Acquired - Season 2, Episode 8: T-Mobile / Sprint

Episode Date: May 21, 2018

If you thought the telecom business was boring, think again! Acquired brings you an episode packed with more drama than an entire season of Game of Thrones. Starting with a death in the family, we follow a tale of fortunes lost and rebuilt, bitter battles between rivals who once worked for each other, and at the center of it all, a lesson in the power of stable cashflow businesses. This is one call you don’t want to drop!Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Links: Seattle Times’ infographic on Bellevue’s wireless company historyJohn Legere at CES 2013Carve Outs:Ben: Andrew Chen on the Intercom podcastDavid: The 996 Podcast from Zara & Hans at GGV Capital

The reinvention of John Ledger, of John Ledger. Like John Legend. Yeah. Welcome to Season 2, Episode 8 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we'll be diving into the recently announced, or should I say proposed, but not regulator approved Sprint T-Mobile merger. David, you're laughing. I'm laughing. Who knows what's real these days?

This may be yet another episode where we cover an acquisition, much like the Broadcom-Qualcomm merger, that did not actually happen. And so only time will tell, but now seems like a really fun time to dive into the topic, hear the crazy stories of both of these companies dating back over a century, and dig into the genesis of where most of the technology that we use today really, really came together here in the Northwest and specifically in Bellevue, Washington. Well, we'll have to dive in. David, don't give me your answer now. Wait till grading. But

are we going from four carriers to three or from two carriers to three uh well we'll have to wait for that uh but it's funny in our last episode in the powerpoint episode we were you know joking that they're like in the 1980s there were like 11 people who worked in technology uh and who who knew that there actually was a related industry that had even fewer people working in it? It turns out that telecom and the wireless industry in the 80s and 90s had like six people working in it. And as you alluded to, Ben, almost all of them were in Bellevue, Washington. It's true.

Well, listeners, if this is your first episode and you like it, or if this is your 50th episode and you've been with us for a long time we would love a review on apple podcasts uh really appreciate any any time you you could give to uh doing that helps us promote the show to get great guests and to uh justify the increasing amount of research that david and i seem to be uh obsessing over episode by episode if you are new to the show you can check out our slack at acquired.fm. Join the 1,300 of us that are talking about any tech news, really, but big mergers, acquisitions, IPOs, major landmark events that are happening between big corporate entities. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So

only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know, from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control. Yep. With ServiceNow, AI agents proactively solve challenges from IT to

HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. All right, without any further ado, David, do you want to dive into the history and facts of these behemoth, concocted, merged, unmerged, and twisted companies? Well, how long do you have, Ben?

Yeah, listeners, we're only a couple minutes in right now. But you know, the final episode of length, we don't, I suspect it ends up being long. Well, let's see. Let's see how fast we can get through this. Well, like so many of our stories on this show, this one, the story of the modern wireless telecom industry and how it came to be, starts also in Silicon Valley on the Stanford campus. Unlike many of the other stories, though, it doesn't stay there for long. So let's go back to 1969 on the Stanford campus. And there's an undergrad there named Craig McCaw. And Craig is from a fairly wealthy family in Washington State. His father, Elroy McCaw, has been a successful entrepreneur in

radio and television broadcasting kind of throughout the Northwest and had been early in local radio stations, local TV stations, and then just had started at this time to get into the very, very nascent cable television business, which was just emerging in the late 60s, early 70s, and then would obviously grow throughout the 80s, 90s, 2000s. But unfortunately, tragedy strikes very, very sadly, and Craig loses his father. Elroy dies suddenly of a stroke in 1969. While Craig is, he's the oldest of four brothers. And he's still an undergrad at Stanford, way too early to lose one's father for all the all the children. But Elroy passes away. And it turns out that the company, even though the family was very successful,

the company was very successful, they had a lot of debt on the company as many of these types of broadcasting companies do. And it wasn't structured very well. And they had to, when Elroy passed away, they had to basically pay off all this debt. And so it triggered really disaster for the company and the family. They had to sell everything. They had to sell the family's house. The family had a yacht. They had to sell the yacht. They had to sell all the pieces of the business, except one tiny little bit of the cable assets, which again, this was like cable TV was like non existent in this time, but a very, very small cable company, division of the company in Centralia, Washington, that had somewhere between two and 4000 subscribers, that was all that was left

of basically all of the family's assets and so craig he's the oldest of the brothers he's he's still an undergrad at stanford i think this is the next year probably 1970 uh he's he's a senior while he's a senior during while going to school he takes over running the company to do something and kind of turn the family's fortunes around and slowly and he focuses on the cable business. And slowly, he builds it into a kind of major cable empire over the next 10 to 15 years. And so by the early to mid 1980s, the company was then called Macaw Cable Vision. It was the 20th largest cable pay TV provider in all the United States. It was very successful. And Craig's running it, and he's still very young.

And then something else happens in the early 80s. The advent of wireless cellular phone technology, analog cell phone technology is invented. And to make these calls work, this is the days people envision this being used as car phones for wealthy businessmen. To make the technology work, this is the days like people envision this being used as car phones for like wealthy businessmen. To make the technology work, though, you need to have wireless spectrum rights to operate the cell services over. And so the FCC, they try a bunch of things to allocate the spectrum

throughout the country and get entrepreneurs to build cell phone businesses, they end up landing on holding a lottery. So they literally, they hold a lottery, you file an application to win the rights to a spectrum license in a given city or geography. And then they hold a lottery to see who wins it. It's certainly fair, David. It's fair in some sense. And Craig, you know, finds out about this, it's much discussed. And he sort of sees the parallels between the growing cable industry that he's been a part of over the last 10 years, and what the cell phone wireless industry could be, and sees this as kind of a land grab. So he applies for the lottery in a whole bunch of geographies throughout the country.

He wins some of them. And others, there are lots of plumbers that are applying and accountants, just random people are applying to win these spectrum licenses. It reminds me of the.com grab. Totally. It's like a.com domain name grab, except there are far fewer spectrum licenses

than there are.com names out there. After the lotteries are held, Craig then goes out and he buys a lot of the licenses from the winners and ends up with basically a giant amount of real estate of spectrum real estate throughout the country. He says, okay, well, I'm going to build a cellular telephone company alongside the cable company. He uses debt, once again, on the cable company he uses debt once again on the cable company to finance building out this wireless telephone network ends up calling it macaw cellular uh and he's kind of first to the game before any you know before at&t before what was then mci uh sprint all

of the large wired telephone landline carriers get into the business macaw cellular is uh is the biggest cell cell phone business out there, or cellular network business. And David, looking into this, the company Lynn Broadcasting comes up. Do you know how that fits in here? Lynn Broadcasting, I know a little bit. So there still was, again, all these businesses are all related. There's TV broadcasting. So these are like your local ABC, NBC, CBS stations that are literally broadcasting from antennas in cities. Then there's cable TV, pay TV. So that's where you're getting the, you know, in these days it wasn't ESPN yet, or, you know, the pay TV

channels, separate channels, and then sell, sell business. So McCaw had, had gotten also back into the TV broadcasting business that, that his father was in. And so they acquired Lynn Broadcasting, which is a major broadcaster, owned a whole bunch of local TV stations throughout the US. It was a big purchase, and it was, I think, heavily debt financed to make it happen. $3.4 billion purchase. And I believe that Lynn operated, or maybe still operates, a bunch of the local TV stations in New York City. So they were one of the biggest local broadcasters in the country. There's a great New York Times piece from 1990 called Craig McCaw's High Risk Phone Bet.

