Make way for Deutsche Telekom’s T-Mobile Sprint-Nextel
It’s rumored that T-Mobile owner Deutsche Telekom may be eyeing a bid for rival Sprint-Nextel in an attempt to reinvigorate its struggling U.S. division. See why this merger may not just sound like a potential train-wreck.
Not that T-Mobile is faring particularly well on its own. The American unit saw a 1.7 percent decrease in its customer base during the second quarter.
The deal, worth as much as $10 billion, would create a carrier with enough subscribers to challenge AT&T, the second largest U.S. carrier. However it may prove to be a bigger headache than it’s worth trying to integrate the two companies.
While acquiring Sprint-Nextel would give T-Mobile the subscriber base to compete in the U.S., the company would have the massive challenge of integrating the two companies’ networks. And they’re using completely different technologies.
Sprint-Nextel operates a mostly-CDMA network not unlike the one built by leading mobile carrier Verizon Wireless while T-Mobile runs a GSM-based network. It’s mostly CDMA because it still has traffic running over Nextel’s legacy network that operates over iDen.
So what does all this mean in terms of the business of wireless? It’s taken years for Sprint to integrate its network with Nextel, which means footing the bill for running both networks until the technologies are sorted out.
Deutsche Telekom just inked a deal with Orange in the U.K. as a joint venture to bolster its business there. Overall the company seems determined to buy its way into one of the top spots in both the U.K. and the U.S.
The problem for DT is that the only other major carrier in the States with a GSM network is industry heavyweight AT&T. However that purchase is likely far too rich for Deutsche Telekom to even consider.
So what’s the other option? Keep outfoxing AT&T with a better selection of devices, cheaper data plans and tolerance for data-heavy smartphone users have kept T-Mobile in the game thus far.
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September 14th, 2009
I’ve given this some thought. First, both companies are planning for different future network systems, T-Mobile looking at LTE and Sprint looking at WiMax. As far as current networks are concerned, Sprint’s CDMA is generally more reliable in most environments, be they rural or urban, than T-Mobile’s GSM. Additionally, T-Mobile is just rolling out 3g, where Sprint is far ahead, and is currently testing out 4g data in cities like Baltimore.
If T-mobile were to absorb and adopt CDMA, the main issue would be how it could get its current customers to switch over handsets. It would seem that T-Mobile would likely piss off many of its customers if it insisted that customers pay a penny to switch to the network of a carrier that is currently failing. Those same customers might well transfer to ATT with their current handsets to save upgrading costs. T-Mobile would have to front upgrade costs to customers to avoid a fallout — a fallout that would be counterintuitive to the entire reason T-Mobile would absorb Sprint in the first place: customer numbers.
As it stands, T-Mobile is well positioned as the forerunner of the biggest Android handsets at the most competitive service rates. Those handsets are GSM. Manufacturers aren’t going to be thrilled with retooling handsets specifically designed for T-Mobile to meet new network needs.
So if it isn’t viable for T-Mobile to adopt CDMA technology, both for retaining customers and for switching handset technology, we’d have to assume that Sprint customers would be made to switch to GSM-based handsets. This poses the same problem as T-Mo customers switching to CDMA handsets, but wouldn’t be quite as bad…after all, the absorption of Sprint would mean Sprint customers could get out of their contracts and go elsewhere…T-Mobile would only have to make the incentive package appealing to customers on the fence.
While it might be overly complicated, the payoff would be immense. Where there’s really only 4 national carriers right now, if the lowest two were to merge, we’d have Verizon in the lead with ATT and T-Mobile relatively tied for second. Eliminating a competitor and challenging what is now a competitor far ahead would be worth the costs.
Also worth note: If T-Mobile picked up Sprint, it could pick up the Pre and the Pixi (essentially Sprint’s lock as the leader in the new Palm devices), and once ATT loses the exclusivity agreement on the iPhone, T-Mobile’s superior customer service and lower prices could push it into a solid second position behind verizon and in front of ATT.
That’s certainly worth the time, effort, money and headache.