AT&T-Mobile and Verizon: Is Sprint third place in a two-man race?March 20, 2011: 5:56 PM ET
What does AT&T's $39 billion acquisition of T-Mobile USA mean for Sprint? A whole lot of trouble.
Sprint (S), the third-largest U.S. carrier, has struggled to find its niche for years. It spent billions of dollars building out a WiMAX 4G network that has failed to pay off. It's also battled customer losses (a.k.a. churn in industry lingo) and a reputation for less-than-stellar customer service. Assuming AT&T's (T) acquisition of T-Mobile makes it through anti-trust regulators, Sprint will be forced into an even further weakened position as the number three U.S. carrier, way behind AT&T/T-Mobile and Verizon Wireless (VZ).
One of Sprint's biggest hurdles has been figuring out a 4G strategy. The Kansas-based carrier was actually the first U.S. operator to launch a 4G network, thanks to the expensive WiMAX buildout. But both Verizon Wireless and AT&T have already committed to LTE, a competing fourth-generation technology. With T-Mobile under AT&T's fold, LTE will have even greater reach to U.S. mobile users.
"WiMAX was clearly not going to be the dominant technology going forward," says Charles Golvin, an analyst with Forrester Research. "This is going to make LTE technology more viable as an alternative for many customers trying to get broadband to their homes, some in markets that Sprint was aiming to address."
If (or more likely, when) LTE becomes ubiquitous, it will be even harder for Sprint to score big wins among enterprise customers as well as everyday consumers looking for broadband-like speeds on their mobile devices. That's because large, multinational companies want to arm mobile employees with technologies and products that work in the rest of the world.
"Sprint doesn't have that with its current CDMA network and they don't have that with WiMAX," says Forrester's Golvin. Like Sprint, Verizon phones also run on CDMA networks, but unlike Sprint, Verizon has already started building out LTE. If and when Sprint migrates to LTE is a question mark the company hasn't yet answered, but the T-Mobile acquisition will definitely put more pressure on the carrier to do so.
AT&T's announcement on Sunday came as a surprise to many. Just days before, rumors circulated about a possible merger between Sprint and T-Mobile.
"The U.S. wireless industry is one of the most fiercely competitive markets in the world and will remain so after this deal," AT&T said in a press release on Sunday. "The U.S. is one of the few countries in the world where a large majority of consumers can choose from five or more wireless providers in their local market."
But AT&T's acquisition of T-Mobile means that AT&T and Verizon combined will own nearly three out of every four wireless subscriptions in the U.S. Sounds more like a duopoly than a "fiercely competitive market" to me.
Sprint has improvements in customer retention, customer service and product lineup. It's also tried outdoing larger competitors on pricing. But these small improvements won't be enough to survive against a new and combined AT&T/T-Mobile and Verizon. What it really needs is a game-changer, something that other carriers can't offer.