T-Mobile is Complaining that Lopsided FCC Spectrum Auctions Will Hinder Their Growth

[dgstorm]

T-Mobile's numbers last year were nothing short of phenomenal. Not only did they crush records for customer growth in multiple market metrics, but they also really put the "fear" into AT&T and maybe Verizon a little bit too. Here's a quote with more detailed statistics:

To be exact, it added 8.3 million new customers over the year, including a million "postpaid," clients in the last quarter of 2014. The Uncarrier chalked that success up to its tweaked Simple Choice plans, saying that 89 percent of all postpaid customers are now on them. It also added 1.2 million prepaid clients over the year, all of which resulted in 19 percent more revenue and a net profit of $5.6 billion in 2014.

Despite T-Mobile's fantastic competitive results, John Legere recently complained about the state of Spectrum in the industry in the US. In fact, he lambasted the FCC's rules for creating an imbalance that could end T-Mobile's winning streak. Legere's issue is the way that the FCC offers spectrum to the highest bidder without regard to making it available to smaller competitors who can't afford the massive prices. This basically leads to a "poker-style" scenario, where the player with the most chips can control the table, only in the wireless mobile world, there's no way for any of the smaller players to get lucky and "win the pot" in order to compete effectively against the big dogs.

Here's another quote which shares Legere's complaint in more detail,

That prompted Legere to blast the FCC's rules, saying that a large chunk of spectrum should be reserved for smaller carriers in the next auction. Specifically, he said that half of it should be made available to competitors of AT&T and Verizon, since they already control 73 percent of low-band spectrum. He added that the auction should happen as soon as possible to prevent the two giants from building up a war chest. Despite that, T-Mobile purchased $2.5 billion worth of 700Mhz LTE spectrum from Verizon last year, and plans to "rapidly" deploy it by year's end.

What do you guys think of his perspective?

Source: Engadget

 

[kodiak799]

Figure out how to actually make money and then maybe you can be a competitive bidder.

 

[supermandroid]

Figure out how to actually make money and then maybe you can be a competitive bidder.

which resulted in 19 percent more revenue and a net profit of $5.6 billion in 2014

It sounds like he's doing just that.

 

[Jonny Kansas]

I'm torn about how to feel on this one.

In the first place, Verizon has just come out and said that they don't need to worry about any more spectrum for quite some time. If this holds true, that's one less big fish to have to fight for your dinner.

On the other hand, I've always been a fan of the underdog and really liked being on T-mobile when I had them, even if I couldn't get 3G in my area back then. They kinda make a valid point. In a way, the FCC holding an auction for this spectrum is just setting up the big dogs for a monopoly on spectrum. Kinda defeats the entire idea of fair competition. I don't see it as a matter of T-mobile needing to figure out how to make money. They obviously made decent money last year, but even as their revenues grow, the other guys aren't losing profit at a rate that will allow them to catch up, even if they're taking customers directly from those other guys.

 

[furbearingmammal]

There are ways to run an auction, like setting limits on how much any one company can purchase, to eliminate that fear, but that last auction was actually a surprise -- Dish Network bought a lot of spectrum. AT&T put themselves deeply in debt to buy the spectrum they bought, too.

We shall see how all this plays out.

 

[bsweetness]

Figure out how to actually make money and then maybe you can be a competitive bidder.

They're making money, but at the end of the day, your network will make or break whether you are able to gain customers and make money in a sustainable way. T-Mobile has made great first steps towards increasing the number of customers they have through pricing and incentives, but now if they want that growth to continue, they have to improve their network. I'd love to hop over to T-Mobile, but their network is incredibly poor or virtually nonexistent in many of the areas I'm in. They won't gain me as a customer until they can address that.

And that's where what Legere is talking about comes in - they haven't been able to compete in spectrum auctions because Verizon and AT&T can always outbid them. Not being able to purchase some of the additional spectrum auctioned off hinders T-Mobile's ability to improve their network in substantial ways and in turn their ability to grow in a sustainable way.

 

[kodiak799]

It sounds like he's doing just that.

My mistake - TMo made a "whopping" $250M profit last year (you quoted EBITDA,which is before depreciation of capital investment which is sort of, you know, relevant to the discussion here).

As for that $5.4B in EBITDA you quoted, consider VZ paid a $7.2B dividend to its shareholders last year. Verizon's dividend yield dwarfs TMo's profit margin.

 

[kodiak799]

And that's where what Legere is talking about comes in - they haven't been able to compete in spectrum auctions because Verizon and AT&T can always outbid them.

You get what you pay for. It's not just about customers or revenues T-Mo has heavily discounted its services, which is where the cash flow for buying spectrum would come from.

TMo could always tap the capital markets to raise money to buy spectrum they need. What Legere is really crying about is that the spectrum prices don't mesh with their aggressive pricing/customer acquisition strategy - they can't pay those prices for spectrum given what they're charging customers. That's the nuts and bolts of it - what he's really asking for here is corporate welfare.