Listeners, if you've never checked out this thing, the New York Times has this amazing tool called the Times Machine, where they basically scan all of their old newspapers before they were digital and then present them as digital articles in the archives the same way you'd be reading any other web-based New York Times article. And they actually show you, here's the place in the New York Times business section where this occurred, and they highlighted it. It's super cool that this is on the internet. And there's a great line in this piece talking about the purchase of Lynn Broadcasting, the gamble to go and build out a cellular telephone network. And they say, essentially, Craig McCaw is betting that the public will want cellular phones. Today, about 1.5% of the population uses car phones or portable phones. The hope is that figure will rise to 14% in just a decade.

This was 1990? 1990. Oh my gosh 14 i would assume it had to be higher than 14 by 2000 i mean we haven't seen like i had a cell phone in 2000 yeah it was probably probably dramatically higher but it is interesting how you wouldn't have forecasted that the majority of computing or personal computing would happen another decade later on that same form factor on those same data networks. But, you know, people thought of it as car phones. I mean, I remember when I was growing up, my parents were lawyers and they had car phones in their car.

Like it was essentially a cell phone, but it was wired, hardwired into the car. That's what people thought it was. They didn't see cell phones, just like they didn't see smartphones that it would all become yeah totally crazy so i should have mentioned earlier i don't think i did as all this was happening mccaw in the beginning days mccaw graduated from stanford undergrad and then moved back up to washington and ended up settling in bellevue and that's why Bellevue, Washington, just across Lake Washington from Seattle is the at least US if not world headquarters of the cellular phone and wireless industry, which we'll dive back into. So 1986 comes along and the cellular business is growing

so much that McCaw ends up selling off the cable business entirely for $790 million in 1986. So 15, 17 years later, after the family being completely destitute, they sell off the cable business for $790 million in 1986. That's pretty good. They focus solely on the cellular business, keep growing that over the next couple of years. And then four years after Ben, that article that you read in the New York Times in 1994, they end up selling the whole

company, the cellular business to AT&T, the old legacy telephone company for $12.6 billion. Again, this is 1994. That's a lot of money. The company gets renamed AT&T Wireless. It becomes AT&T's wireless division that barely existed before then, which is just crazy. Ultimately, about 10 years later, in the early 2000s and 2004, AT&T Wireless merges with a company called Singular. Of course, remember Singular. I'm sure many listeners do here in the US. The company keeps the AT&T Wireless name and moves to Singular's headquarters, which are in Dallas, Texas. And so that's why AT&T is in Dallas instead of in Bellevue now. But the core of it all came from Bellevue. 1994 Macaw cellular trivia fact. David, what else from the acquired episodes that we have done

was related to Macaw cellular and happened in 1994 oh my gosh that's a tough question i should know this of course it was it was a a gentleman who is angel investing oh yes of course of course how could we forget so instrumental to everything about acquired tom allberg tom allberg so tom was an executive at McCaw Cellular and was doing a lot with cellular data. And that was the reason he was introduced to Jeff Bezos when Tom started to do some angel investing, because the internet sounded very similar to cellular data to whoever introduced them and decided Tom would be the right person to talk to. Oh my gosh. I can't believe I missed that connection. Like literally Amazon comes out of

this. Yeah. I mean, Bezos would have been successful, I'm sure, regardless. But certainly Madrona and thus acquired is a direct offshoot of all of this. Tom, of course, being, you know, one of the one of the founders of Madrona a few years later. So back to Craig and McCaw after this transaction. I mean, Craig is now one of the wealthiest people in the world up there at this point in time with with Bill Gates, you know, also in the Seattle area. But he's not done. He's still quite young. He's not done and he's not done with the telecom industry. The sale to AT&T was all in stock. So Craig is now one of the largest shareholders of AT&T, this huge 100-year-long company. But he doesn't join the board because he doesn't want to have any conflicts because he

wants to get back into the business, into telecom business and start competing with them right away all over again so he starts building a stake uh an equity stake in a company called next hell i suspect many listeners remember from the uh late 90s early 2000s days the next hell direct connect walkie-talkie on your cell phone oh yeah craig gets involved in nextel starts buying up shares uh by 1995 just a year later he is uh controls the majority of the equity in the company is the controlling shareholder uh nextel was not doing very well at this point in time he completely turns them around you know they end up introducing direct connect they become grow hugely become much larger they end up then he sells uh nextel in his second transaction to an old legacy telephone company in 2005 10 years later to sprint he sells nextel for 35 billion

dollars sprint becomes sprint nextel and that is the core of sprint's wireless business uh so thus from one guy from craig mccaw comes both atT and Sprint that we know and probably don't love today. Yeah, but David, that transaction happens in 2005. I was going to do your transition for you. Something happens a year before 2005. In 2004, Craig McCaw does one more thing. He's still not done. Exactly.

He's still not done. He does one more thing. He's like the Steve Jobs of telecom, really. One more thing. He's still not done. Exactly. He's still not done. He does one more thing. He's like the Steve Jobs of telecom, really. One more thing. In 2004, he starts a company called Clearwire. And Craig is starting to see, I don't know that he necessarily sees smartphones coming in the iPhone, but he does see that data over cellular telephone networks is going to be a big thing.

Smartphones exist. There's Palm. cellular telephone networks is going to be a big thing smartphones exist there's palm there's you know microsoft uh windows mobile or whatever they called it back in the day blackberry all those things uh so he founds clearwire and clearwire is essentially a wireless company but instead of focusing on voice it focuses on data so they end up doing in in november 2008 they do a huge deal with sprint uh who just a couple years earlier craig had sold next l2 and sprint buys half of the company and clearwire essentially becomes the data part of sprint's network what would become their lte network at the time it was using a technology called ymax which, which we're not even going to go

down that rabbit hole in the interest of time and our sanity. Yeah, it is worth noting for listeners, we're already in alphabet soup of sort of companies and companies that are acronyms and mergers and acquisitions and spinouts. We're covering like 10% of the sort of the depth of what happens here in these corporate histories. We're going to sort of touch lightly on AT&T's breakup by the Department of Justice and the baby bills and all that. But the amount of company smashing and reassembling from different pieces over literally a century here, we just don't have time in the episode to do it all. It's like a particle accelerator. They're literally, these companies are smashing at high speeds into one another.

That's how I picture it too. But I have two small, real fun notes before we wrap up on the McCall portion of the episode here. One, Craig finally does sort of rest his pen after Clearwire has not started any further telecom companies. But he does pretty well through all this he he currently holds the record for the most expensive car ever purchased in 2012 at an auction he bought a 1962 ferrari 250 gto for over 38 million lest you think all of this is just boring telecom stuff there is a lot of money to be made in these industries and we should we should say too in addition to 38 million dollars you know historic sports cars the mccaw family is

also one of the most incredibly philanthropic incredible families you know mccaw hall in seattle tons and tons of charitable organizations i think much like bill gates their legacy as a family will actually, there'll be room for more for their philanthropic efforts than for the incredible industrial, the value they created in industry. Basically every arts organization in Seattle

has the McCaw family to thank for their patronage as well as so many other organizations in Seattle and throughout the country and the world. The other really fun note, listeners may know that I was involved at Madrona in starting a company called Rover.com. Rover is now a very successful marketplace. In many ways, it led to lots of great things for many people in the Seattle tech scene. And for me, it's a big part of starting Wave and our focus on marketplaces. Rover originally was not called Rover. It was originally called a place for a place for rover it was that is still i

believe still the the official name incorporation name of the company i know i i signed the incorporation documents back in the day when we first started it for a place for rover we we wanted a good domain name we wanted to get the rover.com domain name and so we were like this was super early days we were searching around like you know okay like wait wait who has it like doing who is lookups all this stuff it turned out that the rover.com domain name was owned by clearwire because clearwire had had a product that they they introduced and then canceled called the rover and this was like a hockey puck sized device that was essentially a wi-fi hotspot this was like one of the first wi-fi hotspots uh and again

