How Iliad bid for T-Mobile disturb US telecom market and Sprint especially?

Several telecom analysts believe that the low-priced bid by Iliad for T-Mobile US has the potential to disturb the American telecom market.

Telecom analyst firm Strategy Analytics believes the bid will ultimately fail though Deutsche Telekom, the parent of T-Mobile US, wants to exit from America. However, the bid represents a wake-up call for all the carriers in the increasingly saturated market.

Susan Welsh de Grimaldo, director, Wireless Operator Strategies said: “While T-Mobile’s UnCarrier strategy has elevated its market position, its Q2 performance trailed AT&T’s and its transformation has been more about offering customer choice and flexibility rather than lower prices.

Xavier Niel to disturb

Iliad founder Xavier Niel has already made his presence in both France and Israel telecom markets by offering competitive pricing plans.

The telecom industry believes that Iliad’s Free influenced key developments in the French market. The French market saw 29 percent decline in service revenue and 19 percent decline in EBITDA since its launch. If Iliad is successful in convincing T-Mobile US and the telecom regulator FCC, American wireless market may see competitive wireless pricing plans.

Strategy Analytics Wireless Operator Strategies (WOS) service report called Iliad Bids to Escalate US Market Disruption with T-Mobile Offer said Iliad’s Xavier Niel is an investor in Israel’s Golan Telecom, who’s aggressive mobile launch two years’ ago has had a dramatic impact on the market.

Iliad’s Free strategy is all about the price. Pushing multi-play bundles would be an obvious response for Verizon and AT&T to the Free approach, a strategy which has enjoyed some success in France, but that is currently not an option for Sprint.

Wall Street Journal chart on wireless market

Can Sprint keep quite?

Sprint cannot keep quite because it is still the number three wireless operator. If Iliad acquires T-Mobile, the life of Sprint will become tough.

The price difference between the bids of Sprint and Iliad is not too significant. For instance, this week French carrier Iliad said it wants 56.6 percent stake in T-Mobile U.S. for $15 billion in cash or $33 per share.

Earlier, Japanese telecom giant SoftBank announced its plans to buy over a 50 percent stake in T-Mobile for $16 billion. Iliad is unlikely to increase the bid price, say analysts. However, America is an important market for Iliad because Europe is a saturated market.

Sprint, partly owned by Softbank, will be facing the music since it will not be in a position to increase the wireless market share competing with both AT&T and Verizon Wireless. Sprint wants to grow in America through acquisitions and T-Mobile is on its radar.

Analysts say FCC will not have any problem if Iliad is going to acquire T-Mobile. But FCC may put spanner if a merger between T-Mobile and Sprint takes shape. This is primarily because FCC wants to protect the U.S. consumers. FCC is not supporting the industry since a merger between T-Mobile and Sprint would help them in reducing the cost of Capex and become more profitable.

Phil Kendall, executive director, Wireless Operator Strategies, said: “A successful Iliad bid would force the operators to move away from battles based on network coverage, speed, and pricing, and focus on effective marketing strategies built on segmentation.”

Baburajan K
[email protected]