Verizon Makes Enough Cash In One Year to Buy Sprint and T-Mobile
I was digging into some numbers yesterday and noticed something that I find remarkable.
Last year, Verizon generated just shy of $40 billion dollars in operating cash flow. (Operating cash flow is revenue minus the costs of running the business, including all sales costs, all employee costs, and all R&D.)
Forty Billion, with a B.
Now look at T-Mobile and Sprint. T-Mobile’s market capitalization is $30B. Sprint dead-cat bounced this month, but just last month it was worth $10B.
So Verizon could buy T-Mobile and Sprint with one year of cash flow.
AT&T isn’t far behind, at $36B in operating cash flow. They’d need 13 months to generate enough cash to wipe out their competition. (Recently they tried to do just that.)
Competition in US cellular markets is an illusion. Sprint exists because its foreign owner is keeping it alive. T-Mobile exists today because of the DOJ.
What maintains the AT&T/Verizon duopoly? Spectrum Licenses.
AT&T and Verizon simply have better spectrum. The FCC granted 800 MHz spectrum to their predecessors, the Bell Companies, in the 1980’s. Sprint and T-Mobile have spectrum licenses mostly closer to 2 GHz.
As a rule of thumb, signals near 2 GHz travel half as far as 800 MHz cellular signals. Since area-covered is (π * range^2), Sprint and T-Mobile need 6 times as many towers as AT&T and Verizon to get the same network coverage. That’s a 600% cost disadvantage out of the gate.
And the effect is self-reinforcing. Verizon would be the first to point out that they reinvested $30B into their network last year. But it’s precisely that ability to massively reinvest in network quality that gives Verizon such an unassailable lead over their competition. Their network really is better.
So if you’re hoping T-Mobile’s uncarrier strategy and fantastically foul-mouthed CEO will lead them to crush Verizon, I’m sorry to report that you’re going to be waiting a long long time.
Verizon and AT&T will always have the best networks.
And, without a major shift in the FCC’s spectrum licensing policy, they will continue to have all the profits.
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(At Beep, we build long-range networks on delicious, unlicensed 900MHz spectrum. Sadly, our networks don’t do phones — they’re for other things.)
