Season 2, Episode 8 TMobile Sprint

In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with guest speaker John Stanton, explore the tumultuous history and potential future of the U.S. telecom industry, focusing on the proposed merger between Sprint and T-Mobile. They delve into the origins of modern wireless telecom, tracing back to Craig McCaw's pioneering efforts in cellular technology and the subsequent ventures that shaped today's major carriers. The discussion highlights the transformative leadership of T-Mobile's CEO John Legere, whose unorthodox strategies have redefined the company's image and led to significant growth. As the episode unfolds, they examine SoftBank's involvement with Sprint, the regulatory challenges of telecom mergers, and the strategic implications of the Sprint-T-Mobile deal, particularly in the context of 5G development and competition with industry giants AT&T and Verizon.

• Mispronunciation of John Legere's name, likening it to John Legend, the musician.
• Light-hearted exchange indicating a common mistake or a humorous comparison.

Speaker A: The reinvention of John Ledger. Of John Ledger. Speaker B: Like John Legend. Speaker A: Legend. Yeah.

The exchange is a playful start to the podcast, highlighting a mispronunciation of John Legere's name, which is humorously compared to the well-known singer John Legend.

• Hosts Ben Gilbert and David Rosenthal introduce the episode.
• Focus of the episode is the proposed Sprint T-Mobile merger.
• Acknowledgment of the uncertainty surrounding technology acquisitions.

Speaker C: Welcome to season two, episode eight of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. Speaker A: I'm David Rosenthal, and we are your hosts.

This is the opening of the podcast episode, setting the stage for the discussion on the Sprint T-Mobile merger and introducing the hosts.

• Discussion on the proposed but not yet regulator-approved merger.
• Comparison to previous acquisitions that did not materialize, such as Broadcom-Qualcomm.
• Emphasis on the historical context of telecom and wireless industry in Bellevue, Washington.

Speaker C: Today we'll be diving into the recently announced, or should I say proposed but not regulator approved sprint T-Mobile merger. David, you're laughing. Speaker A: I'm laughing. Who knows what's real these days?

The quote underscores the uncertainty and complexity of technology mergers and acquisitions, particularly the Sprint T-Mobile deal, and sets the tone for a deeper historical exploration.

• Mention of the small number of people working in telecom in the 1980s.
• Bellevue, Washington, as a central hub for the industry.
• Reflection on the previous episode about PowerPoint.

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

The quote highlights the surprisingly small size of the telecom and wireless industry workforce in its early days, with Bellevue, Washington, being a key location.

• Request for Apple Podcast reviews to support the show.
• Invitation for new listeners to join the Acquired FM Slack community.
• Mention of the community's size and focus on tech news, mergers, acquisitions, and major corporate events.

Speaker C: If this is your first episode and you like it, or if this is your 50th episode and you've been with us for a long time, we would love a review on Apple Podcasts.

The quote encourages listener engagement and community growth, emphasizing the value of reviews and the podcast's interactive platform, Acquired FM.

• Pilot is a company providing accounting, tax, and bookkeeping services.
• It is the largest startup-focused accounting firm in the US.
• Endorsement by hosts, mentioning backing by Sequoia, Index, Stripe, and Jeff Bezos.

Speaker A: US, which is wild because when we started working with them way back when they were just a startup themselves, and now they're a billion-dollar plus company backed by Sequoia, index, Stripe, and even Jeff Bezos himself.

The quote explains Pilot's growth and success as a startup-focused accounting firm and its notable investors, positioning it as a trusted service provider for listeners' businesses.

• Discussion of Jeff Bezos's axiom about focusing on what improves the product and customer experience.
• Accounting as an example of a necessary but non-core function for startups.
• Pilot's role in handling financial operations, allowing companies to focus on their unique strengths.

Speaker B: Every company needs it. It needs to be done by a professional. You don't want to take any risk of anything going wrong, but at the same time, it has zero impact on your product or customers, things you do uniquely well.

The quote captures the rationale for outsourcing non-core functions like accounting, emphasizing the need for professional handling while allowing companies to concentrate on their core competencies.

