German arm of The Netherlands' KPN, which would create Germany's largest cellco, is getting close scrutiny.

That likely will be an issue for Sprint as well.

Australia NBN Will Miss Target of 25 Mbps to All by 2016

Australia's National Broadband Network will miss its original target of providing 25 megabits per second service to all Australians by 2016. Plagued by construction delays, the timetable slippage is not unexpected. 

A strategic review of the program also will rely more substantially on upgrades to cable TV hybrid fiber coax networks, and substitutes fiber to node for fiber to home connections for as much as a third of the network access connections.

According to the new strategy, about 26 percent of premises will be connected using fiber to home networks. Some 30 percent will be reached by cable TV hybrid fiber coax connections, while 44 percent will get fiber to the node drops, moves intended to reduce the overall cost of the NBN and also likely speed deployment times, at the cost of immediate speed upgrades.

Spectrum Exhaust? Not Likely

Though some problems are difficult to solve, access bandwidth seems not be among those problems. 

Whether looking at fixed network speeds, mobile network speeds or coverage in developing nations, Internet access availability, as tough as it might be, is a problem human ingenuity is able to solve. Consider spectrum sharing.

The  2012  President’s Council of Advisors on Science and Technology on spectrum reform report, known as the  PCAST Report, if implemented, would represent a major innovation in assignment and use of spectrum, with some significant advantages for spectrum efficiency.

The PCAST “reforms” would  end the practice of clearing government spectrum for auction to the private sector in the form of exclusive licenses, opting instead for the creation of a government-managed spectrum commons.

That is a big change.

The PCAST report proposes that perhaps 1,000 MHz of spectrum currently in government hands could be shared by commercial users.

The study also suggests current license holders might agree to share their spectrum in exchange for revenue sharing or pay-for-prioritization schemes.

PCAST is important as it represents one more way, aside from actual auctions of new spectrum, better air interface technology, new network architectures and use of offload mechanisms, that future spectrum and bandwidth issues can be addressed.

As was true for digital subscriber line technology, which some knowledgeable technologists suggested would never work in volume deployment, former technological barriers fall over time when enough effort is put into overcoming such barriers.

It seems inevitable that “spectrum exhaust” likewise will be finessed.

If Price Were No Object, Would Most People Buy iPhones?

If price were no object, would most people in the United States buy Apple iPhones? A study of small business adoption suggests the answer is "yes."

In the first 10 months of 2013, Intermedia users activated around 190,000 Apple devices. This accounted for 76 percent of total device activations on our service.

Despite Android’s overall lead in market share, the overwhelming bulk of mobile devices activated by Intermedia’s small- and medium-sized business customers were from Apple.

At least in part, that mirrors U.S.  user preference for Apple devices, at least among users with more discretionary income.

But business devices also might be considered “subsidized” devices, in that the business defrays, subsidizes or pays for the devices used. In other words, if price were not a significant obstacle, iPhone seems to be the preferred choice.

Could a Merged Sprint-T Mobile US Change 600 MHz Auction Rules?

If Sprint eventually makes a bid to buy T-Mobile US and ultimately is successful, what does that mean for the upcoming auction of 600 MHz former TV broadcast spectrum?

Both carriers have asked for “set asides” that would prevent AT&T Mobility and Verizon Wireless from bidding on some percentage of the spectrum, to prevent those carriers from buying most of the new spectrum.

T-Mobile US and Sprint are in favor of "pro-competitive" auction rules for upcoming 600 MHz spectrum for good business reasons: both lag in ownership of lower-frequency spectrum with better propagation capabilities. The bulk of those mobile assets are owned by AT&T Mobility and Verizon Wireless.

According to the Justice Department, AT&T and Verizon control 78 percent of low-frequency spectrum, defined as spectrum below 1000 MHz.

Even a merger of Sprint and T-Mobile US would not change the disadvantage in lower-frequency spectrum, even though the the merged entity would, before the auctions, have the biggest amount of spectrum.

There now is greater focus on the “quality” of spectrum, as well as its “quantity.” Simply, both T-Mobile US and Sprint argue they will be at a disadvantage, compared to market leaders AT&T Mobility and Verizon Wireless, unless they are assured of access to about a third of the proposed spectrum to be auctioned, presumably under rules that would bar the two largest carriers from bidding for those blocks.

But some economists argue that barring the largest market contestants, or possibly even using set asides, could have negative impact. Basically, the argument is that the largest spectrum holders are able to more efficiently harness the spectrum than firms with smaller holdings.

Others argue that it'd be more fair to adopt a rule that enforces the same limit on all the participants, regardless of their existing holdings. Such symmetric caps would not take into account current market share or spectrum asset holdings.