 

[supermandroid]

My mistake - TMo made a "whopping" $250M profit last year (you quoted EBITDA,which is before depreciation of capital investment which is sort of, you know, relevant to the discussion here).

As for that $5.4B in EBITDA you quoted, consider VZ paid a $7.2B dividend to its shareholders last year. Verizon's dividend yield dwarfs TMo's profit margin.

You're correct, however, their net $247M last year in comparison to their previous billion dollar losses are going to show that their investments will pay off and help them compete in an ever growing duopoly.

You get what you pay for. It's not just about customers or revenues T-Mo has heavily discounted its services, which is where the cash flow for buying spectrum would come from.

TMo could always tap the capital markets to raise money to buy spectrum they need. What Legere is really crying about is that the spectrum prices don't mesh with their aggressive pricing/customer acquisition strategy - they can't pay those prices for spectrum given what they're charging customers. That's the nuts and bolts of it - what he's really asking for here is corporate welfare.

Perhaps the prices don't mesh, but this is about "shaking up the industry" and taking down the duopoly. "The squeaky wheel gets the grease," and unless the John Legeres of the world talk to the right people, Verizon and AT&T will continue to deliver less services with increasing subscription costs. This doesn't seem like corporate welfare to me at all.

 

[kodiak799]

Perhaps the prices don't mesh, but this is about "shaking up the industry" and taking down the duopoly. "The squeaky wheel gets the grease," and unless the John Legeres of the world talk to the right people, Verizon and AT&T will continue to deliver less services with increasing subscription costs. This doesn't seem like corporate welfare to me at all.

Sure it is. What he wants to do is charge below market rates and be given a discount for spectrum because his business model doesn't generate the cash to pay market prices for spectrum. Crystal clear what he's really saying is he wants his growth strategy to be subsidized.

It's not coincidence that VZW has the best network and charges more and invests more. Their customers are paying for that spectrum and service it brings. TMo's don't. That's a choice consumers have, but apparently not the choice Legere wants to ultimately offer. Legere's choices are to raise prices or beg for a handout. He's choosing the latter.

 

[dgstorm]

Sure it is. What he wants to do is charge below market rates and be given a discount for spectrum because his business model doesn't generate the cash to pay market prices for spectrum. Crystal clear what he's really saying is he wants his growth strategy to be subsidized.

It's not coincidence that VZW has the best network and charges more and invests more. Their customers are paying for that spectrum and service it brings. TMo's don't. That's a choice consumers have, but apparently not the choice Legere wants to ultimately offer. Legere's choices are to raise prices or beg for a handout. He's choosing the latter.

You make it sound so black & white, but the reality is that the world is far more grey than the image you are presenting. I completely disagree with your assessment. He isn't asking for a handout or corporate welfare, he simply is asking for a level playing field from a government run organization. Your comment of "Figure out a way to make money and then maybe you can be a competitive bidder," is a bit short-sighted.

Companies like T-Mobile and Sprint are in the position of not being able to provide the same level of network capability as Verizon and AT&T, simply because they get outbid for spectrum by the duopoly. If they can't get better spectrum, they can't upgrade their network to be able to make more money. This vicious cycle results in a downward spiral and "catch-22" in which the smaller competitor never has a chance to catch up and make more money to compete.

In the world you are presenting, Verizon and AT&T are the only companies left standing because they cannibalized all of the others. In the end, that isn't a world I would like to see. Companies would run rough-shod over consumers because there would be no one to stop them. Consumers would be paying exorbitant prices and the service would get worse and worse, just like with TWC and Comcast. They are a perfect example of how fat, bloated and exploitive a company will become if left to run on their own devices without hindrance.

Capitalism may be one of the big "religions" of the US economic world, but if left completely unrestrained it leads to corruption and exploitation of employees and consumers. There must be balance. Too much regulation stifles growth and innovation. Too little regulation also stifles growth and innovation. It's not a philosophy or a perspective or an opinion. It's simply a fact borne out by history time and time again.

 

[kinfolk248]

It should be known that Verizon did NOT earn their way into the #1 spot, rather they literally bought the market, as in buying smaller and emerging markets...

 

[Ollie]

They were supposed to let the smaller telcos run away with this auction. Seems like the big dogs stuffed enough money in the right pockets to prevent that. Once again.

If you can't gain spectrum you cannot advance your network.

Edit: Ok so it is next year that they will reserve some of the 600 spectrum for smaller carriers although it looks like it will still be skewed in the Big Twos favor.

 

[mountainbikermark]

Verizon and AT&T are board members of the 4th branch of government along with TW and Comcast. It is what it is.

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[kodiak799]

\I completely disagree with your assessment. He isn't asking for a handout or corporate welfare, he simply is asking for a level playing field from a government run organization.

Again, he is tying to gain market share with discount services and wondering why he can't compete for spectrum prices. Hate VZW all you want, they invest.

There's no spin or gray area...he's asking for a govt handout. Access to capital markets is available, but they're looking at his ROI. He can't compete because his model doesn't price that. Absolute fact and the bottom line.