• Pilot provides a full suite of financial services, from general ledger to CFO-level investor reporting.
• Highlighting Pilot's experience with thousands of startups, including notable ones like OpenAI and Airtable.
• Offer of a discount to Acquired listeners for Pilot's services.

Speaker A: Pilot both sets up and operates your company's entire financial stack. So finance, accounting, tax, even CFO services like investor reporting from your general ledger all the way up to budgeting and financial sections of board decks.

This quote elaborates on the range of financial services Pilot offers, showcasing their capability to handle complex financial operations for startups and growing companies.

• Intention to explore the history of the modern wireless telecom industry.
• Acknowledgment of the potential length of the episode due to the complexity of the topic.

Speaker C: All right, without any further ado, David, do you want to dive into the history and facts of these behemoth, concocted, merged, unmerged and twisted companies?

The hosts prepare to delve into the intricate history of the telecom industry, acknowledging the entangled nature of the companies involved.

• Craig McCaw's background as an entrepreneur in the broadcasting industry.
• The impact of his father's death on the family's finances and business assets.
• Craig McCaw's success in rebuilding the family's cable business and subsequent ventures into the wireless cellular phone industry.

Speaker A: Well, let's see. Let's see how fast we can get through this. Well, like so many of our stories on this show, this one, the story of the modern wireless telecom industry and how it came to be starts also in Silicon Valley on the Stanford campus.

The quote sets the stage for the story of Craig McCaw and his significant influence on the development of the modern wireless telecom industry, beginning at Stanford University.

• The FCC's lottery system to allocate spectrum licenses for cellular services.
• Craig McCaw's strategic participation in the lottery and acquisition of spectrum licenses.
• The growth of McCaw Cellular as a major player in the early wireless industry.

Speaker A: So 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, like, just random people are applying to win these spectrum licenses.

The quote describes the unconventional method the FCC used to distribute spectrum licenses and how Craig McCaw capitalized on this opportunity to build his cellular business.

• McCaw's acquisition of Lin Broadcasting as a significant expansion into TV broadcasting.
• The heavily debt-financed nature of the purchase and its impact on the cellular telephone network.

Speaker A: Lin Broadcasting, I know a little bit. So there still was, again, all these businesses are all related. There's tv broadcasting. So these are like your local ABC, NBC, CBS stations that are literally broadcasting from antennas in cities.

The quote explains the interconnectedness of various broadcasting and telecom businesses and highlights McCaw's strategic acquisition of Lin Broadcasting.

• The sale of McCaw Cellular to AT&T for $12.6 billion in 1994.
• The renaming of the company to AT&T Wireless and its eventual merger with Singular.
• The relocation of AT&T's headquarters from Bellevue to Dallas, Texas.

Speaker A: They end up selling the whole company, the cellular business, to at and T, the old legacy telephone company, for $12.6 billion. Again, this is 1994. That's a lot of money. The company gets renamed at and T Wireless.

This quote details the significant sale of McCaw Cellular to AT&T, marking a major milestone in the history of the wireless industry and shaping the future of AT&T's wireless division.

• Craig McCaw's involvement in Nextel and its eventual sale to Sprint for $35 billion.
• The founding of Clearwire by McCaw, focusing on wireless data services.
• Clearwire's deal with Sprint and the integration into Sprint's LTE network.
• McCaw's philanthropic contributions to the arts and other organizations.

Speaker A: But he's not done with the telecom industry. The sale to at and T was all in stock. So Craig is now one of the largest shareholders of at T, this huge hundred year long company.

The quote emphasizes Craig McCaw's continued influence in the telecom industry post-sale of McCaw Cellular and his strategic moves that shaped the wireless landscape, as well as his philanthropic efforts.

• The podcast begins with a discussion of one of the first Wi-Fi hotspots, a product called the Rover from Clearwire, a cellular data company.
• Clearwire had acquired the domain name rover.com but canceled the product, leaving the domain unused.
• One of the partners at Madrona Venture Group, Brian McAndrews, had connections with Clearwire's board, including Craig McCaw and John Stanton.
• Through McAndrews' connections, the Rover company was able to lease and then buy the domain rover.com from Clearwire.

