Season 2, Episode 8: T-Mobile / Sprint

Summary notes created by Deciphr AI
Summary Notes


In this episode of the Acquired podcast, hosts Ben Gilbert and David Rosenthal delve into the complex history and potential future of the US telecom industry, focusing on the proposed merger between Sprint and T-Mobile. They discuss the origins of major telecom players, such as the McCaw family's empire and John Stanton's pivotal role in creating what would become T-Mobile USA. The episode highlights the regulatory challenges past mergers faced, the strategic value of the Sprint-T-Mobile merger in the context of 5G development, and the significant impact of T-Mobile's CEO John Legere's unconventional leadership style on the industry. With Sprint and T-Mobile's combined efforts, the hosts speculate on the potential to transform from two weaker carriers into a stronger third competitor against AT&T and Verizon, despite shareholder skepticism and regulatory hurdles.

Summary Notes

Introduction to the Sprint T-Mobile Merger

  • Acquired podcast hosts Ben Gilbert and David Rosenthal discuss the Sprint T-Mobile merger.
  • They draw parallels to the Broadcom-Qualcomm merger, which did not happen.
  • The hosts explore the history of the telecom industry in Bellevue, Washington.
  • They humorously question if the merger will result in going from four major carriers to three, or effectively from two to three.

"This may be yet another episode where we cover an acquisition much like the Broadcom Qualcomm merger. That did not actually happen, and so only time will tell."

  • This quote highlights the uncertainty surrounding the Sprint T-Mobile merger and compares it to a previous failed merger.

Evolution of the Telecom Industry

  • The telecom industry in the 1980s and 1990s had very few people working in it.
  • Bellevue, Washington, was a central hub for this industry.
  • The hosts encourage listeners to leave reviews and join their Slack community to discuss tech news.

"It turns out that telecom and the wireless industry in the 80s and 90s had like six people working in it. And as you alluded to Ben, almost all of them were in Bellevue, Washington."

  • This quote emphasizes the small size and concentrated location of the telecom industry workforce during its nascent stages.
  • Statsig is promoted as a data-driven decision-making platform for product teams.
  • The company has experienced significant growth, now reaching 1.2 billion end-users.
  • Statsig processes around 130 billion events per day.
  • The advertisement is marked as such and is not included in the study notes.

The Story of Craig McCaw and the Wireless Telecom Industry

  • Craig McCaw, a Stanford undergrad, took over his family's debt-ridden company after his father's sudden death.
  • He built a cable empire and then shifted focus to the emerging cellular phone industry.
  • McCaw participated in FCC lotteries for spectrum licenses and acquired many of them.
  • McCaw Cablevision sold for $790 million in 1986, and McCaw Cellular was sold to AT&T for $12.6 billion in 1994.

"He applies for the lottery in a whole bunch of geographies throughout the country. He wins some of them and others. There are lots of plumbers that are applying and accountants, just random people, are applying to win these spectrum licenses."

  • This quote describes Craig McCaw's strategy in acquiring spectrum licenses, which were essential for building a cellular network.

McCaw's Further Ventures

  • After selling McCaw Cellular, Craig McCaw continued in telecom with Nextel and Clearwire.
  • Nextel was sold to Sprint for $35 billion, and Clearwire partnered with Sprint for data services.
  • McCaw's ventures played a significant role in shaping AT&T and Sprint.

"He's the Steve Jobs of telecom, really. One more thing. In 2004, he starts a company called Clearwire."

  • This quote likens Craig McCaw's impact on the telecom industry to Steve Jobs' impact on technology, highlighting his continuous innovation.

McCaw's Legacy and Impact

  • Craig McCaw became one of the wealthiest individuals through his telecom ventures.
  • He purchased a historic Ferrari for over $38 million.
  • McCaw family's philanthropy has had a significant impact on arts and charitable organizations.
  • The McCaw family's contributions extend beyond telecom to significant philanthropic efforts.

"Craig finally does sort of rest his pen after Clearwire has not started any further telecom companies, but he does pretty well through all of this."

  • This quote summarizes the end of Craig McCaw's active involvement in starting new telecom companies and hints at his wealth and subsequent activities.

Acquisition of Domain

  • The domain was initially owned by a company that had discontinued their product called the Rover.
  • The domain was acquired by the speakers' company in the summer of 2011.
  • Brian McAndrews, a partner at Madrona and former CEO of Aquaniv, played a key role in the acquisition.
  • The domain was initially leased with an option to buy before the purchase was finalized.
  • The acquisition of the domain contributed to the creation of a major marketplace.

"We bought the domain name. I believe we actually leased it first with an option to buy and then we bought the domain name."

  • This quote explains the process of acquiring the domain, highlighting the strategic move to lease with an option to buy, followed by the full purchase.

