The recent announcement of a proposed merger between Sprint and T-Mobile – the third and fourth largest wireless carriers in the US – has renewed scrutiny of this segment of the telecommunications (“telco”) industry and the overall impact of sizable corporate mergers on consumers at large.
Wireless providers have been confronted with mounting pressure from within their industry, faced with slowing increases in subscribers – a mere 1.8% YOY increase ending Q4 2017, a 7% YTD decline in stock valuation, continued price wars, and looming costs associated with a 5G network rollout.
Wireless companies have a long history of trying to gain market share and create efficiencies with the acquisition of smaller players to expand their footprint – such as T-Mobile and Metro PCS in 2012. Conversely, AT&T’s ongoing efforts to take over Time Warner showcases a recent trend of portfolio diversification with media content. The latter strategy would allow wireless carriers to entice new, and bind existing customers via exclusive bundling, create new sources of licensing revenue and compete with the likes of Amazon and Netflix, among others.
But attempts at larger scale mergers and acquisitions involving wireless providers have remained elusive – with the exception of AT&T’s acquisition of DirecTV in 2014 for over $48 billion. Proposed mergers between AT&T and T-Mobile in 2011 as well as between Sprint and T-Mobile in 2014 ultimately never moved forward due to expected regulatory barriers. Past and current Administrations have been reluctant to give the green light.
Last November, the Justice Department filed a lawsuit against AT&T to prevent the acquisition – citing concerns over a reduced competitive landscape with potentially negative impacts on consumer choice and pricing. That case is currently pending in court.
Sprint and T-Mobile will face a similar challenge to get their merger approved, especially given the FCC’s 2014 position that having four national carriers was necessary to guarantee sufficient levels of competition.
Both Sprint and T-Mobile have touted the upsides of joining their companies, as a way to provide the public with “the highest capacity network in US history,” lower prices, increased hiring, and better rural coverage. Similarly, AT&T has argued that acquiring Time Warner would spur competition in the media landscape and provide a counterweight to the likes of Facebook, Google, Netflix, and Amazon.
Wireless industry consolidation and expansion efforts into the media content side are here to stay and companies will continue to bear the burden of proof that these efforts are both necessary and in the public’s best interest and/or be equipped to counter claims of violating antitrust laws.
But are they well positioned in these endeavors?
The importance of reputation in the context of mergers and acquisitions
It is well established that companies with higher reputation garner more stakeholder support – including a continued license-to-operate. Reputable businesses are much more likely to be granted the benefit-of-the-doubt in times of crisis or uncertainty, and are more trusted to do the right thing by their customers and the public-at-large.
Do top wireless companies have sufficient reputation capital – and in the right domains – that can support any narrative of positive societal impacts from a merger or acquisition perspective?
To answer this question, we used data from the Reputation Institute’s 2017 and 2018 annual RepTrak® studies, measuring the reputation of hundreds of the largest and most visible companies in the United States – including the wireless industry’s top four providers: AT&T, Sprint, T-Mobile, and Verizon.
Reputational challenges for top wireless providers: AT&T, Sprint, T-Mobile, Verizon
Early 2018, the top four wireless providers’ reputations was weak, at an average of 59.3 pts. with a 9.6 pt. decline vs. 2017. This was in line with the broader telco industry, which had the second to lowest reputation score of all industries measured at 58.3 pts.
While the reputation score shows the emotional connection that the general informed public has with the company, Figure 1 shows the top four wireless providers’ perceived 2018 performance on the seven dimensions of reputation, as well as their relative weight in driving reputation within the telco industry.
Figure 1: Top Wireless Provider 2018 Reputation Dimension Scores, YOY Change, and Telco Industry Weights
What drives reputation for the telco industry? The right-hand side of Figure 1 shows that for the general informed public, the three most important dimensions are Governance followed by Products/Services and Citizenship. In addition – and within the context of winning regulatory approval – it is likely that Workplace/Workforce considerations may also play a more critical role for decision-makers within the FCC.
