May 31, 2018
A new report from Strategy Analytics predicts that a combined T-Mobile US and Sprint will result in a 17 percent surge in the uptake of 5G services by 2023. That increase would come from having three similar-sized competitors in the market having to invest more in their networks to remain competitive.
“With the merger, the new company would be better positioned for a convergence play, growth in automotive, and other high mobility/broad coverage 5G use cases, with new strength in wholesale and enterprise and positioning for network-as-a-service (NaaS) with 5G network slicing,” said Strategy Analytics Director Susan Welsh de Grimaldo as part of the report.
The report touts that a merged entity will outperform the individual operations by nearly 1 percentage point in market share of gross additions, 0.5 percentage point in subscription market share, and 0.4 percentage point in revenue market share.
T-Mobile US late last month finally made an official offer for Sprint. The companies positioned the deal as being a necessary step for 5G, with management from both companies touting their combined ability to roll out a broader and more robust network. The two companies said that they plan to invest up to $40 billion in a new 5G network.
T-Mobile US CEO John Legere has stated that if the deal is approved, the combined entity would continue to be “pro consumer, and that means lower prices, better service, and more choices to more consumers in every corner of the country.”
But it would appear that the cost savings to consumers would likely come from the combined entity entering new market segments like home video to compete against incumbent cable television providers and not necessarily strictly from the more traditional cellular market.
Phil Kendall, executive director at Strategy Analysts, said historical trends have shown increased earning margins for three-player markets.
“The faster 5G deployment and adoption will be the main merger benefit for U.S. consumers, though everything comes at a cost,” Kendall noted. “Operators in three-player markets enjoy EBITDA margins 3-4 percentage points higher than those in four-player markets so a merger on this scale may weaken price competition and increase operator profits.”
Don’t Forget the Core
Some analysts are also worried that focus on the merger will stop both T-Mobile US and Sprint from investing in their 5G core network, which is critical to operations.
“Being first to market with 5G is helped by accelerating the allocation of more mid-band spectrum and by relaxing regulations that delay new network rollouts,” said Michael Thelander, analyst with Signals Research Group, in a research note. “Getting the 5G core network in place is also critical, and the merger could delay this activity for the new T-Mobile.”
Günther Ottendorfer, former chief operating officer of technology at Sprint, last year noted that the carrier had spent a couple of years deploying its OpenStack cloud-based NFV platform. He explained the deployment has been “an essential building block” as the carrier builds toward its 5G network.
“For the last two years, we have been trying to educate the whole team on how important it is,” Ottendorfer said during the 2017 Mobile World Congress Americas event, referring to its NFV work. “It’s not a question of whether we do it, but when we shift the platform, and that’s working itself out.”
As part of a blog post, Ottendorfer explained Sprint has been building a virtual core to replace standalone, bare metal platforms with a single NFV infrastructure (NFVI). This virtual core houses the carrier’s virtualized evolved packet core (vEPC) and IP multimedia subsystem (IMS) as virtualized network functions (VNFs).