Evolution of Wireless Industry

  • The speakers discuss the history of the wireless industry, particularly the role of McCaw Cellular and its spinouts.
  • John Stanton and Teresa Gillespie, key figures in McCaw Cellular, later founded what would become T-Mobile USA.
  • Pacific Northwest Cellular and General Cellular Corporation were merged into Western Wireless, which was later acquired by Alltel and eventually became part of Verizon.
  • An infographic from the Seattle Times is recommended for understanding the complex relationships between these companies.

"John and Terry, they do two important things. One, they get married... The other thing they do is they start T-Mobile."

  • This quote introduces John Stanton and Teresa Gillespie's contributions to the wireless industry, including the founding of T-Mobile USA.

Emergence of T-Mobile USA

  • John Stanton's vision to acquire rural spectrum licenses led to the creation of Pacific Northwest Cellular.
  • Western Wireless was formed by merging Pacific Northwest Cellular and General Cellular Corporation, which later spun off VoiceStream Wireless.
  • VoiceStream Wireless was acquired by Deutsche Telekom for $35 billion and renamed T-Mobile USA.
  • The speakers recount the various mergers and acquisitions that shaped the wireless industry, including AT&T, Verizon, Sprint, and T-Mobile.

"Deutsche Telekom comes in... and they buy voicestream for $35 billion and rename it T Mobile USA."

  • This quote explains the transformation of VoiceStream Wireless into T-Mobile USA following the acquisition by Deutsche Telekom.

John Stanton and Terry Gillespie's Post-T-Mobile Ventures

  • After their success with T-Mobile, John and Terry continued in the wireless industry with Trilogy, a venture investing firm.
  • Trilogy initially owned international wireless assets before focusing on venture investments.
  • John and Terry also own the Seattle Mariners and invest in other companies.

"So John and Terry, they do continue in the wireless industry. They start a company called Trilogy, which has had owned many international wireless assets."

  • The quote highlights John and Terry's continued influence in the wireless industry through their company, Trilogy, and their ownership of the Seattle Mariners.

State of the Wireless Industry Pre-T-Mobile Turnaround

  • AT&T, Verizon, Sprint, and T-Mobile were the major carriers in the U.S., with T-Mobile being the fourth largest.
  • T-Mobile was in a difficult position after a failed merger with AT&T in 2011.
  • The company merged with MetroPCS to gain scale and coverage, and brought in John Legere as the new CEO for a turnaround.
  • Legere's initial focus was on understanding customer dissatisfaction by listening to service calls.

"The industry basically operates at steady state from our point of view... You have AT&T and Verizon, which are the two largest carriers in the US."

  • This quote sets the scene for the state of the wireless industry before John Legere's arrival at T-Mobile, with AT&T and Verizon leading the market.

John Legere's Impact on T-Mobile

  • John Legere was brought in as CEO to turn around T-Mobile after the failed AT&T merger.
  • He began by listening to customer service calls, which revealed widespread customer dissatisfaction.
  • At CES 2013, Legere made headlines with his unconventional appearance and candid criticism of the industry, particularly AT&T.
  • T-Mobile rebranded as the "Un-carrier," with Legere cultivating a maverick, customer-focused image.
  • Legere's approach included engaging with customers on social media, hosting live shows, and being outspoken against competitors.

"He spends the first couple months doing this, and he's just like, aghast. He's like, oh, my God, this is... I have never heard such vitriol and anger and angst and hatred being spewed from our customers at us about how much they hate us and they hate the industry and they hate carriers and they hate all this stuff."

  • This quote captures John Legere's reaction to the negative customer feedback he heard, which informed his strategy to transform T-Mobile.

T-Mobile's Strategic Turnaround

  • T-Mobile's strategic turnaround involved a merger with MetroPCS and the appointment of John Legere as CEO.
  • Legere's focus on customer experience and aggressive marketing tactics helped change T-Mobile's public image.
  • The "Un-carrier" strategy declared victory in the face of competition, creating a bold and defiant brand identity.

"The strategy behind it, what they decided is the way to win when you have no way to win is you declare victory."

  • This quote summarizes T-Mobile's strategic approach under John Legere's leadership, emphasizing a bold declaration of victory as a means to disrupt the market and gain a competitive edge.

T-Mobile's Strategic Position and Growth

  • T-Mobile declared victory and experienced 19 straight quarters of adding over a million net new subscribers.
  • The company surpassed Sprint, becoming the third-largest carrier, mainly drawing customers from Sprint, AT&T, and Verizon.
  • T-Mobile's growth created a vacuum in the industry, significantly impacting competitors.

"T Mobile declared victory, and it totally works. So this all begins in January 2013. The company has 19 straight quarters of adding over a million subscribers. Net new subscribers. It quickly passes sprint to become the third largest carrier."