"And they were like introducing this idea of cellular data. They had this product called the Rover, and they somehow acquired the domain name, rover.com." "We ended up getting the deal done. We bought the domain name. I believe we actually leased it first with an option to buy, and then we bought the rover.com domain name."

The quote explains the process of acquiring the rover.com domain name, which was instrumental in the creation of one of the world's great marketplaces.

• The podcast discusses the origins of T-Mobile USA, starting with the cellular division of McCaw Cellular.
• John Stanton, a key figure in the story, was the COO of McCaw Cellular and later instrumental in founding T-Mobile USA.
• Teresa "Terry" Gillespie, another significant figure, was the company's controller and also played a crucial role in T-Mobile's creation.
• John and Terry, who got married, began acquiring spectrum licenses in rural America, foreseeing the wireless industry's potential growth.
• They founded Pacific Northwest Cellular and acquired General Cellular Corporation, later merging them into Western Wireless.
• Western Wireless operated under the brand Cellular One in rural areas and VoiceStream Wireless in urban areas.
• VoiceStream Wireless was eventually sold to Deutsche Telecom and rebranded as T-Mobile USA.

"John and Terry who started that... T-Mobile USA, yes." "They start a company. They call it Pacific Northwest Cellular... They end up, in 1992 acquiring another regional cellular company called General Cellular Corporation... They sell that for $35 billion to Deutsche Telecom and it becomes T-Mobile."

These quotes outline the key milestones in the formation of T-Mobile USA, highlighting the strategic moves made by John Stanton and Terry Gillespie.

• The podcast covers various mergers and acquisitions within the wireless industry.
• At one point, AT&T attempted to buy T-Mobile USA, but the deal fell through due to antitrust concerns.
• Post-merger failure, T-Mobile USA was in a difficult position, prompting a merger with MetroPCS and the appointment of a new CEO, John Legere.
• John Legere's unconventional approach and direct engagement with customers via social media revitalized T-Mobile's image as the "uncarrier."
• The podcast emphasizes the importance of national coverage and service quality in the smartphone era.

"We now have John Stanton's starting western wireless selling to Altel, which becomes parts of Verizon." "The company is like flatlined. It basically. Things suck. Morale is terrible." "He's got long hair. He didn't used to have long hair, but then, yeah, I don't know if... He had that at the time."

These quotes illustrate the challenges T-Mobile USA faced and the transformative impact of John Legere's leadership, which turned around the company's fortunes and public perception.

• John Legere's arrival as CEO marked a turning point for T-Mobile USA.
• He began by listening to customer service calls to understand customer dissatisfaction.
• At CES 2013, Legere made a memorable appearance that broke from the traditional corporate image, signaling a new direction for T-Mobile.
• His aggressive and public criticism of competitors, particularly AT&T, and his social media presence garnered significant attention and redefined T-Mobile's brand.
• The podcast discusses Legere's strategy of declaring victory as a way to win in a competitive market, likening it to the Kobayashi Maru scenario from "Star Trek."

"He's like, oh, my God. I have never heard such vitral 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." "He goes off script, and he just starts, like, during this keynote, he just starts talking about his experience, know, being on these customer service calls and listening to how much customers hate the industry."

These quotes capture the essence of John Legere's strategy to connect with customers and position T-Mobile as a disruptive force in the wireless industry, challenging the status quo and reinvigorating the brand's identity.

• T-Mobile experienced significant growth, adding over a million net new subscribers for 19 consecutive quarters.
• This growth led to T-Mobile surpassing Sprint to become the third-largest carrier.
• A large number of subscribers migrated from Sprint, AT&T, and Verizon to T-Mobile.
• T-Mobile's innovative product offerings, such as zero-rating for Netflix and early unlimited data plans, pressured industry leaders to improve their services.

"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."

This quote highlights T-Mobile's rapid growth and its milestone of becoming the third-largest carrier by consistently adding a significant number of new subscribers.

"They have all this cool zero rating stuff where Netflix doesn't count against my plan. There's a bunch of plans that have unlimited data that were, like, way before the AT&T and Verizon ones."

