US mobile market consolidation looming large

The likelihood of consolidation among US mobile operators is increasing as smaller carriers struggle to find success with revamped pricing schemes and product positioning strategies.

Market maturation and the accompanying price wars have led to rumours of impending consolidation among the smaller US mobile players. The latest  is that Deutsche Telekom, parent of fourth-placed T-Mobile USA, is pondering a bid for Sprint Nextel, the third largest US operator.

Sprint itself is already intending to take over MVNO Virgin Mobile USA in a stock deal valued at $483m, including Sprint’s existing 13.1 per cent stake in the firm.

But analysts at Informa Telecoms & Media warn that any major mergers and acquisitions will face scrutiny from regulators and the Obama administration, which has reiterated that it will keep a close eye on antitrust and competitive issues related to any significant M&A activity going forward.

“This could keep large M&A deals from coming to fruition anytime soon. A combination of T-Mobile and Sprint could be particularly tricky in the current environment, not only due to the size of the potential deal but also because of foreign-ownership issues that would have to be debated on both sides of the Atlantic.” said Tammy Parker, principal analyst with Informa. “Further, T-Mobile and Sprint operate several networks, all with different air-interface technologies, which would create an integration challenge, if not a nightmare.”

There is also speculation  regarding a possible merger of regional US carriers MetroPCS Communications and Leap Wireless International, which have both seen their low-end, unlimited, prepaid service plans copied by national operators. Although Leap rejected an unsolicited offer from MetroPCS back in 2007.

“Smaller competitors are struggling to survive and match economies of scale enjoyed by the two largest mobile operators, Verizon Wireless and AT&T,” said Parker.

Regardless of any M&A activity, Informa expects US mobile operators to continue looking for competitive advantages wherever they can, whether through consolidation, the addition of innovative revenue streams, or new pricing and equipment strategies. “The two top US operators, Verizon and AT&T, command a combined 60 per cent of the mobile market, but smaller rivals continue trying to outmanoeuvre these top players as well as one another,” says Parker.

There were 280.57 million mobile subscriptions in the US during 2Q09, and US mobile market penetration during 2Q09 finally reached the 90 per cent milestone. Informa expects US penetration to exceed 100 per cent at end-2012 and to reach nearly 113 per cent by end-2014.