clearwire was like a cellular data company and they were like introducing this idea of cellular data so this product called the rover and they somehow acquired the domain name rover.com they were selling it they had canceled the product so So this is 2011, summer of 2011, when we're starting Rover, Rover, the company, and they had canceled the product. So they're just sitting on this domain name. It turned out that one of our partners at the time at Madrona was Brian McAndrews, who was the CEO, had been the CEO of Aquantive, which was Microsoft's largest acquisition before Skype and then LinkedIn. And Brian was a partner with us at Madrona. And he was on the board of clearwire and and knew craig mccall really well and and john stanton who's going

to come into this story in a minute and so we said to brian hey like you're on the board can you like you know talk to the company see if we can buy it from them for you whoever in it administers that domain like see if you can get there i know you've got this like parked domain name that the company isn't using somewhere in the it department you've got board member coming in we ended up getting the deal done we bought the we bought the domain name i believe we actually leased it first and then with an option to buy and then and then we bought the rover.com domain name and and thus one of the world's great marketplaces was born out of out of macaw Cellular comes Rover. So many things, so many things.

So listeners, I'm going to guess where David is about to go. And there's going to just start to be a lot of companies involved here. And for folks that haven't heard a lot of these companies before, a really helpful thing to do if you're interested is go to the Seattle Times article called T-Mobile Sprint Deal Would Extend Northwest Long Wireless Rain by Rachel Lerman. Great piece.

And there's an amazing infographic by Mark Nolan. It basically has how all of these companies are related to each other, the spin outs, the people behind them, the years that they were, that each of the transactions occurred. If you are sort of sitting there on your phone and you want to tap into the show notes and check it out, could be sort of helpful in visualizing. It's certainly helpful as we sit here doing research to keep ourselves straight. Indeed, indeed. So to pick back up the story, and again, we apologize for all these companies. Hopefully the graphic will help keep it straight and we'll try and be as straightforward as possible here. I would argue the second best spin out and thing to come out of the mccaw cellular days besides

rover of course being the first amazon being third amazon being third yeah for sure uh it turns out when they were starting the cellular division of mccaw there were two other people who were pretty instrumental in that besides Craig McCaw. One was a guy named John Stanton. And John was then a recent graduate from Harvard Business School. And he became the first employee on the cellular side of the company. And he eventually became the COO of McCaw Cellular. And the other person that that uh ended up being instrumental

what came next uh was theresa gillespie terry she goes by terry terry gillespie uh she was an svp at macaw and was the the company's controller she had been a public accountant before that the two of them they do two important things one they get married that's i don't know which they would say is more important of that the other thing thing they do is they start T-Mobile. It wasn't, of course, called T-Mobile at the time. Not directly. But T-Mobile, the T-Mobile we know and love that we are talking about in this episode, John Legere, the Uncarrier, it's John and Terry who started that.

T-Mobile USA. T-Mobile USA. Yes, not Deutsche Telekom. But we will get into all that. Okay, we're going back to the late 80s, early 90s. John and Terry, I don't know if they were married yet, but they're at McCaw Cellular. Terry's on the finance side. John is the COO of the cellular business. And John had joined in 1982. And the spin out we're about to talk about happened in 1994. So a good 12-year span of being there at Macaw for John's family. Actually, 92 it started. There are too many companies to keep track of.

But leading up to 1992 and a couple years before, John started realizing, so the focus of Macaw was urban areas. Again, cell phones were car phones at this point in time who used car phones it was like business people cities urban environments um these were not like out in the countryside so there were all these spectrum licenses that you know my car owned some of them but a lot of them were just ignored out in rural america and john kind of had the vision that like hey this might this wireless thing it might become like an even bigger industry someday and maybe everybody will use this and so he had started

buying up these licenses these spectrum licenses in rural parts of the country uh starting in in rural washington i believe he decided to leave mccaw cellular again this is like an enormous company like people thought he was crazy at the time like he and terry uh career suicide to go from like the leading wireless company in the world to you know working in in the boonies essentially they they're acquiring these licenses so they start a company they call it pacific northwest cellular they're rolling up all these regional markets they end up in 1992 acquiring another regional cellular company called General Cellular Corporation. They team up with Hellman and Friedman, the big private equity firm based in San Francisco, to co-purchase it. And then a couple years later, then in 1994,

they merge Pacific Northwest Cellular and General Cellular into a company, they call it Western Wireless. At this point in time time they're offering service to 19 western states under the brand cellular one i don't know if that rings any bells for anyone cellular one telephone uh in rural areas and at this point in time they've started to get some spectrum assets in urban areas as well in cities and they call that part of the service uh voice stream wireless a couple years later in, they take the company public. Then a couple years after that, 1999, VoiceStream, the urban, the city-focused service, has actually been growing a lot. They spin that off into a separate public company in 1999.

Two years later, 2001, Deutsche Telekom comes in, the big German german telephone company wired and wireless operator and they buy voice stream for 35 billion dollars and rename it t-mobile usa and thus that is how t-mobile is born and think about this like this is you know again just to recap mccaw cellular is is sold in what was it 1990 94 for $12.6 billion. So, you know, a lot of money. Not that much longer, 2001, so what's that, seven years later, the protege at McCaw, you know, John Stanton and his wife Terry, they have created this crazy thing, this rural operator,

turned it into VoiceStream. They sell that for $ 35 billion dollars to deutsche telecom and it becomes t-mobile they actually retain western wireless the cellular one the rural company that can end up getting acquired a couple years later by all tell for six billion dollars all tell ends up getting split up and getting acquired by mostly by verizon uh small parts of it by at&t and is a big part of the verizon network now so like like, so we, we, we now have complete coverage. We now have John Stanton's starting Western wireless selling to all tell, which becomes parts of Verizon.

We have McCall cellular itself, uh, becoming, getting what became AT&T wireless next to hell becoming sprint next to hell becoming sprint. Um, and then lastly, voice stream becoming T-Mobile. We have one more event here,

one more merger yet to cover that will be the real bulk of this episode. But that is how we've gotten to where we are today. Well, I don't know if it'll be the bulk. I mean, all this backstory is, I hope listeners, you've enjoyed it. It's so fun. And it's fun for us being from Seattle and knowing a bunch of these people and all the

people around it. So John and Terry, they do continue in the wireless industry. They start a company called Trilogy, which had owned many international wireless assets. And then these days, it's mostly they've turned it into a venture investing firm based in Seattle. They also own the Seattle Mariners today. They do. They do. Incredible. And they are supportive and amazing investors in PSL and some of our companies too. Yep. So it all comes all comes back home. Okay, let's fast forward

a little bit. The industry basically operates at steady state, you know, from our point of view, there are like 57 mergers that and acquisitions that happen that we're not even like i can't even keep track of all of them but basically this is the state of play you have at&t and verizon which are the two largest carriers in the u.s you have uh sprint uh which was nextel um is the third largest and then you have the new t-mobile formerly voice stream owned by deutsche telecom that is the fourth largest carrier in the u.s at this point and sort of uh of any of those the one that's actually breaking the steady state and is sort of doing all sorts of amazing disruptive things to steal share pretty much exclusively from oh not yet from sprint but well they're

stealing they're stealing um you know some share they're doing some stuff but but actually uh it's kind of sad i mean they're owned by this like super conservative german and german telecom company you know the first decade really from the voice stream acquisition uh through the first decade of t-mobile usa is like yeah it's like, okay. But we fast forward. March 2011, AT&T announces a deal that they're going to buy T-Mobile USA. Deutsche Telekom's like, all right, this hasn't worked out quite as we thought. We didn't become the dominant carrier in the US. Let's cut our losses. They're going to sell T-Mobile to AT&T for $39 billion. So $4 billion more than they paid for it in 2001.