The quote emphasizes T-Mobile's innovative approaches to attract customers, such as zero-rating for popular services like Netflix and introducing unlimited data plans ahead of competitors.

• The US government's decision to block AT&T's acquisition of T-Mobile was pivotal in fostering competition.
• As a result of increased competition, consumers benefited from better service offerings, including the elimination of contracts and the introduction of unlimited data plans.

"Honestly, all the credit in the world goes to the US government here because this is why they blocked AT&T buying T-Mobile, because they're like, this would have prevented competition."

This quote credits the US government for preventing a potential monopoly and thereby encouraging competition, which led to improved consumer choices and services.

• Statsig, a feature management and experimentation platform, is introduced as a new sponsor.
• The platform offers A/B testing, impact visualization on business metrics, and supports data-driven product decisions.
• Statsig is used by various companies, including Notion, Brex, and OpenAI, to manage and test product features, including AI capabilities.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate A/B testing, and see the impact every feature is having on the core business metrics."

This quote describes the core functionality of Statsig, highlighting how it assists product teams in enhancing their development and decision-making processes through experimentation and data analysis.

• Crusoe, a clean compute cloud provider for AI workloads, partners with Nvidia and utilizes stranded energy sources.
• Crusoe's unique approach allows for better performance per dollar and is environmentally beneficial.
• The company's data centers are located at energy sites like oil flares and wind farms, reducing reliance on the traditional energy grid.

"Crusoe's cloud is purpose-built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote outlines Crusoe's business model, which leverages unused energy sources to power data centers, offering a cost-effective and environmentally friendly alternative for AI workloads.

• Softbank, led by Masayoshi Son, entered the US market by acquiring a majority stake in Sprint after a bidding war with Dish Network.
• The acquisition was part of a broader trend of convergence among broadcasting, cable, telephone, and wireless industries.
• Sprint's history is traced back to the Brown Telephone Company, which evolved through various names and business models before becoming a major telecommunication player.

"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."

This quote captures the competitive nature of Softbank's entry into the US market, highlighting the strategic importance of acquiring Sprint to establish a foothold.

• Sprint struggled to compete with T-Mobile's aggressive strategies and suffered significant customer losses.
• Softbank considered merging Sprint with T-Mobile to strengthen its position in the US market.
• Regulatory concerns and changes in administration influenced the merger attempts between Sprint and T-Mobile.

"Sprint is like a punching bag. Like, literally T-Mobile and John Legere, even though they're focusing, he's focusing his tweets on AT&T, they are just like, literally delivering body blows to Sprint."

This quote metaphorically describes Sprint's weakened state in the face of T-Mobile's aggressive competition and market strategies.

"News comes out that Sprint and Masa are working on a plan to acquire T-Mobile and merge the two companies."

The quote reveals the strategic moves by Softbank and Sprint to consider a merger with T-Mobile as a means to consolidate and enhance their market position.

• T-Mobile announced a merger with Sprint, positioning itself as the dominant party with John Legere as CEO.
• The merger aimed to accelerate 5G innovation and claimed to increase competition, despite reducing the number of major carriers.
• The combined company would have an enterprise value of approximately $146 billion, with Deutsche Telekom and Softbank holding significant stakes.

"T-Mobile and Sprint to combine, accelerating 5G innovation. Okay. And increasing competition."

This quote from the press release paradoxically suggests that the merger would increase competition, although it would reduce the number of major carriers, by focusing on the potential for innovation in the 5G space.

"T-Mobile is going to be the combined company. It's going to be based in Bellevue. John Legere is going to remain the CEO."

The quote confirms that T-Mobile will be the leading entity post-merger, with John Legere continuing as CEO, indicating T-Mobile's successful strategy and leadership in the telecom industry.

• The presentation deck is described as direct, flamboyant, and self-congratulatory.
• It features slides with titles like "Highly Compelling Combination" and is filled with numerous bullet points.
• There is a particular slide that contrasts "Amazing Innovation" with "Global Leaders," showcasing logos of various successful companies.

"It's incredibly direct and very flamboyant about how great they are."

The quote describes the tone and style of the presentation, emphasizing its boldness and confidence.

