Best Partners for Sprint, T-Mobile? Not Each Other

Very few informed observers likely believe that T-Mobile US has the assets it needs for sustainability in a market that is moving towards a fusion of access and apps (content, platforms). Sprint is arguably in worse shape, as it is sub-scale even in the access business.

But may observers would argue a merger of Sprint and T-Mobile US, while providing more scale in mobile access, is the “best” possible move, long term. If the market is moving towards some new “content plus communications” structure, then each firm should be merged with some other tier-one app, device, content or platform company.

The proposed merger does not directly move the new company up the stack into more applications revenue, and that arguably is what has to happen.

In other words, the new firm still will have to be reshaped (as a seller or buyer), to achieve long-term sustainability. But the number of potential acquirers shrinks as the asset value increases dramatically.

Of course, some would argue the merged entity would be a strategic buyer of “up the stack” assets, longer term. Whether that is possible, as a financial matter, is the issue. With revenue growth approaching zero in the mobile business, what are the odds the bigger firm would be an effective acquirer of assets that could shift the company “up the stack?”

To be clear, both Sprint and T-Mobile US would benefit from greater scale, but beyond “more mobile subscriptions.” Gaining more scale in a saturated market can help, short term. More scale does not address the “how do we move up the stack” questions.

Comcast and AT&T have their own answers, and Comcast remains the model. Strategically, access providers have to reduce reliance on “access” revenues. Is that not abundantly clear, already?

Few would disagree with the proposition that both Sprint and T-Mobile US need to merge with some other entity. If the market is changing as they claim it is (towards a fusion of access and apps), there are better partners.

The issue is that both firms would be sellers, not buyers, in that case. Both firms need to find new partners, that seems clear. But some of us would argue that the best long-term partners are not “each other.”