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Internal T-Mobile documents show the company considering a Comcast merger

As T-Mobile’s merger trial inches toward a verdict, it’s clear the company has spent years preparing for a merger with Sprint. But a new report made public in connection with the case reveals T-Mobile has also been preparing for a subsequent merger with a cable company, with Comcast seen as the most likely potential candidate.

Titled “Defining a winning position for the US business model,” the report was assembled at the request of T-Mobile board member Thorsten Langheim in December 2015, meant to give an overview of the company’s market position in advance of a workshop among senior members of leadership. The result is a candid behind-the-scenes look at the company’s strategic outlook, often cutting a sharp contrast to the company’s rebellious “uncarrier” image. (T-Mobile declined to comment.)

The report, which is labeled as “confidential” throughout, suggests T-Mobile owner Deutsche Telecom had bet heavily on the US wireless market, where the company saw less regulation and higher average revenue per customer than in Europe. Analysts also predicted that, as the company reached the limits of its organic growth, it would have to rely on industry-wide consolidation to continue its growth after 2018.

The report also cautions the company against pricing too aggressively in order to maintain those profits and the attendant merger potential. As the final slide puts it, “don’t trigger a price war in the US market (stable ARPUs base drives attractiveness & valuation.)”

A page from the document lays out T-Mobile’s plans for possible mergers

T-Mobile’s plan for possible mergers includes a followup merger with a cable operator after merging with Sprint.

In particular, T-Mobile had positioned itself for a “4>3” merger with Sprint, which it saw as a “natural strategic move” that was being blocked by regulation. As of 2015, however, T-Mobile was uncertain about whether such a merger would be allowed. Tom Wheeler, then chairman of the FCC, was seen as deeply skeptical of consolidation in the wireless market, and the document predicted “consolidation also unlikely under new Democratic administration and only slight improvements vs. today expected under Republican government.”

But even in light of those reservations, the document concludes the company should position itself for two separate mergers — first a consolidating merger with Sprint, then a broader merger with a cable company like Comcast.

The T-Mobile assessment of a Sprint merger urged lobbying the “right” people in DC and warned against “price wars.”

The T-Mobile assessment of a Sprint merger urged lobbying the “right” people in DC and warned against “price wars.”

The “Playbook till 2018” section of the report resolves to “strengthen lobbying for 4>3 merger (i.e. win “right” people in D.C., media campaign).” The same documents caution not to overplay that lobbying in a way that might offend the FCC, Department of Justice, or other stakeholders.

That plan aligns with much of the public lobbying T-Mobile undertook in the years after the report was assembled. T-Mobile CEO John Legere was a growing presence in Washington in the months leading up to the Sprint merger’s approval. He came under particular fire for staying at President Trump’s DC hotel throughout the process, which some saw as a move to curry favor with the administration.

The document also recommends that the company “safeguard and further expand ‘sexy and innovative’ T-Mobile image” as preparation for any potential merger.

T-Mobile’s assessment of a merger with Comcast called it a “preferred merger, ideally after Sprint merger.”

T-Mobile’s assessment of a merger with Comcast called it a “preferred merger, ideally after Sprint merger.”

Still, the document makes clear that Sprint was not the only potential merger T-Mobile was interested in. The same playbook section encouraged T-Mobile to invest in “assets and activities that complement a cableco merger,” and consider partnering with a cable company on an MVNO basis. A later section recommends the company “consider creation of mobile-only video content (i.e. short form) that could be integrated in cableco’s OTT offering.”

Of the cable companies mentioned, Comcast is the clear favorite. “Move into mobile might be the only natural option for Comcast to grow, as preferred Comcast moves (i.e. wireline and content) are unlikely to get regulatory approval,” the report assessed. “Likely no significant regulatory barriers.”

Altice is also mentioned as a potential merger candidate, in what the documents describe as an “opportunistic adjacency play.”

T-Mobile’s notes that EU regulators are focused on enhancing competition and securing consumer welfare, which makes it a less friendly environment than the US.

T-Mobile notes that EU regulators are focused on enhancing competition and securing consumer welfare, which makes it a less friendly environment than the US.

T-Mobile says the US is a friendlier market because of its “very relaxed consumer protection and data privacy policy”.

T-Mobile says the US is a friendlier market because of its “very relaxed consumer protection and data privacy policy”.

The report was presented to executives from both the US-based T-Mobile and the EU-based Deutsche Telekom, and notes that the US market offers much looser regulations — and thus greater opportunities for corporate profits. In particular, the report makes note of the “very relaxed consumer protection and data privacy policy”, as well as the “wait and see intervention” approach of federal regulators.

The documents also cast doubt on one of the central claims of T-Mobile’s merger, which has sought to prop up Dish as a competitive wireless provider, backed by an MVNO deal with T-Mobile in advance of its own network buildout. But the document, which was prepared before the Dish deal was even considered, sees it as unlikely that any MVNO could provide meaningful competition to T-Mobile. The report is particularly focused on cable-based MVNOs like Tracfone, which had garnered a small but growing market share in the US at the time. But the report considered them only a minimal threat to T-Mobile’s business.

T-Mobile lists “Don’t trigger a price war in the US market” as a key point in maintaining merger options.

T-Mobile lists “Don’t trigger a price war in the US market” as a key point in maintaining merger options.

“Telco is a nationwide scale game,” one anonymous expert is quoted as saying. “Without regulatory and telco support it is almost impossible that new mobile entrants will be able to disrupt the industry.”

T-Mobile had initially sought to exclude the documents from the court record on the grounds that they included statements from third-party consultants at McKinsey & Co. that could not be attributed to T-Mobile. However, the state attorneys general successfully argued that the testimony of T-Mobile executive Peter Ewens laid the foundation for the documents, and that they could no longer be excluded from the record.

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