But at least they're going to get out of the game, cut their losses. And this is going to reunite, essentially, the McCaw and Stanton and Gillespie branches of the Bellevue-Seattle telecom empires. It's all going to be reunited under one company. It's going to be by far the largest wireless carrier in the US. And that was its downfall because the US government and the antitrust regulators were like, nope. They're like, wait, AT&T is going to become

the most dominant telephone provider to all of the US. We've heard this story before. We've heard this story before. We don't like it. Despite Bell Labs and everything great that came out of that. No, the government says no. It doesn't actually end up getting rejected by, they don't go so far as to actually block the deal,

but the companies realize it's not going to happen. They call off the merger. They indicate that it would be a bad idea for you guys to stop doing the paperwork. Yeah, good idea to stop doing the paperwork. So December 2011, T-Mobile and AT&T call off the merger. And T-Mobile is in a serious serious bind now so the deal fell through they're distant fourth place behind sprint when and like way way behind 18th year verizon the company is like flatlined it basically things suck morale is terrible

so 2012 this was december 2011 they call off the merger. 2012, they do two things. First, they merge with Metro PCS, which was I think the fifth or sixth place carrier in the US. So that gives them a little bit more scale, a little bit more coverage. Because remember, coverage is super important. At this point, national coverage is really important. People use their smartphones. We're in the smartphone era. Everywhere, all the time, they travel. If you only get data in your home city and not when you're traveling, that sucks. And I think MetroPCS unlocked a new addressable market for them in terms of market segment, because it was the pay-as-you-go, it was the lower cost carrier. They could get their

infrastructure and coverage, and then also a new segment of people that were able to use the broader merged infrastructure also yep yep totally and we're not even going to get i'm not going to go anywhere near cellular standards we talked about that on the qualcomm broadcast episode listeners if you care you can go somewhere else it's important technically but but we're not even gonna go there okay metro p. Metro PCS was a public company. As a result of the merger, the Metro PCS shareholders own 26% of the combined entity. So Deutsche Telekom now owns, what's that, 74% of the company. And then 26% is publicly traded on the U.S. stock markets. Okay, that's one.

The other thing they do is they bring in a new CEO to turn around the company after this disastrous falling through of the merger. And they find a really boring, non-polarizing, run-of-the-mill CEO. Yes. Yes, that was the plan. So they bring on a turnaround expert, a guy who has just sold a company called Global Crossing. We're not going to get into global crossing it's like the most boring wired telecom conference bridge corporate telecom company you can imagine the former the ceo of it had taken over to turn around the company from bankruptcy ended up selling it leading it to an acquisition a three billion dollar acquisition the year before in

2011 so like great this guy turned them around he he saved it, you know, went from zero to 3 billion. Hopefully we can do the same. Let's bring him on, see what he can do here. This is a guy who before global crossing, he had been an executive in the telecom industry at AT&T for almost 20 years. He'd also worked at Dell. So he had a little bit of, you know, you could argue device, you know, sensibility at that point in in time this was like relatively early days of smartphone time you know 2012 2013 whatever um great let's bring him in uh what's his name again his name is john john ledger you know whatever some dude telecom guy he's got cool hair he's got he's got long hair he didn't used to have long hair but then yeah i don't know if he had that at the time no he didn't i mean he was like a telecom CEO. He was like totally buttoned up. But then after he led to the exit of Global Crossing, he sort of like didn't know what to do with his life.

He talks about this and he's like, he bought a Ferrari, he grew his hair long, whatever. He comes back in, Deutsche Telekom, again, big German corporate conservative company. I think they're getting like the turnaround CEO here. So John starts as CEO in the fall of 2012 of T-Mobile. And what is the first thing he did? conservative company i think they're getting like the turnaround ceo here so john starts uh as ceo in the fall of 2012 of t-mobile and what is the first thing you do he's from the telecom industry but he doesn't know a lot about wireless he's from the wired corporate wired side of things

um so he's like well i'm gonna learn about what customers think about this company i'm gonna start listening into customer service calls like literally people calling to complain about their cell phone carrier. So he spends the first couple months doing this, and he's just like aghast. He's like, oh my God. I have never heard such vitriol and anger and angst and hatred being spewed from our customers at us about how much they hate us and they hate the industry

and they hate carriers and they hate all this stuff and he's just like whoa what have i got myself into a couple months go by he's doing this it's january 2013 at ces in las vegas and ces is um you know in the u.s there's mobile world congress in barcelona internationally but in the u.s ces is typically at this point in time at least where cell phone both you know android manufacturers and cell phone carriers would launch all their new products and services and whatnot and so john this is going to be his first keynote address as ceo of uh of t-mobile at ces in vegas 2013 so he goes you know they're all scheduled all the t-mobile execs are there it's got this whole thing it's you know you know it's a keynote and uh it's the night before at the hotel suite and john's there and he's talking with the execs or the other senior execs and he's like what should

i wear what should i wear at this uh keynote now now to be fair this is how the story is told today who knows what the reality is uh but uh he's like what should i wear and uh one of the other execs is like well i think you're you know if you want to look cool these days you wear a t-shirt under your suit jacket that's cool right and like okay so they start riffing on that and uh the night goes on and apparently things get a little crazy and john's like oh yeah i'll wear a t-shirt but let's get a hot pink you know t-shirt to go with our corporate colors and i'll uh and let's see if let's go out and let's see if we can get a t-shirt made overnight to put the t-mobile logo on this hot pink t-shirt i'll wear that under my suit things keep going crazy john shows up the

next morning for this keynote not only is he wearing a t-shirt under his suit jacket he's got a suit jacket on he's got his sleeves rolled up he's got a yankees hat on uh and he's got a massive silver chain around his neck and a bunch of like braid bracelets on his wrist and like uh and so he shows up that we'll link to video of this for the keynote in the show notes this is amazing so there are all these other t-mobile like senior execs you know they're in their like super button-up suits a bunch of them are european they came from germany all this stuff. And John's there, and he looks like, I don't know. I don't even know what to... Somebody trying to impersonate 50 Cent.

It's like, what's that? How do you do, fellow children? Yeah, exactly. It's amazing. There's literally this moment. Again, we'll look to it in the video. All the other execs are standing in a circle around him as he's giving his keynote. And I guess like, I don't know, like there are articles about this afterwards. Apparently he goes off script and makes all this up on the spot. Whether this was all planned, we don't know. But the story is. Which at the time feels like heresy. But if you know about the guy now, you're like, well, of course he went off script. Yeah, totally. So he goes off script and he just starts like during his keynote, he just starts like talking about his experience of, you know, being on these customer service calls and listening to how much customers hate the industry.

