Feature Article

August 09, 2013

T-Mobile US, SoftBank Sprint Could Shrink US Mobile Op Revenues

As many observers await a fuller unfolding of efforts by SoftBank’s Sprint and T-Mobile US to disrupt the market, one conclusion would be virtually inevitable. No matter the ultimate success, serious attacks on Verizon Wireless and AT&T Mobility would at least temporarily lead to a shift of customers away from one or both of the two leaders, with likely reduced profit margins and gross revenue as well.

None of that will be helpful for Verizon Wireless or AT&T Mobility, but it is hard to see any scenario, short of outright failure by both T-Mobile US and Sprint, where that was not one impact from heightened competition in the U.S. market.

Some long-term observers might say T-Mobile US has had much more success, in terms of subscriber share shifts, than Sprint has had, even though Sprint has been in the midst of a turnaround for what seems like half a decade. 

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To be sure, neither T-Mobile US nor Sprint will necessarily appreciate what might be a permanently smaller U.S. mobile revenue market. But that is an easily predictable outcome of a vigorous new battle to maintain market share leadership on the part of Verizon and AT&T, and an equally determined effort to wrest leadership away, by T-Mobile US and Sprint.

For those of you who know Sprint, it is helpful to remember “SoftBank” will put its stamp on strategy. And SoftBank has not in the past been shy about igniting a price war, with a value pitch.

AT&T and Verizon have been financial standouts among North American and European service providers of late, growing when others were shrinking. One wonders whether that is about to change.

As much as executives at Verizon and AT&T will not want comparisons to the French mobile market after the launch of Illiad’s “Free” service, that is among the likely outcomes for the U.S. market.

Incumbents Vivendi and Bouygues Telecom both reported worsening profits in the first quarter of 2013, for example, as Iliad mobile revenue tripled in the same period.

Vivendi posted a 17-percent decline in first-quarter operating profits to €1.34 billion, while its mobile unit SFR posted a 25-percent drop in EBITDA.

Bouygues posted a net loss of €42 million in the quarter compared with a profit of €35 million a year earlier.

The reaction of Canadian mobile operators to a rumored entry by Verizon Wireless into the Canadian market likewise suggests mobile operators know precisely what would happen should a powerful new competitor try to shake up an existing market, namely significant market disruption.

Edited by Alisen Downey

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