Is the U.S. mobile market anywhere close to stable? Almost certainly not.
T-Mobile US unveiled a new set of initiatives aimed at attracting business customers, and an expanded program to take consumer share from other U.S. mobile carriers, as part of its Uncarrier 9.0 announcement.
Where T-Mobile US had been offering to pay early termination fees for customers who switched, T-Mobile US also now is offering to pay off any remaining phone payments owed as part of device installment payment plans.
Sprint earlier this month launched new programs to encourage switching as well, moving before T-Mobile US to offer reimbursement of early termination fees and remaining payments for device installment plans.
All of that is only the latest examples of profit margin compression in the telecom business, earlier seen in the long haul capacity and long distance voice segments of the business.
With some observers wondering how long the U.S. price and promotion war might moderate, or end, the answer seems to be “not yet,” even if no price war lasts forever.
Under other circumstances, a reasonable expectation might be that we face at least another year of unusual efforts at price disruption, to be followed by a period when the leading contestants have adjusted enough to show they can weather the attack, and the attacker or attackers find they have gained share, but now have to switch to improving profits.
The reason is that, at some point, firms find they must concentrate on profits, and have to scale back profit-losing efforts to add customers and gain market share.
So under other circumstances, one might argue the price war will last as long as T-Mobile US and Sprint believe they can continue to add net new customers every quarter, gaining market share, while tolerating margin compression.
Under other circumstances, another likely predictor of stability is a shift in market structure with a clear number one, a number two that has no easy way to displace the top provider, and a number three provider large enough to sustain itself in that position, with the number four supplier far behind the other three.
The reason for that prediction is that, In a classic oligopolistic market, stability occurs when the market structure features a pattern featuring a top supplier with about 40 percent share; a number two supplier with about 30 percent share and a third supplier with about 15 percent.
We are not too far from that pattern, in one respect.
In terms of revenue share, Verizon in early 2015 has about 39 percent share, while AT&T had 33 percent.
One might argue both Verizon and AT&T will lose much incentive to engage in promotional behavior when AT&T no longer believes it can catch Verizon, and the number three contestant no longer really believes it can catch number two, for example.
The number-three supplier, in terms of revenue, is Sprint, at about 15 percent revenue share. It is almost precisely where one would predict the number-three supplier would be.
The issue is that T-Mobile US has about 12 percent share, and is fighting to grow.
Of late, T-Mobile has been rapidly gaining share, with the intention of supplanting Sprint at the number three position.
The problem is that U.S regulators seem unwilling to allow an acquisition of T-Mobile US by Verizon, AT&T or Sprint. That means only a new contestant could do so. And that means the classic oligopoly structure cannot form.
Among the variables are Dish Network’s need to enter the market or sell its spectrum; Comcast’s expected entry and then any future moves by a large Internet player (Google, Apple or another firm). The point is that the U.S mobile market does not presently resemble a stable oligopoly market, not do the medium term competitive prospects suggest the market will assume such a form.
That means, no matter how long the immediate marketing war lasts, the market will remain unstable, unable to assume a stable market share structure.
Strategically, Comcast is expected to enter the market, at some point.
Dish Network also either must enter the market as an operator, or forfeit the rights to spectrum that presently accounts for as much as 80 percent of its total market value.
And then there are the other contenders, including Google, which it is believed soon will be entering the mobile market, and Apple, a perennial potential actor in the market as well.
Regarding Dish Network’s possible moves, none would seem to reduce the leading suppliers from four to three, which would allow a stable structure to emerge.
Even if Dish simply sells its spectrum (and if regulators allow it to sell to Verizon or AT&T, something that is questionable), there is no net change in the number of suppliers.
In fact, Dish Network might yet actually move ahead and become a service provider, adding one more contestant.
Were Dish to become a wholesale capacity supplier, the number of retail suppliers would not be reduced.
And most observers believe Comcast will enter the market within a couple of years, at the very least. And then there are the “wild card” scenarios, where a firm such as Google or Apple decides to enter the business–either by acquiring one of the top four suppliers or by creating a new retail venture.
The point, one might note, is that no stable structure can emerge until the top three market share spots represent 85 percent market share, with a generalized 40-30-15 pattern.
It is hard to see that happening any time soon. For that reason, the U.S. mobile market is likely to remain unstable, with margin compression a continuing reality.