But instead of talking about how much they hate T-Mobile, he starts talking about how much they hate AT&T. And he's like, takes all these shots at at&t calls their network crap he says there's more truth in online profiles on online dating sites than at&t has on their network maps like it's just crazy and like remember this is the telecom industry people go nuts people like we haven't seen anything this interesting in decades and uh it gets all this press and people like wow t-mobile mavericks they're breaking the rules like uh and ledger totally embraces it he basically goes like full-on performance art over the next couple years um he gets on twitter he starts like you know an instagram there's like his instagram is kind of amazing to follow aside from his like at&t lambasting there's like you know an instagram there's like his instagram is kind of amazing to follow

aside from his like at&t lambasting there's like you know every sunday he's like here's me grocery shopping and cooking with the fam like he's like an intensely personal yep he does a live show a facebook live show every sunday uh i think it's called slow cooking on sundays where he's like cooking and he's talking about whatever and he's talking about T-Mobile. He does selfies all the time. He like curses all the time. So there were lots of people I'm sure have been wondering sort of how do you pronounce the guy's name? Is it Legare? Is it Ledger? He had a tweet a while ago that is, I know there's been some questions about it. It's pronounced quote Ledger as in AT&T is about to jump off the ledge or his whole persona now is like we know you

hate at&t and verizon and like we are your other answer and i'm just going to be so obnoxious about that they rebrand t-mobile as the un-carrier because they're unlike every any other carry out there legend he's like getting into fights on twitter with donald trump like it's amazing he has so he has 5.7 million twitter followers now randall stevenson who's the ceo of at&t has 123 twitter followers and has never tweeted and you look at randall stevenson he's like the telecom exec you would expect and now there's all this like controversy apparently they like colluded with the trump administration and mich Cohen and all this stuff. It's just ridiculous. And all this time, Ledger's just like, F you guys, shouting from the rooftops. The strategy around Ledger has become a corporate strategy where

I'll get promoted tweets, not from T-Mobile about switching, but promoting John's personal account and just tweets that he's made. I mean, it's really become kind of the Elon Musk, Steve Jobs, like cult of personality. I don't know how it is for employees, but that's at least the public perception of the company is that it is the CEO's persona. Yep, totally. It's a complete, it's like an architected strategy at this point.

And Ledger actually talks about it in an interview. This is a quote from him. The strategy behind it, what they decided is the way to win when you're like have no way to win is you declare victory kobayashi maru yeah uh i mean it's basically like he does the donald trump playbook declare victory even though you're obviously like winning at nothing you just declare victory and then you designate an enemy then you attack that enemy and the bigger the enemy the better and that's just

what he did like t-mobile declared victory and it totally works so this was this all begins in january 2013 the company has 19 straight quarters of adding over a million subscribers net new subscribers it quickly passes sprint to become the third largest carrier they're basically like there's this giant like vacuum happening in the industry where subscribers, mostly from Sprint, as you were saying, Ben, but also from AT&T and Verizon, are just getting sucked into T-Mobile over the last couple years. You know, it's been this crazy PR thing with John as the CEO.

It's also, they're putting their money where their mouth is, and they're wildly innovating on their product offering relative to the leaders AT&T and, in order to get it done. And there's lots of people that swear by T-Mobile. They're like, yeah, yeah, yeah, the service is worse. Like when I go out in the mountains or whatever, there's no way I'm making a phone call. But they have all this cool zero rating stuff where Netflix doesn't count against my plan. There's a bunch of plans that have unlimited data that were like way before the AT&T and Verizon ones.

A lot of the ways that AT&T and Verizon plans have gotten better over the last few years are because T-Mobile has pushed the envelope and forced their hand. Honestly, all the credit in the world goes to the US government here because this is why they blocked AT&T buying T-Mobile because they're like,

this would have prevented competition. What does T-Mobile do? They start like competing incredibly fiercely. And it's great for consumers. I mean, five years ago, like it sucked. Like, of course, people hated their cell phone plans. It was so, so crappy. And it's still not good, but it's like way better than it used to be. You're not locked into contracts as much anymore. You have unlimited data plans, like all this stuff. And even though T-Mobile didn't meaningfully steal share from Verizon and AT&T, they did end up making those customers' lives better

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Is that right around the same time that T-Mobile is transforming itself and Ledger is joining. This is late 2012, early 2013. There emerges another figure in the industry here. One we've talked about in this season. And quite a force unto himself that is masa yoshi san and softbank so this is pre-vision fund this is softbank itself and masa through the company remember softbank is the largest mobile carrier in japan and has investments all around the world in uh in mobile carriers They decide they want to enter the US market and they want to buy Sprint. And so they end up getting into a bidding war with Dish

Network, the satellite television provider, because all this is converging. It always has been. It's broadcasting and cable and telephone and wireless. It's all the same. It's all the same business dynamics. They end up winning the bidding war with dish network they buy 78 of sprint uh in july 2013 for 21.6 uh billion and the best part about this this bidding war with dish is that softbank makes the offer to to acquire sprint dish network then announced a higher offer to acquire a sprint next tell at that point which they then decide to retract so that they can focus on buying none other than clear wire which they also retract and then clear wire gets bought by uh sprint as well the drama is just too much i can't handle all the drama i thought telecom was gonna be the most boring thing there's so much drama it's boring i think it's boring because like i just can't

handle this drama like it's too much one quick aside because we would be remiss to cover all this without covering this fun bit of history sprint back before next hell uh when it acquired you know craig mccaw's second act and um and became the wireless company sprint was a landline telephone operator they were third behind i believe third behind at&t of course and the bells being one and then mci and then sprint sprint the landline company started as the brown telephone company in 1899 in abilene kansas eventually became the southern pacific communications corporation they didn't like that name they decided they need a new name so they run an internal naming contest and so they were the

southern pacific communication company and it was actually the southern pacific part of it comes from the fact that they were part of the southern pacific rail like when you think about like that like american history like the south pacific rail you know the or formally known as the southern pacific transportation company they actually there was a judicial decision that made it so that they could start providing long distance telephone service because they had a right of way where their railroads were. So it only made sense that you need an ability to communicate along those lines for you and, you know, for your company to operate. And so they were actually using microwave

communications that were lined up along the side of the railway in order to communicate back and forth between their cities. And so they had this internal communication network that in the early 70s, they decided after this, this execu net to decision, they could actually decide, hey, well, we'll lay fiber optic cables, because we own that land, we have that right of way, or at least if we don't own the land, we have the right to sort of lease it and use it. And so then they were able to actually open up that internal network to other people, which really circumvented the AT&T's monopoly on public telephony and offered this other option as, it's a B2B company, like, hey, corporation, do you want to use this private line that we run between cities that we buried a wire

next to our railroad like thinking about that infrastructure is completely nuts it's totally nuts well so do you want to finish the story about the naming contest i would love to finish the story this is like one of my favorite facts and i've mentioned it to uh friends and some listeners the show like i can't believe this is a thing sprint while a cool word a cool word, is actually an acronym. And the contest that David was referring to, the naming contest for what would be better than Southern SPC or the Southern Pacific Communications Company,

is SPRINT, the Southern Pacific Railroad Internal Network Communications. Internal Network Telecommunications. Telecommunications telecommunications yes gotta get the tea in there unreal well that's where spring comes from okay back to softbank and masa yoshisan they win masa likes to win as we have um seen on this show and uh in all of our daily lives uh uh masa wins not only does he win acquiring a majority of sprint but as ben alluded to dish focused instead on clear wire he beats dish and clear wire too sprint ends up acquiring clear wire as well uh it already owned 50 they

own the rest of it dish walks away empty. Okay, so all this happens in 2013. But then over the next couple of years, Sprint is like a punching bag. Like literally T-Mobile and John Ledger, even though they're focusing, you know, he's focusing his tweets on AT&T, they're just like literally delivering body blows to Sprint. And like Sprint at that point in time was bigger than T-Mobile. Now they are way smaller. T-Mobile is just taking basically all of their customers. Masa, of course, is not oblivious to this.

Late 2013, early 2014, news comes out that, and I think this was probably Masa's plan all along, was get into Sprint, use that as a way to get into the U.S. market, and then roll it up with T-Mobile. News comes out that Sprint and Masa are working on a plan to acquire T-Mobile and merge the two companies. And what year is this, David? This is not now.

