T-Mobile's loopy idea to try and treat wireless subscribers better (well, if you exclude their attacks on the EFF and net neutrality) has been a great thing for American consumers and wireless sector competition. Thanks to more consumer-friendly policies, T-Mobile has been adding more subscribers per quarter than any other major carrier for several years running. This added competitive pressure recently resulted in both AT&T and Verizon being forced to bring back the unlimited data plans the companies had been insisting for years consumers didn't actually want.
The problem, if you're a wireless carrier or investor, is that AT&T and Verizon are making slightly less money now that they're unable to sock consumers with restrictive caps and overage fees. In fact, wireless sector revenues dipped slightly in the first quarter for the first time in seventeen years, as T-Mobile competition forced carriers to engage in a little more than theatrical non-price competition. Keep in mind these companies are still making some fairly-incredible profits, and their expansion into areas like smart cities and the IOT give them ample opportunity for new revenue streams.
But unlimited data plans returned at the start of the year, and Wall Street firms still can't quite let go of the fact that these industry giants might just have to make a little less money. Cowen and Company Equity Research analyst Colby Synesael simply isn't very happy about this whole competition thing:
"The first quarter of unlimited for all four carriers left much to be desired. Both AT&T and Verizon incurred postpaid losses for the first time on record, a trend that could continue. Verizon specifically had its worst quarter in recent memory with a lackluster performance on nearly all sub metrics. Even T-Mobile’s guidance included a ‘less great’ postpaid net add increase of just +250,000. Combined with continued pricing pressure, AT&T and Verizon are pivoting to new avenues of growth such as Mexico, content, media, IoT and 5G, all of which can’t come soon enough."
Mike McCormack of Jefferies shares similar worries about how the elimination of often-arbitrary usage caps and overage fees means precious wireless industry giants now have to more seriously compete:
"The resurgence of unlimited plans is likely to delay more meaningful ARPU stabilization for multiple quarters due to the loss of overages and plan rightsizing. Impacts to ARPU on an incremental basis (i.e. for new subscribers) will depend on the number of accompanying lines activated. Our analysis suggests a willingness to use price with the hopes that multiline subscribers will churn less frequently. The move to unlimited also diminishes the ability to monetize growing data usage, removing an important lever of growth."
Poor darlings, having to actually compete on price and listen to consumers!
But worry not. Wall Street and these wireless companies have an ingenious solution to the sudden influx of T-Mobile competition: reduce competition through additional sector mergers and acquisitions. Wall Street analysts have been relentlessly fanning the flames of a Sprint acquisition of T-Mobile, which would eliminate one of four major competitors in the space. Sprint owner Softbank has been buttering up the Trump administration for much of the year in the hopes he'll approve a deal that was blocked by regulators in 2014 because it would have reduced competition.
Sprint CEO Marcelo Claure spent this week insisting such a union would create "enormous" synergies, and the fusion of the two companies would let the merged company battle more effectively with the likes of AT&T and Verizon Wireless. Granted if you've spent five minutes with a history textbook (especially one governing the telecom sector), you'll find that these megamergers almost always kill jobs, reduce overall competition, and reduce incentive for consumer service and network improvements. Meaning that if this merger is approved, bringing back unpopular usage caps and overage fees will be a top priority.