Trump Administration Risks Telecom Crash 2.0 with Business as Usual Review of T-Mobile - Sprint
T-Mobile's $26bn bid to acquire Sprint arrives amid permanent regulatory disarray and Federal Reserve rate increases threatening to turn telecom sector debt binges...into Telecom Crash 2.0. Deal chatter anticipates a painful bureaucratic inquiry and assigns doubtful prospects for T-Mobile's ambitions to displace Verizon as the #1 wireless company in America. If I were CEO, John Legere, I would ignore the power politics, stop pandering to bureaucrats, and focus the Trump Administration and communicating public on the actual reality - T-Mobile's rescue of Sprint represents a really good idea.
The cause of jobs and American business leadership aligns the deal with the top priorities of the Trump Administration and argues for breaking with bureaucratic tradition:
- 1) Decline to make license transfers contingent on a Federal Communication Commission merger review.
- 2) Focus the Committee on Foreign Investment in the United States toward updating prior approvals of Deutsche Telekom's ownership of T-Mobile and Softbank's investment in Sprint rather than initiating a new inquiry.
- 3) Impose a time limit on the Department of Justice review of the competitive merits targeting an answer no later than the end of 2018.
The costs of delay for T-Mobile and Sprint, as well as the detrimental effects of uncertainty on the telecom sector as a whole, requires a sense of urgency.
Handwringing about a review presumes government will ignore the plain realities. Accumulating quarterly losses in excess of $50 billion leaves Sprint with an unsustainable debt burden and certain insolvency absent a deal. T-Mobile's offer to give job security to the 28,000 employees presently working for Sprint comes too late for most of the 80,000 people Sprint employed after the Nextel merger. Sprint paid $35bn for Nextel in 2005 only to accept a $22bn bid from Masayoshi Son's Softbank for a majority stake in the entire Sprint-Nextel enterprise in 2012. A long-standing inferiority complex and lagging network investment make Sprint the weak link undermining otherwise robust wireless competition.
Closing the deal sets in motion a three-way race for glory sufficient to supercharge the competitive landscape and end any risk the relatively tame sibling rivalry between AT&T and Verizon turns into duopoly. The Internet era free-for-all customer acquisition wars pitting everyone against everyone along with a steady stream of capacity expanding technologies make industrial policy theories of the last century both dangerous and obsolete. The routine 50Mbs smartphone connection available today cost $10,000 per month in 1995 under Federal Communication Commission (FCC) stewardship of the telephone network.
Government interventions replace expanding customer value with regulatory arbitrage, because companies cannot resist co-opting the coercive powers of government. A clean Trump administration break from the interventionist theories promises to lift the valuation of companies across the telecom sector. Compare the sharply lower price multiples wireless operators - AT&T, Verizon, T-Mobile - suffer relative to the Big Tech companies the wireless networks make possible - Apple, Google, Amazon, Microsoft, and Facebook. Facebook enjoys three times the valuation of AT&T even though the social network collects only 25% of AT&T's top line revenue.
AT&T's interest in acquiring Time Warner owes to the apparently favored status of advertising revenue, but the Department of Justice lawsuit to block the merger illustrates the fickle nature of government as master. A decade-long push for government to regulate the "neutrality" of Internet access by Google morphed in recent months to demands government regulate the "neutrality" of search and "neutrality" of YouTube. Attempts by bureaucratic geniuses to second guess the market include no success stories, and, in the case of T-Mobile - Sprint, promise a replay of the year 2000 cataclysm in 2018 as Telecom Crash 2.0.
Government interventions destroy private sector jobs and ambitions with impunity, because disastrous outcomes hold no consequences for bureaucrats. Twenty years after the inept regulatory interventions responsible for Telecom Crash 1.0, the FCC's 1200-plus lawyers remain in the game with twice the budget and plans to move into a lavish new building next year. The billions in annual billings of the 5,000 member Federal Communication Bar Association demand to navigate the regulatory quagmire represent pure friction. No amount of searching among the regulatory edicts and machinations will find a single connection to the proliferation of communication options in recent years.
The regulatory sphere occupies itself over decades imposing and unwinding bad ideas. The indeterminant meaning of "public interest" and "national security" gives bureaucrats no end of excuses to block T-Mobile's acquisition (aka: rescue of Sprint). A simplistic and inane counting national carriers proved sufficient to block AT&T's merger plans in 2011 and a $8bn breakup fee owed to T-Mobile. John Legere likely welcomed the windfall when he arrived at T-Mobile in September, 2012, but the sense of anarchy shrinks the value of every company in telecom. Nothing in the legislation creating the FCC authorizes review of telecom mergers. The agency merely leaps from the need to transfer of licenses to an investigation of the "public interest" justification for mergers.
T-Mobile - Sprint presents a choice between sustaining and expanding the communication renaissance and inviting Telecom Crash 2.0. T-Mobile, CEO,John Legere understands, and should aggressively articulate this reality. Legere's career includes 20 years rising through the executive ranks at the old AT&T. Legere led Global Crossing for a decade as the company navigated the consequences of Telecom Crash 1.0 through, and including, bankruptcy. Avoiding Telecom Crash 2.0 requires a direct appeal to the Trump Administration and communicating publicly on the plain merits of ending Sprint's sad run and the competitive force of a New T-Mobile. #TMo2oh