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“Sprint’s just jammed between all of these forces with no right to win,” said Jonathan Chaplin, managing partner at New Street Research.
The Slow Decline
Sprint was born out of the thousands of miles of telegraph wire that ran along the Southern Pacific Railroad’s tracks to facilitate train dispatches. The name “Sprint” was an acronym for the system: Southern Pacific Railroad Internal Networking Telecommunications. In the 1970s, the group opened up access to the long-distance calling network for private customers.
“The company has been in declining condition ever since,” Chaplin said. “And they’ve allowed themselves to sink deeper and deeper into a hole that would be hard to get out of at this point.”
The failed merger left Sprint’s balance sheet depleted, so it didn’t have the same kind of cash to invest in improvements to its network as competitors.
Still, a below-average network used to be enough to draw in customers, because Sprint was willing to charge below-average prices. As time went on, though, that became a less appealing offer. These days, people need their phones for everything from banking to paying for the subway, so low prices matter less than having a network that works everywhere, all the time.
“Sprint used the comical tagline: We’re almost as good for less money,” Moffett said. “And almost as good is, for obvious reasons, not a terribly compelling value proposition.”
Moffett says the company has lost money on many of the customers it drew in with steep promotions — they would choose Sprint over competitors when it offered them discounted service, but when it raised their rates to a price that was sustainable for the business, they would switch carriers.
Counting on a merger
Opponents worry the merger will be a bad deal for consumers. Both T-Mobile and Sprint are known for bringing innovative customer benefits to the market, such as unlimited plans and the end of the two-year contract.
“These two companies have been mavericks that have helped to lower prices,” said Gigi Sohn, who served as a senior advisor to former FCC Chairman Tom Wheeler under the Obama Administration. “You go from a four carrier market, where everybody has the incentive to compete, to a three carrier market, where the incentives are to all act in concert.”
“Sprint is unlikely to play a meaningful competitive role as a standalone company in the years to come, and any assessment of the impact its proposed merger will have on competition or the public interest should account for its diminished ability to be an effective competitor absent the transaction,” the filing reads. “Sprint is in a very difficult situation that is only getting worse.”
If the states suing to block the merger win and the deal falls through, analysts say Sprint will likely end up in Chapter 11 bankruptcy court restructuring its assets. The process could help Sprint rid itself of debt and put it in a position to reinvest in its network so it can compete more effectively. But the timing for a potential bankruptcy is not ideal.
“Bankruptcy is a long process …By the time they get out with this lean, mean balance sheet ready to invest, it may be way too late,” Chaplin said. “The rest of the industry is investing, the rest of the industry is getting more competitive, everyone is investing in 5G. It’s the worst possible time a company could go into bankruptcy and not be able to invest in its business.”
Whether or not Sprint will have to face that uncertain future will probably be decided when the states’ suit to block the merger goes to trial, which is expected to begin next month.
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