Must-know potential synergies from a Sprint–T-Mobile merger

Phalguni Soni
April 21, 2014

The latest word in telecom: Can SoftBank swing a T-Mobile deal? (Part 4 of 7)

(Continued from Part 3)

Sprint–T-Mobile merger

In the previous article of this series, we discussed the key highlights of SoftBank Corp. (SFTBF) chairman and CEO Masayoshi Son’s presentation to the Competitive Carriers Association on March 27, 2014. In his keynote address, Son urged CCA members to fight the “duopolists,” Verizon (VZ) and AT&T (T), to keep them from increasing their industry concentration. This article focuses on the synergies arising from a potential Softbank-T-Mobile deal and the highlights of the SoftBank-hosted conference in Washington, DC, on March 11, 2014 titled “The Promise of Mobile Internet in Driving American Innovation, the Economy and Education.”

At stake: The opportunity

  • Softbank–T-Mobile as a combined entity would become third largest in the U.S. market, after Verizon (VZ) and AT&T (T)
  • Softbank (SFTBF) would also become second largest telecom provider in the world in terms of revenues
  • The mobile broadband impact on U.S. GDP is expected to exceed $1 trillion and create about 1.4 million jobs by 2017 (according to a Softbank presentation)
  • Based on 2013 results, the combined entity (Sprint and T-Mobile) would have U.S. revenues in excess of $61 billion compared to ~$129 billion for AT&T (T) and ~$121 for Verizon (VZ)
  • Based on 2013 results, the combined entity (Sprint and T-Mobile) would have U.S. EBITDA of ~$10 billion compared to ~$47 billion for AT&T (T) and ~$49 for Verizon (VZ)

Synergies

A deal would ensure 100 million-plus subscribers for the new company. This would also give the new company increased access to air waves, better bidding prospects in spectrum auctions, and (through strategic investment) infrastructure to take on larger rivals Verizon (VZ) and AT&T (T). A deal would also ensure shared infrastructure and synergies in ordering equipment.

The case for better service at lower costs

SoftBank (SFTBF) hosted a conference in Washington, DC, on March 11, 2014 titled “The Promise of Mobile Internet in Driving American Innovation, the Economy and Education.” At the conference, the company made the case that although the U.S. had invented high-speed Internet, it was falling behind other countries in terms of speed and the costs to end users. Some of the points Son made were:

  • Declining LTE speeds in the U.S. (down 32% in 2014 compared to 2013), whereas Japan, Australia, and South Korea have increased LTE speeds by 60%, 42%, and 13%, respectively (sources: OpenSignal, company presentation)
  • Average revenue per user (or ARPU) is one of the highest in the U.S. at $52 in Q3 2013 (Source:BAML), compared to $18 in Germany and $44 in Japan
  • SoftBank’s average download speed is 21.3 Mbps, compared to the U.S. average of 6.5 Mbps (Sources: OpenSignal, company presentation)
  • The price per GB of data was over 1.7x higher in the U.S. ($52) compared to Japan ($30)(Sources: BAML, CISCO, company presentation)

Although the presentation didn’t mention the T-Mobile (TMUS) acquisition, it’s very clear that SoftBank (SFTBF) is trying to make a case for consolidation among smaller players to take on the duopoly represented by AT&T (T) and Verizon (VZ).

Please read on to the next article in this series to consider regulators’ take on a potential merger between T-Mobile (TMUS) and Sprint (S).

Continue to Part 5

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