Others (including Sprint and T-Mobile US) argue for “asymmetric” caps that take into account current market share and spectrum quality issues

As always, “efficiency” and “equity, ” “competition” and “investment” issues exist.

Regulators and policymakers often use set aside rules to encourage competitors. But, over the long term, markets still become more concentrated. And, as European regulators have discovered, competition can reduce the climate for investment.

Those arguments still will be made, even if Sprint and T-Mobile US become one company, but the resolution of that possible merger, one way or the other, could affect the construction of bidding rules for the 600 MHz auction.

If the new company has the largest amount of spectrum going into the auction, and has 28 percent market share, compared to Verizon’s 34 percent and AT&T’s 33 percent, is there still an argument for set asides?

To be sure, the disparity in ownership of lower-frequency spectrum still would exist, but not so much the argument that the two smaller carriers are so much smaller they need spectrum set asides to level the playing field.

And the argument about amount of spectrum owned would tip further in favor of the new entity, compared to AT&T Mobility and Verizon Wireless, before the auction.

Is U.S. Mobile Market About to be Rearranged?

With shocking suddenness, U.S. service providers are preparing a key test of regulator willingness to rearrange U.S. service provider market share. The latest potential move has Sprint considering a possible bid to buy rival T-Mobile US, a merger that will test regulator and antitrust authority thinking about sustainable market structure in the mobile business.

Separately, cable companies are circling Time Warner Cable, the second-biggest U.S. cable operator. And while an initial bid by Charter Communications likely would not raise undue regulatory issues, a bid by Comcast, the biggest U.S. cable company, clearly would do so.

Though earlier Federal Communications rules specifically prohibited any single U.S. cable company from serving more than 30 percent of U.S. cable TV customers, that rule was invalidated by U.S. courts.

But antitrust authorities are sure to consider a merger of the number one and number two cable companies--Comcast and Time Warner Cable--too big to ignore.

The potential Sprint merger with T-Mobile US also would face high hurdles. Antitrust requlators already had argued, when AT&T tried to buy T-Mobile USA, that the U.S. mobile market already was too concentrated.

Though a Sprint-T-Mobile US tie up would not have the market impact of the proposed AT&T merger with T-Mobile USA, the merger review still would occur under circumstances where the U.S. Justice Department already has deemed the market excessively concentrated.

The rival argument is that only if Sprint and T-Mobile US are combined would they be able to compete on a relatively even basis with the larger Verizon Wireless and AT&T Mobility.

Also an issue is the general regulator thinking that a minimum of four providers is required to sustain innovation and competition in a mobile market. That has been an issue for European regulators in 2013, for example.

Sprint, according to a  Wall Street Journal report, is studying regulatory concerns and could launch a bid in the first half of 2014.

A deal could be worth more than $20 billion, depending on the size of any stake in T-Mobile that Sprint tries to buy.

Whether such an acquisition always has been an explicit part of SoftBank’s thinking about strategy for the U.S. market is unclear.

But observers have been noting for some years that the market share gap between Verizon Wireless and AT&T Mobility, on one hand, and Sprint and T-Mobile US on the other hand, could not be closed easily any other way than by a merger of the two smaller companies.

If such a deal were to pass regulatory muster, it also would have implications for other would-be providers of Long Term Evolution Services in the U.S. market, as the gap between any new provider and the top three carriers would be formidable.

Dish Network is among the potential contenders who then would have a tough decision to make. But there also is the matter of Globalstar and LightSquared, for example.

Study Suggests Amazon Kindle Strategy Works

Amazon and Apple are mirror images in terms of how the roles content, transactions and devices play in their respective revenue models. Apple mostly cares about content because it helps Apple sell more devices.

Amazon mostly cares about devices because devices help Amazon sell more content and products.

A study by Consumer Intelligence Research Partners suggests Amazon’s sale of devices a bit above cost actually works.

CIRP conducted a survey of 300 Amazon.com customers over the three months leading up to Nov. 15, 2013,  and foundthat people who own Kindles spend more on Amazon than those who don’t own Kindles.

The size of the revenue difference is key. CIRP estimates that Kindle owners spend $1,233 per year on Amazon compared to $790 per year for Amazon shoppers who don’t own an Amazon e-reader or tablet.

Apparently, the pattern is that Kindle owners place many more small orders. If you assume that is because they are buying content, that makes sense.

It appears Jeff Bezos, Amazon CEO, was right. Kindles are sales platforms, and seeding the market by selling at only a bit above cost does stimulate sales at levels that justify the practice.