• The speakers discuss the potential risks of a deal not being approved by the Department of Justice.
• They express uncertainty over whether the deal is favorable, with one speaker leaning towards approval based on competition benefits.
• There is a debate about whether being a Department of Justice lawyer in this context is desirable.

"That's our section on risk to why the deal may not get done."

This quote summarizes the section of the presentation that focuses on the potential risks and reasons why a deal might not be completed.

• The wireless industry has seen massive growth, with SoftBank's acquisition of Sprint highlighted.
• Despite the industry's growth, SoftBank's investment in Sprint may not have been profitable.
• T-Mobile has been capturing the industry's growth, often at Sprint's expense.

"SoftBank bought Sprint, they bought 70% for what was it? $21 billion, 78%. Yeah, 21.678 percent."

This quote provides specific details about SoftBank's acquisition of Sprint, including the percentage and financial figures involved.

• The speakers categorize the deal as a consolidation, aiming to realize economies of scale.
• They discuss the potential synergies from combining the companies, particularly regarding the 5G network.
• Sprint's valuable spectrum for 5G is mentioned as a key asset, despite Sprint's financial difficulties.

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

The quote highlights the significant growth of the wireless industry during the period after SoftBank's acquisition of Sprint.

• The speakers discuss the technical and financial challenges of the 5G network build-out.
• They speculate on the future of wireless vs. wired Internet connections in homes.
• The potential for companies like Comcast to become competitors in the 5G era is mentioned.

"The unfinalized 5G network spec... people believe that the 5G network is going to require a lot more antennas."

This quote discusses the evolving specifications and infrastructure requirements of the upcoming 5G network.

• Post-announcement, both companies' share prices dropped, indicating shareholder dissatisfaction.
• The speakers consider the implications of the market reaction and whether it signals that the deal should not proceed.
• They discuss the potential impact of regulatory risk on the deal's valuation and the lack of a large breakup fee.

"After the deal was announced, both companies share prices dropped dramatically."

The quote points out the negative market reaction to the announcement of the deal, which is a concern for the stakeholders involved.

• The financial positions of T-Mobile and Sprint are contrasted, with T-Mobile being better capitalized.
• Sprint's debt is significantly higher than its equity, which is a point of concern.
• The speakers touch on the importance of market cap and debt for both companies.

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

This quote provides specific figures regarding the debt levels of Sprint and T-Mobile, which are critical to understanding their financial health.

• The speakers discuss the hype around 5G and compare it to previous generations of wireless technology.
• They explore the stability and predictability of cash flows in the telecom industry.
• The potential for subscription-based business models in tech is examined.

"How much 5G is talked about in the reason for this combination... it's talked about for a business reason for this to happen long before it's going to be fully built out and available for customers."

The quote reflects on the strategic business discussions surrounding 5G technology and its implications for the telecom industry.

• The speakers attempt to grade the deal, considering the potential value creation for shareholders.
• They acknowledge the deal's high variance and execution challenges post-regulatory approval.
• The concept of grading deals is discussed, with the recognition that it may not fit a traditional scale.

"This may be the first one where it feels silly to actually kind of arbitrarily pick a pseudo, like a grade because it would be a pseudo high but high variance grade."

This quote captures the difficulty in assigning a definitive grade to the deal, given its complexity and uncertain outcome.

• The speakers contemplate whether the current political climate is the right time for the deal.
• They question if waiting for a different administration might have been more strategic.
• The potential for regulatory approval under the current administration is debated.

"Is this the right time to do this politically? Should they have waited for a different administration?"

This quote reflects the strategic consideration of political timing in the context of pursuing a major corporate deal.

• The speakers recommend various podcasts for listeners interested in growth marketing and tech in China.
• They discuss the value of understanding frontier technologies and the lifecycle of acquisition channels.
• The podcasts mentioned provide insights into growth tactics, international business, and tech industry dynamics.

"There was an awesome podcast episode with Andrew Chen of Andrew Chen Co. The amazing growth marketer who formerly was growth at Uber..."

This quote introduces a recommended podcast episode featuring a prominent figure in growth marketing, providing listeners with additional learning resources.