Last week, the Justice Department finally approved the T-Mobile and Sprint merger. The combined company spent more than U.S. $2.7 billion in advertising in 2019 and will certainly take new marketing decisions. This will impact vendors (media, agency, sponsorship and other marketing service providers) who support the telco giant with marketing strategy, planning, and execution. An analysis by Portada’s editorial team: 5 thinks you need to know….
1. T-Mobile and Sprint Merger = One of the Three Telco Juggernauts
After the T-Mobile and Sprint merger, the new company now is officially one of the three U.S. telco giants. The merged entity will manage around 100 million direct customers (excluding wholesale users), around the same level as Verizon (116 million) and AT&T (93 million). Retail store wise , T-Mobile-Sprint has approximately 9,300 stores (Sprint 4,000 and T-Mobile has more than 5,300 stores.)
… Competition (Need for Marketing) Continues to be Huge…
AT&T, Verizon, T-Mobile-Sprint will very likely face a fourth major player: Dish. Part of the reason why the DOJ (Department of Justice) approved the merger is that Dish may be able to join AT&T, Verizon and Sprint as a fourth player, therefore increasing competition (and marketing dollars). The DOJ, in seeking to create a viable fourth wireless carrier, insisted Dish be allowed to sell a 50 percent stake to strategic investors as long as they do not include T-Mobile and Sprint rivals like AT&T, Verizon or cable companies including Comcast, sources explained. As importantly, the DOJ approved the T-Mobile-Sprint merger, because Dish, recently bought Sprint prepaid brands Boost Mobile and Virgin Mobile.
… Currently: US $2.7 Billion in Advertising Expenditures
Both Sprint and T-Mobile spent approximately US $2.7 billion in advertising together in 2019, according to their annual reports. In 2019, T-Mobile U.S. spent approximately US$ 1.6 billion on advertising, while Sprint expenses totaled $1.1 billion, $1.3 billion, and $1.1 billion for each of the years ended March 31, 2019, 2018, and 2017, respectively. (Competitors Verizon and AT&T spent US $ 2.64 billion and US $3.52 billion in advertising last year.)
With US $8.56 billion, Telco was the third largest ad-category after retail and automotive (Statista). The U.S. telecom industry was expected to increase its digital ad spending by 16.2% to $13.45 billion in 2019. (E-Marketer). In 2018, AT&T was the second-largest U.S. advertiser, Verizon the 10th largest with T-Mobile (23) and Sprint (39).
2. Sponsorships: Expansion of Sponsorship Portfolio with Emphasis on Local Properties
Sports and entertainment event sponsorships are another extremely important channel for telco marketers. In 2017, AT&T spent between US $195 and US $200 million in sports and entertainment sponsorships, according to sponsorship.com. Similarly, Verizon spent between US $160 and US $165 million, and T-Mobile between US $50-55 million. Sprint did not make it to the top 50 sponsorship investors in 2017. While Sprint was a 2019 Super Bowl advertiser, it did not advertise in the last Super Bowl two weeks ago. T-Mobile did with its spot promoting its nationwide 5-G network (see below).
Portfolio Expansion with stronger local ties
We expect the combined company to expand its sponsorship portfolio (Major League Baseball, T-Mobile Arena, American Music Awards, etc.) with ties to local properties in new and underperforming markets.
3. Marketing Growth Drivers: 5G, Retention and Enterprise
T-Mobile, unlike Sprint, has excelled at adding new subscribers to its network. Mike Sievert, President and Chief Operating Officer at T-Mobile, said during the company’s Q4 2019 earnings call that T-Mobile not only added a million postpaid phone net adds, leading the industry significantly, but 1.9 million total net customers joined the Un-carrier movement in Q4. “That makes 27 quarters in a row we’ve had more than 1 million total net customer adds per quarter,” Sievert stated.
Where does the combined T-Mobile-Sprint see growth (and the need to allocate marketing dollars) going forward? Here are three areas:
Customer Retention Marketing
North America will reach 313 million mobile subscribers in 2020 or an 84% penetration. With many subscribers owning more than one connected device, the total number of connections will be higher, at 585 million by 2020. With the saturation of the subscriber mobile market, customer retention (and retention marketing) will be crucial for operators P&L. The way customers are retained will become more and more important and will no will no longer be primarily through simply offering telecom services but instead via combining those with non-telecom services and third-party offers.
Growth Driver: Entering the Enterprise Market
T-Mobile share of the enterprise market is below 6%. It’s improved distribution footprint coverage will provide significant opportunity to penetrate the enterprise market. Expect increases in B2B marketing and advertising dollars.
5G: Mobile competes with home broadband
Albeit still developing, customers with a 600 MHz 5G capable device will be able to access T-Mobile’s nationwide 5G network. It will be marketed as a premium service based on increased speeds. This will open opportunities for T-Mobile-Sprint to take on the home broadband (cable) market in 2020.
4. Sprint and T-Mobile Brands: Which brand(s) will survive?
The vast majority of T-Mobile subscribers are served by the main brand: T-Mobile. MetroPCS —now Metro by T-Mobile—, still operates as a secondary prepaid brand. (In 2013 T-Mobile announced an expansion of its newly acquired Metro PCS to 15 markets, some of them heavily populated by Hispanics in Texas and California.)
Sprint brands Boost Mobile and Virgin (both sold to Dish)
Sprint prepaid brands Boost Mobile and Virgin Mobile were sold to satellite TV provider Dish Network to facilitate the acquisition from a DOJ perspective (see above). Dish paid US $$1.4 billion to acquire Sprint’s Boost and Virgin Mobile prepaid services, with a combined total of around 9 milion customers.
The new brand will “lean pink”
It’s is very likely that “T-Mobile” will emerge as the unified overall brand. Already according to the April 29, 2018 merger announcement, it seemed most likely that the combined company will lean pink (per T-Mobile’s branding), given that it will keep the “T-Mobile” name. Like its network, the Sprint brand probably will be folded into T-Mobile’s in coming years.
5. Media Agencies: Consolidation likely. Who Will Win, Who Will Lose?
Sprint: Horizon Media/Droga 5/In-house
In May 2017 Sprint Corp. moved its (at the time) US$700 million media account from Publicis Groupe’s Mediavest Spark to independent media agency Horizon Media, Although it later took some of its media duties in-house. Droga 5 is Sprint’s Agency of Record.
T-Mobile: WPP’s Essence/In-house
Similarly, T-Mobile, took “some key responsibilities” related to its media strategy, search and analytics in-house and formed a new partnership with WPP’s Essence to help.
Consolidation: In-house increase likely with external support
With T-Mobile increasing its in-house capabilities and the company’s overall view of the crucial importance of first party data management and protection, it is likely that T-Mobile will build out its in-house media planning buying capabilities but still lean on an agency partner for expertise and execution support. Will it be Horizon Media, Essence or someone else? Honestly, we don’t know yet…