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Has Industry Consolidation Killed Wireless Competition?
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By Bill Ho, Current Analysis Research Director, Wireless Services
Feb 27, 20098
Issue
The wireless industry has consolidated with most regional carriers absorbed by larger national giants. Many decry that the result is now there is less incentive for these national carriers to compete (e.g., lower pricing) and innovation will be limited or stifled. Still others argue that industry consolidation is a good thing and larger scale brings service uniformity, faster product development and overall better efficiencies with which these carriers can effectively compete. With these advantages, is there room in the market or any hope for new competitor with a national footprint to step in?
Current Perspective
M&A Activity
The wireless industry has consolidated with most regional carriers absorbed by larger national giants. Many decry that as a result, there is less incentive for these national carriers to compete (e.g., by lowering pricing) and innovation will be limited or stifled. Still others argue that industry consolidation is a good thing and larger scale brings service uniformity, faster product development, and overall better efficiencies with which these carriers can effectively compete. After the big four with customer bases from 32 – 80+ million, U.S. Cellular ranks as the fifth largest U.S. operator with only about 6 million customers and only a regional one. What companies are out there that can possibly give national carriers a run for their money?
The Promise of a United MetroPCS and Leap Wireless
In 2007, MetroPCS tried to unite with Leap Wireless without success. Regardless of the reasons why the proposed union failed, many in the industry feel that it’s just a matter of time before these two companies join. There are many reasons why a united MetroPCS and Leap make sense. Of course there are blatant similarities such as the business model - low cost unlimited prepaid services, CDMA networks, spectrum band operation (PCS and AWS). What’s more (for the most part), their operating footprints do not overlap and a merger would be analogous to completing a jigsaw puzzle map of the U.S. Each carrier has been building out markets last year and has ambitious launch plans in 2009. Already, MetroPCS has launched New York City and Boston while Leap launched in Chicago. A quick look at the top 25 U.S. metropolitan markets shows that both carriers have a presence or will have a presence, making further a compelling argument for consolidation.
As a sign of closer cooperation in late 2008, the companies buried the axe on litigation, swapped spectrum and most importantly forged a reciprocal roaming agreement, effectively expanding their pockets of regional service to a broader but not quite national footprint to give national carriers a run for their money. But that begs the question of whether a company needs to truly reach all corners of the country to be considered a national carrier and in turn provide national pressure? Given the top markets covered, the only thing missing for these super-regionals may be favorable national roaming agreements. However, with an unlimited calling credo and unfavorable roaming rates, the business model may be less profitable. So this may take a combined Leap MetroPCS entity down the road of a full national buildout – possible, but very costly.
Physical network presence aside, it’s certain that a united and nationally built out MetroPCS and Leap entity would be a disruptive force in the wireless sector. Already, each carrier is expected to expand its customer base, taking its business model to new markets. Competitively, Boost Mobile has become Sprint’s proxy to contain, get ahead of and take some of these carriers’ potential market share. Indirectly, T-Mobile has felt some of the sting as it looks to unlimited calling retention offers at a similar $50 price point. A combined MetroPCS and Leap will number under 10 million customers - would that be enough of a significantly disruptive force to change the prevailing postpaid model, dropping prices and make mobile calling and data a commodity as we’ve seen on the wireline side? It’s hard to say definitively but it may be unlikely in the short term as national carriers will have to see considerable erosion of customers before they react. Still if the economic clouds continue, a combined Leap MetroPCS will only gain momentum. Yet a combined entity Would provide but one pressure point.
