U.S. telecom companies have been battling fiercely for customers for the last few years, starting price wars and mocking each other in advertisements. If only they were more like their friendlier -- and more profitable -- peers in Canada, they might be in better financial shape.
One analyst thinks the industry could achieve that goal if Sprint and T-Mobile tie the knot.
The four big wireless carriers are fighting for market share, as Sprint and T-Mobile continue to undercut AT&T and Verizon with cheaper plans. But the wireless industry might have more pricing power in a world where there were only three carriers, according to Barclays analyst Amir Rozwadowski.
Analysts have been talking about a Sprint/T-Mobile merger for some time, and Sprint’s disappointing earnings results last week got the conversation going again. “Management indicated that additional industry consolidation may be needed in order to more effectively compete with the big two,” meaning AT&T and Verizon, Rozwadowski wrote in a research report Monday.
Just look at Canada, he noted. There are only three carriers up north, and they each bring in higher average revenue per user than all the U.S. carriers, have greater margins than all but Verizon, and tend to fetch higher valuations than their U.S. counterparts.
“If the U.S. market was to evolve in a similar manner post consolidation, we could see increased pricing power accrue to the carriers and therefore a re-rating of the sector,” Rozwadowski wrote. That means investors would consider paying a higher price for companies in the wireless industry.
Big Picture: If Sprint and T-Mobile were to merge, the U.S. wireless market would look more like Canada’s. There, wireless companies bring in more money per user and are viewed more favorably by investors.