  • T-Mobile's success is attributed to its aggressive growth strategy and the ability to attract customers from other carriers.

T-Mobile's Innovative Product Offerings

  • T-Mobile innovated with product offerings, such as zero-rating for services like Netflix and unlimited data plans.
  • These innovations forced competitors AT&T and Verizon to improve their plans and offerings.

"They're wildly innovating on their product offering relative to the leaders at and T and Verizon in order to get it, get it done."

  • T-Mobile's strategy not only attracted customers but also pushed the industry towards more consumer-friendly practices.

Impact of US Government on Competition

  • The US government's decision to block AT&T's acquisition of T-Mobile is credited with preserving competition in the market.
  • As a result, T-Mobile fiercely competed, leading to benefits for consumers, such as no longer being locked into contracts and having unlimited data plans.

"Honestly, all the credit in the world goes to the us government here. Because this is why they blocked at and T buying T mobile, because they're like, this would have prevented competition."

  • The government's intervention played a crucial role in maintaining a competitive environment that ultimately led to better services for consumers.

Advertisement: Vanta (NOT INCLUDED in study notes)

SoftBank's Acquisition of Sprint and Industry Dynamics

  • SoftBank entered the US market by acquiring a 78% stake in Sprint for $21.6 billion in July 2013 after a bidding war with Dish Network.
  • The telecom industry is seen as a converging market, with broadcasting, cable, telephone, and wireless sharing similar business dynamics.

"They decide they want to enter the us market and they want to buy sprint. And so they end up getting into a bidding war with Dish network, the satellite television provider."

  • SoftBank's strategic moves in the telecom market highlight the competitive and dynamic nature of the industry.

Sprint's Historical Background and Rebranding

  • Sprint, originally a landline telephone operator, started as the Brown Telephone Company in 1899.
  • The company's ability to provide long-distance telephone service led to the laying of fiber-optic cables, offering an alternative to AT&T's monopoly.
  • Sprint's name is an acronym derived from an internal naming contest: Southern Pacific Railroad Internal Network Telecommunications.

"Sprint, the landline company, started as the Brown Telephone Company in 1899 in Abilene, Kansas, eventually became the Southern Pacific Communications Corporation."

  • Sprint's evolution from a landline company to a wireless carrier is part of a larger history of telecommunications in the United States.

T-Mobile and Sprint's Proposed Merger

  • T-Mobile and Sprint announced a merger in April 2018, with T-Mobile effectively taking over Sprint.
  • The combined company would be based in Bellevue, with John Leger as CEO, and the enterprise value of the deal including debt would be $146 billion.

"T Mobile and Sprint are going to. They've announced that they're going to merge directly. So whereas before it was Sprint was going to buy T Mobile, then it was Softbank was going to sell Sprint to Deutsche Telekom, again, leaving T Mobile. They would get merged. But nope, T Mobile wins."

  • The merger represents a strategic consolidation in the telecom industry, with T-Mobile leading the combined entity.

Regulatory Concerns and Market Competition

  • There is skepticism about the merger leading to increased competition as it reduces the number of major carriers from four to three.
  • The merger's proponents argue that the combined company will be better positioned to compete with AT&T and Verizon, especially in the 5G market.

"This isn't a case of going from four to three companies. There are now at least seven or eight big competitors in this converging market. And in 5g we'll go from zero to one."

  • The argument for the merger focuses on the potential to create a robust competitor in the emerging 5G landscape and the broader, converging market of telecom services.

Theme: Innovation and Global Leaders

  • Slide comparison between companies categorized as "Amazing Innovation" and "Global Leaders".
  • Companies under "Amazing Innovation" include Uber, Lyft, Instagram, Snapchat, Tinder, and Venmo.
  • Companies under "Global Leaders" include Amazon, Apple, Netflix, Microsoft, and Facebook.
  • The contrast implies a distinction in the type of impact or market leadership between the two groups.

"The left side says amazing innovation and it has the logos of Uber, Lyft, Instagram, Snapchat, Tinder and Venom. And on the right it has a headline called Global Leaders and it has Amazon, Apple, Netflix, Microsoft and Facebook."

  • This quote highlights the categorization of companies into two groups, suggesting a difference in their innovation impact or market dominance.

Theme: Merger Approval and Department of Justice

  • Discussion on the role of the Department of Justice (DOJ) in approving a merger.
  • Uncertainty expressed by the speakers about whether being a DOJ lawyer is desirable or not.
  • Acknowledgment of the complexity involved in these decisions.

"Department of justice is why you should approve this merger."

  • The quote indicates that the DOJ's decision is critical for the approval of a merger, highlighting the government's role in such corporate decisions.

Theme: Merger Risks and Outcomes

  • Consideration of the risks and potential benefits of a merger.
  • Speculation on whether the merger will be good for competition and customer choice.
  • Personal opinions leaning towards the merger being beneficial.