A (Predominantly) Data Play – Clearwire
The new Clearwire absorbs the Sprint XOHM organization with WiMAX technology as its foundation. With substantial 2.5 GHz spectrum depth of greater than 100 MHz in the top 100 US markets, the WiMAX ecosystem, and committed backing this company has all the ingredients to make a national splash. Discounting technology ideology discussions of WiMAX versus LTE, Clearwire stands to deliver greater mobile bandwidth capability than 3G data services offered today. Yet there are several sticking points that Clearwire needs to work through. First and foremost is its forecasted buildout. Under Sprint, the buildout was more optimistic than what has actually panned out so far, with sticky issues of backhaul, capital and transfer of assets to Clearwire affecting the equation. Now that Clearwire is a single entity, it must deliver on its footprint coverage plans in 2009. What’s more is that the service models have to be fully finalized as the two launches so far were very different. Sprint’s Baltimore XOHM launch assumed an Internet service provider (ISP), unsubsidized and no-contract model. The Portland model offers tiered usage and bandwidth pricing approaches and even termed contract options. These matters aside, Clearwire will compete in both wireline replacement (especially for home worker broadband services) and mobile data. Of course voice services (i.e., VoIP) should be an option whether it’s for a fixed home/office environment or to be offered on a mobile device. What will be interesting will be the cost of voice service on a mobile device (e.g., smartphone) – could Clearwire offer an unlimited voice and data plan that undercuts even Sprint’s Simply Everything plan? Of course having a fat data pipe would not preclude the usual VoIP players (e.g., Skype, Fring, etc.) from extending their mobile clients to WiMAX devices. Given this scenario, there is the very real possibility of competitive pressure on national carriers.
A (Predominantly) Data Play – Clearwire
While cable companies are largely regional in nature and pro-competitive regulations prevent a national cable provider, there is still opportunity for cable companies to offer wireless services in competition with national wireless carriers. Despite the failure of Pivot, a cable consortium’s (Comcast, Cox, Time Warner and Advance Newhouse) wireless service collaboration with Sprint, cable companies still view wireless as a competitive imperative that they need to address. In this consortium’s asset corner is the AWS spectrum acquired under the SpectrumCo name in 2006.
For its part, Cox is the most aggressive MSO returning to wireless as it announced its intentions to launch wireless services in H2 2009, using its cut of the AWS spectrum. To get off the ground Sprint will be its wholesale service partner as Cox builds its own 3G infrastructure. Unlike MetroPCS and Leap, which have more difficulty in securing favorable national roaming rates, Cox can count on Sprint’s national network for roaming. So while Cox is solid in its 2/3G wireless strategy, what of other cablecos? None of the other companies have hinted on an approach and it’s uncertain that they will have the “owner’s economics” approach to build a wireless infrastructure that Cox is undertaking. But if they do and take advantage of their AWS spectrum, each cable provider can conceivably roam with each other in addition to Sprint. While all cable companies agree that a 4G data pipe is essential to their service proposition, there are different approaches. Moreover, it’s unclear how some of the consortium will address standard voice and 3G services.
Cox breaks away from Sprint and its cable brethren in 4G. Whereas Time Warner, Comcast and Advance Newhouse has put its eggs in the Clearwire WiMAX basket, Cox bets on LTE technology for its 4G future running on similar 700 MHz spectrum as other soon to be LTE operators. The common thread is that each cable company will need to extend their service proposition to the mobile screen much as their telco competitors are working towards. Given all this uncertainty, cable operators are unlikely to provide direct wireless voice competition to the big four but in data, it remains to be seen.
So is wireless competition necessarily dead? No, far from it, players are still emerging on the scene. A combined Leap MetroPCS would bring their pricing models and provide competitive pressure at a minimum to the national carriers’ prepaid businesses and eat into the postpaid bases. Clearwire, while mainly a data play, may be able to pull a national presence off if it executes cleanly and decide on a business model. The cablecos on the other hand stand to bring their own technical and pricing innovation that tie together their traditional fixed broadband, video and fixed voice services.
Current Analysis provides comprehensive coverage of the U.S. wireless market through a combination of qualitative analysis and quantitative wireless price and feature tracking of the voice and data services, as well as the handsets available by the major U.S. carriers. This information is melded together in a web-based portal to provide rapid access to all relevant information. In the highly competitive U.S. wireless market, where strategies need to evolve on a weekly – if not daily – basis to maintain a competitive edge, Current Analysis is the only comprehensive provider of pricing and analysis. |
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