If the transaction can pass regulatory scrutiny, we believe long-term success of a potential merger would depend on several factors, including an increase in scale and scope, improved execution, substantial capital investment and greater spectrum deployments over a long period. As part of his vision, Sprint's Chairman
We believe Sprint would need increased scale and scope to drive better economics to increase its potential target market and become a more competitive alternative to fixed broadband. Current wireless data pricing is considerably more than wired data, particularly for video-centric households that consume large amounts of data. With mean aggregate broadband data usage for fixed access close to 50 GB and increasing rapidly, wireless is seemingly limited to smaller, more niche-type offerings like a bundled home/mobile bucket.
Regulatory approval will remain a substantial barrier. The
In Fitch's opinion, regulators must widen their antitrust lenses when viewing the wireless and broadband markets to address the changes in technology and demand. We think regulators would need to believe wireless has the potential to become a viable competitive substitute for fixed wireline Internet access, which is currently an oligopolistic market. When combined with merger concessions to address antitrust concerns, this could mitigate the anticompetitive effects and increased market concentration resulting from the reduction in nationwide wireless providers from four to three.
Another factor in determining the long-term success of a potential Sprint Corp./T-Mobile USA merger will be the combined companies' ability to produce a wireless network at least on par with the industry leaders in terms of coverage, density and overall network quality. The merger would require an extensive and lengthy integration period. As such, given Sprint's past poor operational performance and lagging competitive position, the combined entity would need to substantially improve execution to compete more effectively.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Corporates, Telecom and Cable
Source: Fitch Ratings
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