"I'm for it. But I think it's going to be good for, if you take the lens of good for competition, good for going from two to three people as customers."

  • The quote reflects the speaker's support for the merger based on the belief that it will enhance competition and benefit consumers.

Theme: Acquisition History and Market Growth

  • Discussion on the historical growth of the wireless industry.
  • Softbank's acquisition of Sprint and the financial outcome of that investment.
  • T-Mobile's market growth and its impact on Sprint.

"Softbank bought sprint. They bought 70% for what was it? $21 billion?" "T Mobile has been taking all of the growth for a number of years."

  • These quotes discuss the acquisition of Sprint by Softbank and T-Mobile's significant growth, which affected Sprint's market position.

Theme: Merger Categories and Consolidation

  • Classification of mergers based on different criteria like people, technology, business line, asset, or other.
  • The merger in question is seen as a consolidation to realize economies of scale.
  • Comparison with previous mergers like Zillow-Trulia and Alaska-Virgin.

"It's interesting to note that the wireless industry was growing massively from the time when Softbank bought sprint until today."

  • The quote underscores the significant growth in the wireless industry during the period of Softbank's ownership of Sprint.

Theme: Synergies and 5G Network

  • Synergies between merging companies, particularly in the context of the 5G network.
  • The technical aspects of 5G and the future requirements for building out the network.
  • Sprint's assets, including spectrum necessary for 5G, and its financial inability to develop it.
  • T-Mobile's better financial position to develop the next-generation technology.

"Sprint actually has the spectrum that is likely needed for what 5G will be, they have no money."

  • This quote highlights Sprint's valuable spectrum assets for 5G and its financial challenges, suggesting that a merger would be beneficial for network development.

Theme: Future of Internet Connectivity

  • Speculation on the future of home internet connectivity and the potential impact of 5G.
  • The possibility that wired connections may become obsolete with the advent of 5G.
  • The uncertainty of the speed and availability of 5G as a replacement for current wired connections.

"Maybe you can argue that in the not too distant future, comcast and our competitors in this world, because come five g, are you still going to have a wired Internet connection into your home?"

  • This quote poses the question of whether 5G technology will eventually replace wired home internet connections, indicating the potential for significant industry shifts.

Theme: Shareholder Perspectives on the Merger

  • Discussion on the drop in share prices of both companies after the merger announcement.
  • Shareholders' apparent dislike of the deal and the implications for the merger's value.
  • Consideration of regulatory risks and the lack of a large breakup fee as a factor in share price reactions.

"Both companies share prices dropped dramatically, like, neither company's shareholders like this deal."

  • The quote reflects the negative reaction of shareholders to the merger announcement, which may indicate concerns about the merger's success or regulatory challenges.

Theme: Debt and Financial Position of Companies

  • Analysis of the financial positions of Sprint and T-Mobile, including their market caps and debt.
  • Sprint's significant debt compared to its equity value.
  • T-Mobile's better capitalization and lower debt relative to its market cap.

"Sprint's total current liabilities and long term debt is 42 billion and T-Mobile's is 24 billion."

  • This quote compares the financial liabilities of Sprint and T-Mobile, highlighting the difference in their debt levels and financial health.

Theme: Tech Themes and Industry Dynamics

  • The role of 5G in the business rationale for the merger.
  • The historical pattern of business hype around new network technologies before they become widely available.
  • Reflection on the wireless industry as a stable cash flow business and its similarity to subscription business models.

"The 5g network is going to require a lot more antennas. So it's going to be a very expensive build out." "These are Warren Buffett style businesses, meaning that, yes, there is existential risk to them over like, the multi decade long period where, like, broadcasting went to cable, went to wireless."

  • These quotes discuss the expected infrastructure requirements for 5G and the nature of the wireless industry as a stable, predictable cash flow business, akin to subscription models favored by investors like Warren Buffett.

Theme: Merger Grading and Value Creation

  • Attempt to grade the potential success of the merger if it goes through.
  • Consideration of the merger's ability to create value for shareholders.
  • The merger viewed as a strategic move that would enable better competition with larger rivals.

"100%, this is a great idea and is going to enable these companies to compete with AT and T and Verizon in a way that they couldn't before."

  • This quote expresses strong support for the merger, suggesting that it will significantly enhance the competitive position of the merged entity.

Theme: Political Timing and Regulatory Environment

  • Questioning the timing of the merger in the current political climate.
  • The potential need to act quickly due to market conditions, despite uncertainties with regulatory approval.
  • Speculation on whether waiting for a different administration would have been more favorable.

"This administration is probably going to be the most favorable to something like this."

  • The quote suggests that the current political administration might be more amenable to approving the merger, despite the inherent uncertainties in the regulatory process.

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