Yesterday, T-Mobile announced various “Un-Carrier” moves that the company would undertake if the merger with Sprint is allowed to close. In aggregate, the moves are unlikely to materially affect either pro forma T-Mobile’s financial results or the odds of the deal closing, but given the low cost of offering these plans, we view it as a marginal positive. In this brief note, we run through the various offerings, and their impact (or lack thereof) on wireless and broadband markets and the state AG litigation.
Home Broadband Offer: Benefits Those Without Broadband, Modest Risk to Wired ISPs
T-Mobile is offering free home broadband service over five years to 10MM households with children to close the “Homework Gap”; notably the service is capped at 100GB / year, or just ~8GB / mo. We suspect that the target customers are likely the ~5MM eligible households that currently have no broadband, which is unlikely to impact the existing broadband market. Of the remaining 5MM who are already in the broadband market, we don’t think many will be incentivized to switch from existing wired broadband ISP service; cable operators report average usage of 200-300GB / mo., 25-35x the amount available through this offer.
First Responder Offer: Good For First Responders; Marginally Negative For Verizon And AT&T
T-Mobile is offering free unlimited talk, text, and data to all public and non-profit law enforcement, fire, and EMS agencies for ten years. AT&T has estimated this group at 3MM potential customers, while T-Mobile has said that 10-yr. savings for first responders would be $7.7BN (at a $40 ARPU, implies ~1.6MM customers). Most of these customers are served by Verizon and AT&T today; should the deal go through, this offer would certainly be a negative for them, though likely a marginal one (it’s unclear how much incremental impact the free offer will have when compared to the current 50%-off offer from T-Mobile).
New Pricing Plan: Good For Low-Income Customers, But Marginally Negative For Prepaid Providers
T-Mobile also is offering two new plans: $15 / mo. for 2GB and $25 / mo. for 5GB for five years (data allotments will increase by 0.5GB / mo. annually). This compares to existing Metro plans that currently offer $30 / mo. for 2GB and $30-40 / mo. for 10GB (we would note that T-Mobile prepaid ARPU is currently $38, at the higher end of these metered plans). T-Mobile already has ~1/3 of the prepaid market, and they, along with AT&T (Cricket) and Tracfone (Straight Talk) are most at risk from low-end prepaid ARPU pressure. With ARPU write-down risk, we suspect that T-Mobile may not make the new plans their lead advertised offer, and may narrowly target their offering to lower-income customers.
Unlikely To Solve State AGs’ Concern; Litigation To Continue
Fundamentally, the moves, while consumer- and regulator-friendly on the margins, do not address the competition harms that the State AGs have alleged in their complaint which argues that the deal violates the Clayton Act. The new offerings are similar to the kind of public interest benefits that companies have used to meet the public interest test at the FCC. Perhaps a handful of litigating states will be placated, but we expect the lawsuit to move forward and these kind of public interest benefits are unlikely to play any role in the Judge’s thinking. Notably, all of the offers are limited to 5-10 years, suggesting that the company is still reliant on the argument that DISH will have more of a competitive impact on the wireless market than Sprint. Even Legere made this argument on the call, arguing that “Sprint…is struggling…clearly DISH has a head start and a set of commitments that will make them a much more formidable competitor than Sprint is or can be in the short-term.”