Industry Consolidation ‘Matter of Time,’ Legere Says
T-Mobile closed Wednesday on its purchase of 700 MHz A-block spectrum from Verizon and is ready to deploy its first major chunk of low-band spectrum, T-Mobile US CEO John Legere said on a call with investors. T-Mobile reported record subscriber growth, adding 1.3 million postpaid subscribers in the first quarter, but Legere warned that T-Mobile is still much smaller than Verizon and AT&T, the nation’s two dominant wireless carriers.
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"This is the start of competition,” Legere said on a call to discuss Q1 results. “The big are still the biggest. These are big, huge people, who are probably calculating ways that they can protect their 55 percent [market share] and growing EBITDA margins and cede some share but not change the structure of their whole base in profitability because of the size of what they have.”
Legere said there are “multiple ways to continue to play aggressively and to close the gap on the big guys,” but said consolidation is one possibility. Reports persist that Sprint still plans to make a bid for T-Mobile. Bloomberg reported that Sprint executives met with six banks to discuss financing a summer takeover of its smaller rival. “We've always said that we think ultimately in the industry, it’s a consolidation game that’s a matter of when and not if,” Legere said. “That’s not just amongst the four [carriers] that you see. It’s amongst multiple other tangential players that are sitting on the periphery of the industry looking in, who may want to play, and multiple players that are not seen, whether it’s cable industry, et cetera."
Legere was asked specifically if the FCC and other federal regulators would possibly sanction a merger. FCC Chairman Tom Wheeler has said repeatedly he views the potential deal with some skepticism. “This is a very complex series of things that can’t be looked at in isolation,” Legere said. “And I think Chairman Wheeler and the FCC have their hands full on multiple topics.” Legere said it would be difficult for the FCC to move forward on two major spectrum auctions and address a major wireless merger at the same time.
Subscriber growth was the high point for T-Mobile, which also lost $151 million in the quarter, after a profit of $107 million in the year-earlier quarter. Revenue was up 47 percent to $6.88 billion, compared with $4.68 billion in the year-earlier quarter.
MoffettNathanson’s Craig Moffett questioned the likelihood a merger will go forward under the leadership of Sprint Chairman Masayoshi Son, head of SoftBank, which owns a majority of Sprint. “Underlying all this is the dubious assumption that SoftBank has even a snowball’s chance of persuading regulators to approve a deal they have for all intents and purposes already preemptively rejected,” Moffett said in a research note. “If only the FCC and [Department of Justice] could hear Masa’s arguments, the thinking goes, they would be convinced that a strong three is indeed better than a weak four.”