This is late 2013, early 2014. Once again, regulators, just like they did with AT&T and T-Mobile, the first time were like, I don't know about that. You might not want to do that. So they abandoned the deal. Which is interesting because they were not the first time were like, I don't know about that. You might not want to do that. So they abandoned the deal. Which is interesting because they were not the first player, not the second player. Like they,

you know, I think they were three and four then maybe three and five. Three, three and four. Sprint was three and T-Mobile was four at this point in time. But remember Sprint, you know, sucked.

They, they were not doing what T-Mobile is doing now, which we'll get into in discussion. They're working on the deal. They abandoned it. Sprint's like, okay, we got to be cool too. We got to be an un-carrier. What can we do?

They're looking around. They're like, we're going to make an investment in a really hip, cool new company. I was hoping you found this. This is going to be mine. Oh, yes. This is the best part of the whole episode. We're going to be so cool.

January 2017, they buy a 33% minority stake in... The hottest, the hottest streaming music company around. Oh, so sad. That's right. You guessed it. As covered on acquired title. Oh, Jay-Z. Yeah. that doesn't work out so well uh so wait david do they still they still own 33 of title right does title exist off

it does it doesn't really yep i think they do i don't know because like presumably if this goes through then like t-mobile owns some of title i would love to see title with you know t-mobile anyway clearly that doesn't work so now that was january 2017 by mid 2017 softback and masa are just like literally you know fist palming well here her face palming uh maybe fist by maybe literally bashing themselves in the head like this is not working sprint sucks how are we gonna you know rationalize all this they're like okay if we can't acquire t-mobile maybe we'll sell sprint to you uh by the way as an aside yeah you can you can stream j-lo featuring dj khalid uh andi B right now on Tidal.

Oh, that actually sounds pretty good. I would like to listen to that. Cardi B is awesome, by the way. Okay, so SoftBank, they're trying to sell, he's like, I'm going to sell Sprint to Deutsche Telekom, to the parent company who still owns 70-some-odd percent of T-Mobile. He says, great, I'm going to sell Sprint to Deutsche Telekom. They can't agree on price get

the deal done finally now uh a couple weeks ago april 29th 2018 they take a new tack clearly john ledger you know the the boring turnaround ceo like he's one he's like the man we just got to have him do this t-mobile and uh sprint are going to they've announced that they're going to merge directly so whereas before it was sprint was going to buy t-mobile then it was softbank was going to sell sprint to deutsche telecom again leaving t-mobile kind of you know they would get merged but all but like nope t-mobile wins uh t-mobile is going to be the combined company it's going to be based in bellevue john ledobile is going to be the combined company. It's going to be based in Bellevue.

John Ledger is going to remain the CEO. I mean, they are essentially taking over Sprint. Deutsche Telekom will have a 42% stake in the combined company. SoftBank will have a 27% stake. The rest will be publicly traded. Masa will be on the board. I love that it's like billed as a merger when it's 9.75 Sprint shares for every one T-Mobile share. No.

Well, I mean, there's shares because of the share price i mean that that share counts don't matter but like clearly t-mobile is is taking over the company here the enterprise value of the deal uh so this includes debt in addition to the equity uh values sprint at 59 billion and146 billion for the combined company, so $87 billion for T-Mobile. And there we have it. As we alluded to in the beginning of the show and talked about throughout, who knows if this is actually going to happen? This is the third time that two of the four major US telecom wireless carriers have tried to merge. The government blocked it the first time with AT&T and T-Mobile, and then was going to the second time when Sprint was going to buy T-Mobile. Why is it going to be different this time is the question.

It was these exact companies and their exact market positions. But it was Sprint acquiring T-Mobile. Different administration. Sure. It was a different administration. I mean, T-Mobile is a majority foreign-owned company. So you have a majority foreign-owned company basically buying another majority foreign-owned company.

So you could make an argument like, well, it's not really an overseas business buying an American business. So it's more like a foreign subsidiary buying another foreign subsidiary. So at least that's not going to set off the alarm bells that an American company being owned by someone overseas, that that sort of transaction would set off.

The company is very confident that this thing is going to happen. And they've released lots and lots of materials. It's actually pretty hilarious if you go and look at their T-Mobile's investor relations site. The press release is completely over the top. For folks who've written a press release, the type of language that you put in there, this is like John Ledger writing a press release.

It's like, here's all the great reasons why this is amazing for everyone, including people looking for jobs. We're going to create so many jobs. Also, our shareholders should be happy because there's economies of scale. And you're like, wait, wait, wait, wait, wait, wait. Say again how this is going to create jobs while you're deduplicating a lot of your infrastructure. It's almost to the point where they're selling so hard that this is good

for everyone in America, no matter what position that you're in, that they may even open themselves to like the risk of people being like wait what this makes no sense well and the headline of the press release the headline is t-mobile and sprint to combine accelerating 5g innovation okay and increasing competition wait what you're literally taking two competitors and you're merging them and then you're saying that's going to increase competition but actually i mean i think where i come out on this why is why would it be different this time i actually think that is the kernel of it which is that the last time it was sprint which sucked buying t-mobile so it's like okay you're gonna go from you know three sucky and one sort of, and now some interesting consumer option

to just three secchi ones. Now you're going from three secchi and one like, you know, oh, really interesting to a bigger, really interesting one. So I think the thesis is like, now we can compete head on with AT&T and Verizon with our un-carrier strategy. Yes.

I don't know. So I, by your logic, here is the explanation from the t-mobile press release this isn't a case of going from four to three companies there are now at least seven or eight big competitors in this converging market and in 5g we'll go from zero to one like we are the only we're going to be the only 5g company that's thin and this like seven or eight big competitors thing it's like well i mean you guys are merging for a reason like it doesn't feel like anyone else is really a competitor other than those two yeah yeah well they're increasing competition because before the merger there were four companies it's going down to three

but they're creating four new competitors out of thin air i was going through this i was trying to figure out like who are the other three or four i think that they're arguing that it's like um to our point earlier in the show that all of these businesses are related that it's like comcast and it's um you know dish network and well direct tv is part of at& now, so they can't claim that. But it's that there's going to be a convergence between television companies and satellite companies and wireless carriers. I don't know. I mean, they're probably right. Where I net out isn't a similar place to where you net out that like this, there's so much cost associated with building and maintaining the infrastructure necessary to be a wireless

quote-unquote telephone provider uh these days that you need to be of a sufficient scale in order to do that and neither t-mobile or sprint are so i buy the argument that we're going from two to three particularly with the 5g build out coming i just think in many ways uh t-mobile may have sold past the close. On the other hand, though, I mean, like you need to sell hard because obviously the government blocked it. But it was a different administration blocked it before. But it is actually. So I want to say a couple more quick things.

