In 2020, the US mobile market contracted from four to three major operators. The seismic shift in the landscape was caused by T-Mobile’s US$26.5 billion acquisition of Sprint, the country’s fourth-largest telco, and signalled a potential power shift in the US market.
The transaction created a strong competitor in a market that has long been dominated by AT&T and Verizon.
Yet, while the newly merged entity still faces a big challenge, it is undoubtedly in a stronger position following the completion of the deal.
Before the T-Mobile/Sprint merger went ahead, it faced opposition from the Communication Workers of America and smaller providers, such as Dish Network, but Sprint argued the deal was a matter of survival for the United States’ third and fourth largest telecoms operators.
Following a two-year process, the deal officially closed on 1 April 2020 after receiving regulatory approval from the US Federal Communications Commission (FCC).
A market of scale
According to Kester Mann, director of consumer and connectivity at CCS Insight, the US telecoms market has always been one of scale. “The big operators are reporting massive numbers of revenue and the deals taking place certainly match that,” he says.
Mann adds that AT&T is no stranger to “colossal investments”. This was evident in 2011, when AT&T planned to acquire T-Mobile for $39 billion.
At the time the combined entity would have had a subscriber base of more than 130 million and would have been able to launch a 4G LTE network in rural areas across the United States at a quicker pace.
While the transaction was scuppered by the FCC and the Department of Justice after fervent opposition from Sprint, it was an indication of where the mobile market was heading, with consolidation on the horizon for the major players.
The fact that AT&T would commission $39 billion – a staggering figure in 2011 and still is 11 years later - was not surprising to Mann, given the sheer size of the US mobile industry.
The numbers certainly reflect Mann’s beliefs as, according to figures from Ibis World, the US industry is worth $331.3 billion. In addition, there is the massive income accumulated by the top two players in the market.
AT&T’s mobile operations recorded revenue of $21.1 billion in 2021, according to its latest financial results, while Verizon’s wireless service recorded revenue of $17.8 billion over the same period.
These two have dominated US telecoms in recent years, making remaining competitive increasingly difficult for T-Mobile and Sprint.
As the gap between AT&T and Verizon and their competitors grew, many in the industry hailed a merger between T-Mobile and Sprint as necessary in order to increase competition among the top US telcos.
Larry Goldman, chief analyst at Analysys Mason, believes that the rivals turned partners had no other choice but to consolidate and compete “head-to-head” with AT&T and Verizon.
While T-Mobile’s and Sprint’s primary aim was to surpass the 100 million subscriber mark, it was also to build out their 5G networks.
In the US, the race for 5G spectrum is in full flow with operators spending billions for C-band spectrum licences. In the past 12 months alone, operators agreed to spend around $117 billion on mid-band spectrum licences for 5G. During 2021, US operators spent around $81 billion during an FCC auction for C-band licences for 5G.
And then in January, during another FCC auction for 5G spectrum, AT&T spent an additional $9.1 billion while T-Mobile spent $2.9 billion. Goldman believes that given how expensive its 5G network was set to be, T-Mobile needed a reasonable base to justify its rollout or the network would risk being at a structural disadvantage compared to its rivals.
That point was also advocated by former FCC chairman Ajit Pai before the completion of the deal. He voiced his support for the T-Mobile/Sprint transaction, saying that it would accelerate the deployment of 5G in the country, as the merged company planned to deploy its joint spectrum on a wide scale.
Speaking to the New York State Wireless Association in June 2019, he said: “[Sprint] standing alone does not have the capacity to deploy 5G in this spectrum throughout large parts of rural America.”
After the merger, T-Mobile committed to deploying mid-band 5G to 88% of the US population and two-thirds of US customers. Pai says this would go some way in helping to close the digital divide that exists between rural and urban areas in the country.
The big operators are reporting numbers of revenue and the deals taking place certainly match that
Power moves
But this is far from the end of the story. At the end of 2021, Verizon made its own power move in the increasingly competitive market and confirmed it was acquiring TracFone Wireless.
At the time, TracFone was the largest reseller of wireless services in the United States, serving around 20 million subscribers through a network of more than 90,000 retail locations.
The company recorded $8.1 billion in revenue in 2019 alone. “Verizon typically hasn’t played as strongly in the prepaid market, but this deal brought it a lot of new customers and some different brands,” Mann says.
The deal, which was completed in November, was worth almost $7 billion and positioned Verizon as the largest US prepaid wireless provider in the US, diversifying its services and adding additional customers to its portfolio.
Not only that, but the deal signalled that the market’s smaller players were there for the taking.
Over the last 10 years, the top four carriers’ control of the wireless market grew to around 90%, each having acquired smaller companies to consolidate their respective positions.
Among these acquisitions are MetroPCS (by T-Mobile), Alltel (by Verizon Wireless and AT&T), and Leap Wireless (by AT&T). However, Goldman describes this as a “restructuring” of the entire industry, rather than consolidation, with the major players preferring a horizontal integration model as opposed to a vertical one.
“The M&A deals that are happening right now are companies trying to get rid of things that are underutilised or get them into a mode where they can be used more,” he says.
Goldman also highlights the many consolidation deals happening in Europe, a region where company execs have publicly called for consolidation, and anticipates similar deals in the US. He adds that the “drumbeat of consolidation” is ongoing, and the US market will continue to see bigger firms acquiring smaller entities.
Data reflects Goldman’s claims that consolidation is ripe among firms in the US. M&A volume among US and Canadian media and telecoms companies grew 7.5% year-on-year in December 2021, according to S&P Global. Its research says there were 111 deals in November and 115 deal announcements in December 2021 alone.
The future of fibre
Beyond mobile, Goldman foresees a continuation of similar types of deals, given the current landscape and the ongoing desire to consolidate, particularly around fibre.
“There are fibre deals happening around Europe, especially in the UK, and we see that developing in the US, where companies are saying they want to own the fibre and network, but they have no desire to run the mobile phone company,” he says.
An example of this is Zayo, which has acquired the Geo, Neo and Viatel networks. Zayo’s fibre network in North America and Europe spans more than 130,000 miles, and is growing through deployments and acquisitions.
Goldman expects more consolidation around fibre, particularly with smaller players, as fibre-to-the-home markets continue to gain pace.
Proving Goldman’s predictions correct, on 30 March digital infrastructure provider FirstLight announced it would be acquiring the Pennsylvania-based Keystone Initiative for Network Based Education and Research (KINBER). The transaction includes the acquisition of KINBER’s 1,800 mile fibre network in the state and its related customer contracts.
A set market
While consolidation in the fibre market is likely to continue for the foreseeable future, the mobile market is set, according to Mann. “Unlike in Europe, where there are countries with four, sometimes five operators, I don’t know that there is a lot more potential for further consolidation, given the deals we’ve seen in recent years,” he says.
Instead, Mann says, it feels more natural for the top three operators to look at smaller players to increase market share and diversify content, by using deals similar to the Verizon/TracFone transaction.
“It’s more likely that Verizon and AT&T will make very selective purchases in different industries or verticals,” he says.
This, he believes, will allow both companies to strengthen their respective positions in the US telecoms market while keeping competition in mobile and fibre at an all-time high.
