|[August 04, 2014]
Fitch: Potential T-Mobile/Sprint Combo Fraught With Challenges
NEW YORK --(Business Wire)--
A potential combination of two of the largest telecoms in the US is
fraught with challenges, according to Fitch Ratings. Sprint (News - Alert) Corp. and
T-Mobile USA are reportedly close to a transaction in which Sprint would
acquire T-Mobile for approximately $32 billion and the combined
companies would be of comparable size to Verizon (News - Alert) and AT&T.
If the transaction can pass regulatory scrutiny, we believe long-term
success of a potential merger would depend on several factors, including
an increase in scale and scope, improved execution, substantial capital
investment and greater spectrum deployments over a long period. As part
of his vision, Sprint's Chairman Masayoshi Son aspires for the company
to become a third alternative broadband provider to in-home options with
bandwidth offerings up to 200 megabits per second.
We believe Sprint would need increased scale and scope to drive better
economics to increase its potential target market and become a more
competitive alternative to fixed broadband. Current wireless data
pricing is considerably more than wired data, particularly for
video-centric households that consume large amounts of data. With mean
aggregate broadband data usage for fixed access close to 50 GB and
increasing rapidly, wireless is seemingly limited to smaller, more
niche-type offerings like a bundled home/mobile bucket.
Regulatory approval will remain a substantial barrier. The Federal
Communications Commission and Department of Justice have stated their
desire to maintain a wireless marketplace with four operators as fewer
competitors could increase risk of higher prices and less innovation.
Thus any transaction would be judged on the merits of whether the
public's best interests are served and if material antitrust elements
are present. Additionally, the regulatory environment is not supportive
of transformational transactions though we do think the rationale for
supporting industry consolidation is sound.
In Fitch's opinion, regulators must widen their antitrust lenses when
viewing the wieless and broadband markets to address the changes in
technology and demand. We think regulators would need to believe
wireless has the potential to become a viable competitive substitute for
fixed wireline Internet access, which is currently an oligopolistic
market. When combined with merger concessions to address antitrust
concerns, this could mitigate the anticompetitive effects and increased
market concentration resulting from the reduction in nationwide wireless
providers from four to three.
Another factor in determining the long-term success of a potential
Sprint Corp./T-Mobile (News - Alert) USA merger will be the combined companies' ability
to produce a wireless network at least on par with the industry leaders
in terms of coverage, density and overall network quality. The merger
would require an extensive and lengthy integration period. As such,
given Sprint's past poor operational performance and lagging competitive
position, the combined entity would need to substantially improve
execution to compete more effectively.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
Applicable Criteria and Related Research: Walking the Tightrope
(Potential Sprint T-Mobile Combination Fraught with Challenges)
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