So so there is a website. You can go to all for 5G dot com. They've actually set up a public facing website of that's basically a PR campaign to appeal to regulators. For folks who have been making pitch decks for startups, there's kind of an amazing allegory. If you go look at this investor.teammobile.com, creating a robust competition in the 5G era, it's a slide deck that violates all the rules of uh

what you should do to pitch your startup company to vcs but it's very like in true john ledger style it's incredibly direct and very like uh flamboyant about how great they are so like the the first slide of any substance the title is highly compelling combination you get page after page after page of like tons of bullet points, tons of, you actually kind of lose the narrative a little bit in how many advantages this is gonna have for everyone in the world. There's a slide that has two different,

the left side says amazing innovation and it has the logos of Uber, Lyft, Instagram, Snapchat, Tinder, and Venmo. And on the right, has a a headline called global leaders and it has amazon apple netflix microsoft and facebook and what like i'll just leave it at that like it's it's a really fun slide deck to go and look at and that department of justice is why you should approve this merger yeah yeah wow all right anyway that's our section on on risk to why the deal may not get done yeah uh um i don't know if i'm glad or not glad that i'm not a department of justice lawyer

i actually don't know what the right answer is here i don't either i i on the surface and have after spending four or five hours looking into this i i'm for it but like i think it's going to be good for if you take the lens of good for competition good for yeah going from two to three people as customers i'm i'm in on that argument yep yep yeah i think i am too but um well category well actually i want to say one thing before moving out of that's actually more of the acquisition history and facts it's interesting to note that the wireless industry was growing massively from the time when softbank bought sprint until today and softbank bought sprint

they bought 70 percent for what was it 21 billion dollars uh 78 percent yep 21.6 78 percent and and today you know the the enterprise value or i'm sorry the the the market cap or not today but at the day that it was announced was 26.5 billion and i think soft bank lost money yeah despite the fact that that it was a tremendously growing market t-mobile has been taking all of the growth like for a number of years t-mobile was growing at more than 100 of the industry meaning that all of the growth of the industry was uh going to t-mobile i mean some of it was going to other carriers but they were taking so much share from the other carriers that as much as the whole industry grew, T-Mobile grew more.

And most of that was at the cost of Sprint. In acquisition category, I'm trying to remember how we categorize Zillow, Trulia, and Alaska Virgin, because it's in that same category of consolidation. For folks who are new to the show, usually we say people, technology, business line, asset, or other. I guess it's a business line,

but it's the same business line that they have. So it's really, you know, I think it's a business line but it's it's the same business line that they have so it's really you know it's i think it's it's just consolidation to realize economies of scale yeah 100 and the one thing that we haven't touched on yet is there actually is kind of a synergy here where and oh man we need like a buzzer like how many episodes have we made it since i last said synergy i hope a lot but there actually is something that makes a lot of sense here and that's that the unfinalized 5g network spec there's a lot of sort of things that may be 5g so when people are talking about 5g we don't yet quite know what it is and it's

not just adding one more g like it's a very different thing we neither are qualified to nor have the time to go into all the technical things here. But basically, people believe that the 5G network is going to require a lot more antennas. So it's going to be a very expensive build out, you're going to see in some sort of all over cities, that it's going to require a much higher, I believe it's a much higher wavelength. Let me look this up real quick, a much higher frequency spectrum so t-mobile has lots of spectrum in the 600 megahertz range where they operate now um you're going to need a a much higher frequency uh spectrum in order to deploy the 5g networks guess who has that from the clear

wire acquisition it's sprint so sprint actually has craig mccall strikes again that's right the spectrum that is likely needed for what 5g will be they have no money like they're way way way in debt so sprint has no way to do the expensive build out necessary to compete on the spectrum that they actually have the rights to and so t-mobile while still not in like an amazing cash position, is in a much better place than Sprint is to actually build out the network that needs to happen to run the sort of next generation technology. So imagine VR over 5G and these super high bandwidth things. So there is something that makes lots of sense of, hey, you guys, Sprint have this asset, but lots of debt. We're in a decent financial position and

are a growth company. Bring that over here. We'll develop it and then we can really compete. Maybe you can argue that in the not too distant future, Comcast and the like are competitors in this world because like, come 5G, are you still going to have a wired internet connection into your home probably not right it's just more commute like why would you do this is it gonna go the way of the landline right like if all of the you know video content television and faster internet is just why why would you run a wire into your home and have a thing let's just you know have your have your wireless devices right like who needs wi-fi if you get um it depends the speed man i love my

love my gigabit connection oh totally right but what if you get that over wireless yeah and that's the thing i don't i don't know enough about 5g of what that will look like yet um yeah me neither or how far away it is um yeah so yeah totally consolidation uh for the business line i i'm scared of what would have happened otherwise. There's just too much here. There's one thing I want to throw out. Yeah, what would have happened otherwise had this merger not happened? And like 50% chance that it still doesn't.

This is something I want to sort of ask you and pick your investor brain on. After the deal was announced, both companies share prices dropped dramatically. Like no, neither company's shareholders like this deal. And so, you know, that it's interesting that they can announce a merger that's going to have a certain enterprise value that value that, that places a value on sprint at, uh, you know, that's based on their current market cap. Their market cap has dropped as they are working the deal out.

So how does that work? What happens? What does it signal about the shareholders of those companies? Does it mean that they shouldn't do the deal or that they can't do the deal because there's not enough? I don't know. I wonder if it actually doesn't say much about the strategic value of the deal, but more about the regulatory risk.

Like if you're a shareholder in those companies and it's a stock deal, a combination, and since both companies share price drops, I wonder if the thesis that investors have is like there's a huge regulatory risk here. So these companies are going down the path with all this distraction, spending all this money on this merger, and then if it's going to get blocked, it's going to be a total waste, and then like, and then what? And I think I remember reading, I could be wrong here, but I think I remember reading somewhere that there is not a large breakup fee associated with the deal because there was in the past. And that was one of the

reasons why the government was against the deal because they were like, well, clearly you think there's a lot of risk here because you have this huge breakup fee. And I believe there's not this time. And so essentially the value of that breakup fee is what is supposed to guard against this from a shareholder perspective. And if there is no breakup fee, then you're assuming a lot of risk to the deal

not getting done because of regulatory issues. I could be completely wrong on all this, but I think that might be what's going on. I like that hypothesis. And to put some numbers behind it, T-Mobile share price went from $64 before it was announced down to $56. And Sprint's went from the high, high value of $6.50 down to $5.10. and 10 cents so you know what more what matters there is the market cap so current market caps of both companies are are 47 billion dollars for t-mobile and uh um 20 billion dollars for for sprint but um but that doesn't include the debt for either right so right which is which is massive like we should we should also say like it's worth touching on for these companies i did a little

math earlier sprints's total current liabilities and long-term debt is $42 billion and T-Mobile's is $24 billion. T-Mobile's much better capitalized. What did you say their market cap is? $40 something? $47.7. Okay, so $47 billion

market cap equity value versus $20 something billion in debt. Whereas Sprint is probably more debt than equity, right? a billion dollar market cap equity value versus 20 something billion debt whereas sprint is probably what like one less more debt than equity right yes yeah yeah so there you have it well do tech themes yeah let's do it one of them is how much 5g is talked about in the reason for this combination and it's something that's completely it's not locked and it's not fully known what is going to be necessary and it's it's talked about for a business reason for this to happen long before it's going to be fully built out and available for customers and like we've just seen this before with withG, with LTE. It was this nebulous, unclear thing until it wasn't,

and there was always a three- or four-year period where there was business hype around it and reasons why certain carriers were going to be in a better position than other carriers before it was actually a thing. I've been trying to tamp my expectations around what 5G is going to be so far just because I feel like I've seen this movie before. On the other hand, though, like, yeah, I agree. Like there's so much hype is overblown, all this stuff. But like think about our data networks now versus like 2008 or 2010 or 2012.

Like I don't really think about or care when I go off Wi-Fi on my phone and I can still do everything. That was not the case back then, at least in the US. That was not the case. My main tech team is, I was trying to think about like, what is up with this industry and these businesses? And like, people don't pay a lot of attention to it. It's super boring. Hopefully you guys found the episode interesting. We had fun researching at least.

