So the DOJ has decided to file suit to block the proposed merger of AT&T and T-Mobile. I have already laid out the arguments as to the positives, negatives, and why the mergers must go through. But apparently, the DOJ did not use my reasoning as to why to block the merger, instead focusing on archaic thinking that we are seeing a new AT&T being formed in front of us. And Sprint has been more than a cheerleader in this effort, basically asking DOJ to file the suit because they would be hurt by a larger AT&T. But things aren’t what they appear, especially when it comes to Sprint.
It’s time for someone to say it: Sprint is stuck in 3rd place, not because of AT&T and Verizon superiority, but because Sprint has made mistakes after mistakes in deploying their networks. Sprint should have long dominated the cellular markets over the last 15 years, but their inability to be honest and their hesitation in massively deploying game-changing technology has destroyed their initial advantages in being first to the field.
Let’s start in 1996. Sprint Spectrum was established in the DC area, becoming the first cellular carrier to go digital. Sprint Spectrum used the European created standard called GSM in their digital cellular technology. But after an initial buildout, Sprint failed to expand the network to meet the new demands of customers who lived outside cities and far from interstates. Also, there was no way for Sprint Spectrum customers to go back to analog networks, once they left the digital network.
Meanwhile, it appeared that GSM was on it’s way to becoming the first true global communications standard. But a funny thing happened on the way to GSM dominating the US. Qualcomm’s dynamic duo of Irwin Jacobs and Andrew Viterbi convinced the US government that instead of putting all their resources towards the European standard, they should focus on their created digital cellular standard called CDMA. Sprint fell under the allure of this new standard and every metropolitan area created after DC used the CDMA standard. Ultimately, the DC network became a CDMA network as well. Sprint initially wanted to drop all customers who were on the Sprint Spectrum network and force them to rejoin on the Sprint PCS network for a higher charge. However, a lawsuit filed against Sprint eventually forced Sprint to integrate the Sprint Spectrum customers to Sprint PCS for free.
GSM and CDMA are considered 2G cellular technologies. Worldwide, GSM was the accepted standard in the late 1990s, with the US and South Korea as the lone countries who had CDMA in their countries. In the US, many cellular companies adopted CDMA, which was superior to GSM. Only a few companies (Bell South and Omnicron were the main companies) who adopted GSM. When 3G technologies were developed, the GSM consortium adopted the CDMA-type technologies that Viterbi and Jacobs had created. However, while the CDMA consortium were settling on technologies that limited spectrum to force ease of being backwards compatible, GSM decided on a wider BW version of the CDMA-type tech. While this made compatibility initially a challenge, it ultimately made GSM (now known as 3GPP) a better alternative. So the companies that remained with GSM (Bell South ultimately became part of Cingular and later AT&T Wireless, while Omnicron became part of T-Mobile) had an eventually advantage over the CDMA (now 3GPP2 standard) companies (such as Bell Atlantic-later Verizon, MetroPCS, US Cellular, and Sprint). So Sprint, in choosing CDMA over GSM won in the short term but lost out in the run with a slower CDMA2k and EV-DO technology. Meanwhile, AT&T and T-Mobile had faster 3G technology speeds.
At the same time, Sprint failed to properly work with local government regulators to allow them to build their cellular networks out. They instead tried to sneak their true intentions beside local government. While it initially worked, eventually local governments got tired of Sprint not telling the full story. They talked with other local government and realized Sprint was trying to pull a fast one, unlike AT&T and Verizon, who worked with local government in a more honest fashion.
Meanwhile, 4G technology was being developed and Sprint and a startup companies called Clearwire had begun buying spectrum just above the WiFi RF Spectrum to build the next generation network. Initially the 3GPP2 standards worked on a tech called UMB. But UMB ultimately was not created. The 3GPP technology created a standard called LTE, and many 3GPP2 companies (such as Verizon and Metro PCS) adopted the tech. But IEEE was also interested in developing a 4G tech after the successes of their WiFi tech. They realized that 4G was going to be all about downloading data at high speeds and they had a better grasp on data-centric networks than the voice-centric networks of 3GPP and 3GPP2. So, they created WiFi on steroids, also known as WiMAX. Sprint and Clearwire adopted this standard as their 4G tech, thinking that computers would dominate the technology over cell phone.
But again, a funny thing happened on the way to 4G dominance. Apple created the world’s first smartphone, the iPhone. The iPhone was a game-changer and many realized you didn’t need a laptop to access data at high speed. Those who were going with the LTE technology now had an advantage.
At the same time, while Clearwire was building their network with a pre-WiMAX technology, Sprint was going through internal turmoil. Sprint’s CEO at the time realized that building the WiMAX network out quickly was important, no matter the cost. But Sprint’s Board of Directors and management, led by Dan Hesse, thought the move would bankrupt the company. In the end, Hesse’s forces won. Sprint delayed building the WiMAX network as Hesse became the new CEO. Sprint also sold their spectrum to Clearwire, entering an agreement with the Craig McCaw company that Clearwire would build the WiMAX network and Sprint, Comcast, and other cable companies would share the network. The WiMAX delay was costly. As the network was being slowly developed, a 3GPP tech called HSPA+ was close to matching the speeds that WiMAX was projecting. All the companies that were working with LTE realized that it was cheaper to remain with HSPA+ and wait for LTE technology to mature than to go to WiMAX. So, WiMAX’s advantage was nullified. And as time progressed, WiMAX’s time advantage over LTE was reduced to the point that LTE won the 4G tech battle even before they deployed the first US network. Companies, such as 3GPP stalwarts AT&T and T-Mobile and 3GPP2 converts Verizon and MetroPCS now had the edge. Even Clearwire started working towards converting to LTE.
As for Sprint? Sprint has delayed announcing what they will do for 4G until October. But the answer is obvious. They will convert from WiMAX to LTE and probably try to force their WiMAX customers to pay to join the LTE network—just like they did with Sprint Spectrum. They have entered an LTE agreement with Lightsquared, a company focused on LTE nationwide coverage. And with Clearwire, they will have by far the largest spectrum—even larger than the spectrum a proposed AT&T-T-Mobile company would have. And Sprint is not shy about talking about this advantage, bragging about it at Telcom Conferences. But they feel threatened by a larger AT&T?
Sprint’s lack of vision has cost them dearly over the last 15 years. And while they might have a good relationship with their customers, how long will it last as they have to change course in 4G from WiMAX to LTE? If it wasn’t for Sprint’s flip-flopping back in 1996, they could be dominating the cellular world right now. And their failures now will cost them 15 years into the future. In the end, Sprint’s worst enemy is themselves, not AT&T or Verizon.
And what about a T-Mobile-Sprint merger? When Sprint bought Nextel years ago, they were never able to resolve the tech differences. The merger has been a technology headache. So what do you think would happen if Sprint and T-Mobile merged with all their different cellular techs? In short, the new company would be paralyzed for years trying to resolve the tech difference and would ultimately die, leaving a weaker AT&T, Verizon, and smaller telcos to pick up the spectrum pieces.
As I said, Sprint is their own worst enemy. And unless someone comes in there and cleans up Sprint’s act, Sprint will at best stumble along, even though they should be crushing it in the cellular world. Forget worrying about AT&T and Verizon, and start worrying about doing the right thing.
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