Friday, September 6, 2013

U.S. Mobile Market Share Now Hinges on Organic Growth, Not Acquisitions

The U.S. mobile market actually is far more concentrated than people usually assume. Though most would concede the leadership of the four national carriers, one might guess that there are still meaningful network assets to be acquired.

That actually is not true.

Assuming AT&T gets regulatory permission to buy Leap Wireless, something most observers suggest will be the case, the U.S. mobile market will include Verizon Wireless at 30 percent share, AT&T Wireless at 30 percent share, Sprint at 18 percent share and T-Mobile US at 14 percent market share.

That means the largest four mobile operators in the United States now account for nearly 92 percent of total U.S. mobile subscribers. So there still is eight percent more market share to be gained, some might note.

Yes and no. TracFone Wireless has about six percent share, but it is a mobile virtual network operator with a prepaid-only revenue model. If you add the MVNO non-facilities-based customers of TracFone to the four national carrier market share, you have 98 percent of total market share.

Yes, were TracFone a willing seller, a buyer would momentarily gain six percent additional share. But most acquirers who have done so, in any business, know that the odds of keeping those customers for the long term is quite difficult.

So the upshot is that TracFone’s market share would be “soft” in any acquisition by one of the four national facilities-based carriers.

That leaves only one percent or so remaining facilities-based service providers in the U.S. mobile market. Even if TracFone wanted to sell its business, it is selling customer accounts, not any network assets or spectrum licenses.

So how much more consolidation can happen in the U.S. mobile industry? Not much.

That means we are likely headed for a robustly competitive U.S. mobile market, as growth through acquisition now is largely off the table for the four major carriers.

Some would say the biggest possible merger would be between T-Mobile US and Sprint, the number four and number three carriers in terms of market share.

Fitch does not see that happening. “We expect only modest consolidation going forward as few material targets remain when operators and spectrum holdings are considered,” says Fitch Ratings.

Fitch believes it is virtually certain that the Federal Communications Commission would oppose any consolidation among the top four U.S. mobile operators, as in fighting the AT&T purchase of T-Mobile USA, anti-trust attorneys noted that the U.S. market already is far too concentrated.

Though the merger of AT&T and T-Mobile USA might conceptually be viewed differently than a combination of the number three and number four providers to create three contestants of roughly equal size, many have noted that the argument against AT&T’s purchase of T-Mobile USA suggests the U.S. Justice Department also would frown on such a deal.

So if the four leading firms cannot merger with each other, what is left? It’s a no-brainer that the regional players would eventually be taken out, for incremental growth.

“The long-term future for regional or small wireless operators is uncertain at best,” Fitch says.  “Fitch believes that these operators will eventually be acquired by larger wireless operators.”

But none of those deals alone will change existing market share very much. There is, after all, only eight percent share held by all the other mobile service providers other than the big four.

But there are other deals many expect to see. Dish Network, for example, owns valuable Long Term Evolution spectrum, but the value of that spectrum vaporizes unless Dish Network can get its network built by FCC deadlines.

Few believe Dish can do so without taking on a major mobile partner, one way or the other. That suggests either a major alliance with one of the four national carriers, or an absorption of Dish by one of the four.

Many expect T-Mobile US or AT&T logical candidates for such a deal. AT&T has been a rumored buyer of Dish for years, in fact. At this point, all the mobile service providers will have made a fundamental decision about whether they are buyers or sellers. Undoubtedly, Dish also has made such a decision, whatever its public statements.

Still, a Dish acquisition would be about getting spectrum assets, as Dish has no mobile customers at the moment.

Though consolidation in the communications business will continue, Fitch suggests the big wave of national and large regional provider mergers is over, in the domestic U.S. mobile business, for the time being.

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