But like, why does does masa care so much about this and like i mean he's as we talked about on the softbank episode like most of his whole career has been in these types of phone wireless businesses or you know hard asset utility like cash flow businesses and then you know telling the stories here of the McCaw family and the Stanton Gillespie's and like, how successful they were as entrepreneurs and how much money they made. What's up with these businesses? And I think that were kind of brought back to me and made me think about is like, they are stable cash flow businesses. Like these are Warren Buffett style businesses, meaning that, yes, there is existential risk to them

over the multi-decade long period where broadcasting went to cable, went to wireless. There is transition that happens. But during those periods, you have customers locked into paying you like $100 to $150 a month. And by customers, we mean like basically every person in America or in the world or whatever geography you're in, like that's a lot of money with very

predictable, stable cash flows. And you can use that to just create enormous businesses. And so I think about like, how can you apply that to the internet and internet business models? Actually, one of our investments that we're making right now at wave is um a form of a subscription type business uh even has marketplace aspects but subscription businesses uh i'm kind of coming around on like how powerful they can be like this is what netflix is this is what you know amazon prime is this like if you know like how much money your customers are going to give you and there's low churn you know in perpetuity you can architect really amazing businesses around them and use it to do lots of things so subscription

businesses perhaps still yet underrated to generalize that to something we've talked about more on the show and and really specifically the soft bank episode stable and predictable cash flows you can do amazing amazing things when you have that in your business. Yep, yep. Well, that's, you know, you're preaching to the Warren Buffett choir there. All right, anything else on tech themes? Not that we haven't already touched. Yeah, same.

Yeah. All right, grading. What are we grading here? Are we grading this deal if it goes through? We're grading this deal if it goes through it's we're grading this deal if it goes through for shareholders of what is it current shareholders of at&t uh oh god current shareholders of t-mobile i think we have to do it for both though because it's a stock deal it's a merger like the yeah but it's deutsche telecom and softbank and public shareholders here are all have uh staking the upside at risk here is there more value when all the dust settles than than existed

before by combining if it goes through yeah i gotta say 100 right like if it goes through now look is this going to create a trillion dollars in value like Next did or Instagram maybe will or something like that? No. If this goes through and goes through the regulators, 100% this is a great idea and is going to enable these companies to compete with AT&T and Verizon in a way that they couldn't before. That's where I come down i can't this may be the first one where it's like just it feels silly to actually kind of arbitrarily pick a pseudo like a grade because it would be a pseudo high but high high variance grade but like you know i i completely agree i think this is the right move for for all shareholders to do this number one it has to clear regulation and then it's an execution challenge from there to to do it well well it really is a merger it's not like there's a winner and a loser

it's like everybody's in the same boat all together right right we decided shares of this new thing are a better idea than each of us having shares in our own thing yeah yeah i don't know what does that make it does that make it an a i mean i don't know i guess it yeah it breaks our scale is what it does it's in a it's in the multiverse. It's in a different physical dimension. What I'd like to do at some point is chart all these, like with the x-axis being episode and the y-axis being A, B, C, D, F, and then have error bars for the variants

that we wish to assign each of those. That would be cool. I don't know, like B b plus a minus with high variance hard to yeah that actually would be really cool any question is if you want to do a create an acquired data visualization on that that would be awesome we'll put it on the site we absolutely would yeah my question is like is this the right time to do this like is should politically like should they have waited for a different administration i mean the issue is if you decide to wait two years and three years or whatever and roll the dice is the market so sufficiently different like the time kind of

has to be now and the question is well i think this administration is probably going to be the most favorable to something like this certainly Certainly more so than a democratic administration, than a democrat administration. Yeah, I don't know. We still live in a democracy, despite outward appearances. This is where we should cut to the next section. Yeah, let's just go to the next section. Okay, that sounds good to me.

Carvelts? Yeah, there was an awesome podcast episode with Andrew Chen of andrew chen.co the amazing growth marketer who formerly was growth at uber and now is a general partner at andreessen horowitz as of about a month ago uh he was on intercom's podcast and intercom has a great podcast on on growth and andrew is kind of the foremost thinker on this and was there at the early days of what is growth hacking and helping to define it and and figure out um that in a large organization you can have a a growth

team that really sits between product and marketing that is really thinking about what are intrinsic things we could do to the product that would make us acquire users better and cheaper and and have sort of that viral growth rather than going and spending on advertising. And he talks a lot about sort of strategies at Dropbox where that was done. The thing people always think about is that, you know, get free space by getting someone to sign up, but how so much more of it actually came from being able to share folders, because that was an intrinsic tweak to the product that made it more inherently viral. and then cites a bunch of different other examples of similar things and what he looks for in B2B companies being able to leverage sort of consumer style network effects both within and outside of companies. The big

overarching point that he's making is that growth marketing is really about frontier technology and being a person who learns how to harness a frontier technology before it all turns into crap. And eventually all acquisition channels turn into crap. And how fast can you figure out what the new frontier tech is and harness that to be able to create something that spreads virally on that, that fits a person's need in a really perfect way. And it's just a really good, it's not long, it's like a half hour or something, but really good framing. Anybody who's listening to this podcast really doesn't care about long, long episodes anyway. But it's a really good, it's a really good framing of what is growth marketing? What should I be looking for in trying to create the next product that grows like

wildfire? And what technologies and platforms do I need to be paying attention to now because none of the old tricks will work anymore and that's the way it's always been it's just a matter of the cycle of one new trick shift to old yeah that's actually a really good point like it is like a law of nature like all all acquisition channels turn into crap at some decay rate you know we talk like spotify you know growing on the back of the facebook network or you know whatever what have you instagram growing on twitter it's ultimately an exploit that's like novel at first and then people get sick of whatever you're doing to them airbnb growing on craigslist uh you know they're so i think about the scooter companies and the bike companies like growing on having your thing

on the sidewalk like yes he actually that's he points that out he's somebody they ask him what's the what's your favorite um onboarding tactic recently and he was like non-software ones like the onboarding tactic of one seeing green bikes everywhere and two seeing people having fun on them every time i pass them like that's the best onboarding ever yeah it's great but it's not going to work forever at a certain point there's going to be so much crap on the sidewalk that cities are going to legislate it out or people are just not going to care anymore sidewalks are going to look like my app screen like my home screen yeah remember home screen uh real estate was like a good tactic for a while and then people like no more apps on my home screen all right my car route also a podcast a whole podcast series

not an episode a podcast itself uh the 996 podcast this is great uh so it's done by zara zhang and uh hans tung at ggv capital uh which is a really really great uh vc firm and investor both in the u.s and china they do cross-border u.s and china and are in some of the largest chinese internet companies early and great companies here in the u.s uh anyway this podcast 996 and they also have a newsletter is by far the best that i have ever seen take on english language take an explanation of what is going on in tech in china and so like if you care about tech today like you've got to care about china whether you operate in china or not like there's just so much innovation over there like a certain point in the last like really in the last year i feel like the pace and like leadership of tech innovation shifted from silicon valley to china or at least it's on par

this is a great podcast for understanding what's going on they have great guests um and i can't recommend it enough i listened to the first episode this morning on uh on your recommendation and uh excited to dig into more. The first episode's with Jerry Yang. So to the extent where you're like, how did that Alibaba deal go down and what was the thinking there and how did that logistically work to have that relationship in China and work with the government? It's a really cool story.

Yeah, really cool. And then they have, they have one of the co-founders of Shami and, um, um, but they talk about all the bike sharing companies and highly recommend if you, uh,

like our, our show, I think you will like theirs, um, equally. Well, I think that's what we got. I think that's it.

If this is your first time listening to an episode and you liked it, you should totally subscribe from your favorite podcast client and we would love a review. If this is your first time listening to an episode and you liked it, you should totally subscribe from your favorite podcast client and we would love a review. That can happen wherever you choose and that is all we have for you. Thanks to the telecom industry for providing a century of insane deals going down

to give us the fodder for this research. Yeah. Thanks to the telecom industry for providing amazon and rover and uh and madrona and uh the acquired podcast so there you go there we go all right have a good one everyone later Thank you.