Say what you will about Donald Trump, but the real estate mogul-turned-reality-TV-star-turned-president-elect firmly positioned himself as the pro-business candidate throughout the 2016 election. While Trump's proposed reduction of corporate taxes from 35% to 15% would benefit a wide range of companies throughout many industries, there are several other ways that the incoming administration could benefit Un-carrier T-Mobile (NASDAQ:TMUS). CFO Braxton Carter spoke at the UBS 44th Annual Global Media and Communications Conference with telecom analyst John Hodulik earlier today, outlining a couple of them.
Specifically, T-Mobile could potentially benefit from relaxed net neutrality rules as well as a favorable antitrust regulatory environment.
Net neutrality is a party pooper
The Un-carrier has been a pioneer of the practice of zero-rating, where certain mobile services don't count against data caps. The company has drawn plenty of criticism over the practice, with critics arguing that offerings like Binge On undermine net neutrality. T-Mobile and its outspoken CEO John Legere continue to dismiss these criticisms despite the validity of the underlying concerns. There's no doubt that companies that participate in Binge On have significant advantages over those that don't, and consumers will undoubtedly utilize those services more if mobile access is effectively free.
The only saving grace is that T-Mobile does not own or operate any of the video or music services that get favorable treatment, which is why any concerns around Binge On pale in comparison to AT&T's (NYSE:T) proposed acquisition of Time Warner (NYSE:TWX). Ma Bell's brand-new DIRECTV Now is exactly the worst-case scenario, where AT&T owns a zero-rated service that will compete with other services. Just imagine if AT&T offered HBO Now as zero-rated.
Last year, FCC Chairman Tom Wheeler passed the Open Internet Order, which established a wide set of rules to promote net neutrality. The Open Internet Order was a huge win for net neutrality advocates, after a decade of debate. The key tenets of the order are no blocking access, no throttling, and no paid prioritization. The order relies heavily on Title II of the Communications Act and Section 706 of the Telecommunications Act of 1996. While Trump has yet to name an FCC chairman, members of his transition team are vocal critics of net neutrality, considering it a form of regulation. Here's the relevant exchange:
Hodulik: Just one more on the regulatory side. The -- it looks like, from the people that have entered the administration or at least part of the transition, Title II might be reversed or might be on the path to being reversed. If that were the case, would that make -- would that change? You guys have had a lot of flexibility with Binge On in the past anyway. But would it change the dynamic at all for the wireless industry or for T-Mobile specifically?
Carter: Yeah, I definitely think it would. What it would do is provide the opportunity for significant innovation and differentiation. And again, it's all highly controversial. We'll see ultimately what happens. Some of this is a jurisdictional -- does the FCC really have jurisdiction over regulating what's happening on the internet? And you read everything that's out there. I mean, a lot of people are suggesting that it could potentially be overturned. It doesn't mean other agencies in other capacities, where there won't be some regulation, some rule-making. But you could do some very interesting things.
And but then, John, unlike what AT&T is doing on zero-rating their own proprietary owned content, [Binge On] was open to everybody. That's the way we were highly confident that we complied with all aspects of regulation. And then the whole opt-out functionality, if you don't really like it, you don't want to spend, then totally opt out. We were very careful with the way that we threaded that needle and we're very happy with the way that it turned out. But with Title II [potentially] being overturned, there are a lot of really interesting things that you could potentially do. But we'll see what happens. It's going to be an interesting year next year.
Any potential weakening of net neutrality under Trump would further empower T-Mobile's zero-rated offerings.
A Sprint merger could be on the table...again
Sprint (NYSE:S) had seriously considered merging with T-Mobile back in 2014, although no formal offer was made because regulators made it very clear that they would strongly oppose such a deal. In the years since, T-Mobile has overtaken Sprint to become the No. 3 domestic carrier, and in no uncertain terms Softbank Chairman and CEO Masayoshi Son recently said the original plan was to merge the two companies to better compete with AT&T and Verizon.
Trump may have bashed the proposed AT&T and Time Warner deal on the campaign trail, in part due to CNN's coverage of the Trump campaign (the channel is owned by Time Warner), but AT&T is still confident about the deal. It doesn't appear that a Trump administration will oppose M&A activity, again in line with a broader stance on lighter regulation. Here's another dialogue:
Carter: And finally, I think that it's hard to imagine that there's not going to be more openness to consolidation. And not that -- I mean, we're going to have new agency heads, we're going to have new bureau chiefs. But fundamentally, a lot of the lifers, the career people and these large governmental agencies are the same people year in and year out. And how much does that change, we'll see. But overall, I think much more of an openness for consolidation, which, given the changes that are coming. I really do think you're going to see a lot of evolution and a lot of excitement in that space over the next several years.
Hodulik: Do you think things -- I mean, I guess it's going to depend to a certain extent on who ends up filling those seats. But do you think a consolidation from four players to three players is back on the table?
Carter: Well, I think that it's too early to tell. But I do think that the point I made earlier that we'll sit back and just chuckle that there would only be four players in this marketplace. When you look at some of the changes that are happening, and let me just look at what the cable guys are doing now. They're really dipping their tail in wireless because they understand what's coming. They understand what's going to happen with their embedded base.
This doesn't suggest a Sprint merger is anywhere near on the horizon, but one could theoretically be back on the table if the regulatory environment is more favorable.