The left-hand side of Figure 1 illustrates that top wireless providers have the lowest perceived performance and the steepest YOY drop on the most critical dimension of Governance – the degree with which they show fairness, openness, and ethical behavior in doing business.
These low scores are especially concerning from a regulatory perspective, as they directly speak to the companies’ credibility in doing right by their customers and following through with any promised benefits associated with the merger or acquisition. Consequently, only a very low percentage (33%) of respondents perceive top wireless providers as being genuine in what they say or stand for.
The second- and third-lowest scores are in Citizenship and Workplace – which are also likely to be closely scrutinized by regulatory bodies. A closer analysis of attributes underlying these two dimensions shows that the public does not believe that the top 4 (a) care for the health and well-being of their employees or reward them fairly and (b) fall short on contributing to society, supporting good causes and protecting the environment.
Low perceived performance in these two domains is likely to put more public pressure on regulators when assessing the societal benefits of any consolidation or take-over.
What is the likelihood that the newly merged company will engage in mass layoffs or make meaningful societal contributions? While T-Mobile and Sprint have touted the 5G network roll-out as a crucial benefit to customers, history indicates that past failed mergers in the Wireless Industry did not seem to have slowed the deployment of faster networks, including that of 4G.
Interestingly, across all measured performance attributes, “Is generally the first company to go to market with new products/services” gets the lowest rating at an average of 54.1 pts., reflecting a general lack of confidence in wireless companies’ ability for fast development and implementation of new services – such as 5G or expansion into rural areas.
From a consumer perspective, one of the biggest arguments against merger and acquisitions has been that of rising prices due to decreased competition. The latter brings up the bigger question of which interest is going to be most likely served – that of companies and shareholders, or the public at large. Perhaps the most telling insight from our analyses is that the top 4’s highest rating is being a profitable company, whereas the lowest Products/Services rating is offering products and services that are a good value for the money.
The general informed public simply does not believe that wireless providers have consumer interests in mind – and only one in five believe that wireless providers share their values and beliefs.
How have low and declining reputation ratings translated into public support? Figure 2 highlights the key supportive behaviors related to license-to-operate. It shows a significant decline across all supportive behaviors – with only about a third of the general informed public expressing willingness to trust top wireless companies to do the right thing or give them the benefit-of-the-doubt.
Figure 2: Top 4 Wireless Companies – Percent of Strong Supporters – 2018 vs 2017
Build your reputation capital to maximize your chances for success
Our analysis of the top four wireless providers clearly shows an industry sector that is increasingly challenged from a reputation perspective. The public’s harsh assessment of their performance makes it very hard for these companies to provide a positive, trustworthy, and genuine narrative to support their case for a merger (T-Mobile and Sprint) or acquisition (AT&T and Time Warner).
Given the lack of existing trust, regulators are and will continue to exercise the utmost caution and oversight – and either continue to prevent major mergers and acquisitions or put stringent safeguards in place to ensure that companies follow through on their promises, as illustrated by AT&T’s takeover of DirecTV.
While reputation may be a key factor in overcoming antitrust challenges and convincing stakeholders that a merger/acquisition is both necessary and beneficial, our findings highlight strategies that all companies can leverage to ultimately garner support and a competitive advantage:
Understand your reputation and how it impacts support among key stakeholders. A keen understanding of your reputation – and derived support – among different stakeholder groups (consumers, investors, regulators) will help you assess your goodwill capital and support your business case.
Know what drives your reputation. Performance in different key areas of your business (Workplace, Governance, Products/Services) may matter differently depending on your industry. Focusing on the right areas is the most efficient way to build your reputation capital.
Showcase your performance in key content areas. Companies who leverage their CEO in communicating their achievements – past and future – in key content areas are more successful in building their reputation. To achieve full impact, it is also critical to leverage multiple channels (paid, company-owned, social) and communicate in a genuine, transparent and personally relevant way.
Sven Klingemann, Ph.D.
Global Research Manager