Last week, T-Mobile (NASDAQ:TMUS) further unveiled aggressive ambitions to enter the internet broadband race following the merger with Sprint (NYSE:S). The move is another glimpse into the power of the combination of wireless providers that would reward shareholders and also another warning to regulators of allowing the combination. The stock is on a verge of a breakout around $69 on what appears more false hope of a merger close.
The ultimate question for the merger approval is whether the wireless market and hence the 5G market is more or less competitive with the merger. The new T-Mobile is making the claim that the combined network will offer the solutions wanted and needed by consumers, but the company hasn’t made the case on whether the market wouldn’t be better off if both T-Mobile and Sprint partnered with Comcast (NASDAQ:CMCSA), Dish Networks (NASDAQ:DISH) or a tech giant.
The company makes a clear case to the FCC that the 5G user experience will be greatly enhanced by a network combination. Both a 2021 example and the below 2024 figure shows that over 90% of users along the spectrum of POPs covered will see faster speeds via merging the networks.
Source: T-Mobile FCC document
What the document doesn’t do is address whether this is the best solution to make a competitive 5G wireless market in 2021 or 2024. The biggest fears of the government aren’t resolved with this document, as the fears remain that 3 strong competitors will reduce network innovation down the road.
The market clearly likes the solutions the company is offering via the merger. T-Mobile is attempting to break above strong resistance below $70 that has lasted well over a year now. One can’t really argue with the stock being very valuable if a combination can eliminate the pricing pressures in the sector and ultimately develop the best 5G network.
The enterprise value for Verizon Communications (NYSE:VZ) remains far in excess of the combination of T-Mobile and Sprint at about $130 billion now. One can view the gap closing after a merger closure.
5G Wireless Broadband
T-Mobile apparently has ambitions similar to other wireless providers like Verizon to provide both a 5G fixed wireless solution as a broadband substitute and the ability to even use the mobile connection via a smartphone as an internet connection for home users.
The ironic part here is that T-Mobile CTO Neville Ray spent this blog post trashing 5G fixed as not a real 5G offering. T-Mobile now presents to the FCC that the company plans to become a top 4 internet broadband provider.
This quote from the CTO won’t play too well:
Reality check: mmW for fixed wireless is plagued with in-building penetration challenges and the looming need for external household antennas and truck rolls. There’s still a LOT we have to figure out before this becomes a feasible business model. #SorryNotSorry. Verizon.
The biggest issue is that in a matter of months, T-Mobile is now claiming that the company will allow customers to make self-installations without providing any details on how it has solved the problem that Verizon can’t. Even more, why would the DOJ want all this power in the hands of one provider?
According to a summary from FierceWireless, COO Mike Sievert outlined to the FCC the following customer targets for both 5G fixed broadband and mobile broadband customers:
5G Fixed broadband
- 2021 – 1.9 million
- 2024 – 9.5 million
5G Mobile broadband
- 2021 – 5.8 million
- 2024 – 6.3 million
With the ability of the wireless giants to now move into the broadband market, having even more providers appears necessary. T-Mobile, Verizon, and AT&T could theoretically control all internet connections for the US market in the distant future.
The only issue is that the ambitions and goals of T-Mobile appear contrary to where market demand will exist in 3-6 years. The goal of 100 Mbps download speeds in 2021 doesn’t appear all that competitive when my local market already has offers from Cox for up to 1 Gbps.
So, if anything, T-Mobile is bringing up more reasons for regulatory review, while possibly not even having a real competitive solution.
The key investor takeaway is that my view remains negative on the merger approval. T-Mobile continues to make a strong case for why shareholders should want this deal, while the valuation appears attractive in relation to another near-wireless pure play in Verizon. The problem is that the company continues to make the case for regulators to block the deal.
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