Season 2, Episode 8: T-Mobile / Sprint

[0] The reinvention of John Ledger, of John Ledger.

[1] Like John Legend.

[2] Yeah.

[3] Welcome to Season 2, Episode 8 of Acquired, the podcast about technology acquisitions and IPOs.

[4] I'm Ben Gilbert.

[5] I'm David Rosenthal.

[6] And we are your hosts.

[7] Today we'll be diving into the recently announced, or should I say, proposed but not regulator -approved, Sprint T -Mobile merger.

[8] David, you're laughing.

[9] I'm laughing.

[10] Who knows what's real these days?

[11] This may be yet another episode where we cover an acquisition much like the Broadcom Qualcomm merger that did not actually happen.

[12] And so only time we'll tell, but now seems like a really fun time to dive into the topic.

[13] Here are 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.

[14] Well, we'll have to dive in.

[15] David, don't give me your answer now.

[16] Wait till grading, but are we going from four carriers to three or from two carriers to three?

[17] Well, we'll have to wait for that.

[18] 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 and who knew that there actually was a related industry that had even fewer people working in it.

[19] It turns out that telecom and the wireless industry in the 80s and 90s had like six people working in it.

[20] And as you alluded to, Ben, almost all of them were in Bellevue, Washington.

[21] That's true.

[22] 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.

[23] Really appreciate any time you could give to doing that.

[24] It helps us promote the show to get great guests and to justify the increasing amount of research that David and I seem to be obsessing over episode by episode.

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[26] Join the 1 ,300 of us that are talking about any tech news, really, but big, big mergers, acquisitions, IPOs, major landmark events that are happening between big corporate entities.

[27] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[28] Yes, ServiceNow is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[29] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsoft's at the NVIDias as one of the most important enterprise technology vendors in the world.

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[31] They're also a major partner of both Microsoft and NVIDIA.

[32] I was at NVIDIA's GTC earlier this year and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[33] So why is Service Now so important to both NVIDIA and Microsoft companies we've explored deeply in the last year on the show?

[34] Well, AI in the real world is only only as good as the bedrock platform it's built into.

[35] So whether you're looking for AI to supercharge developers and IT, empower and streamline customer service, or enable HR to deliver better employee experiences, service now is the platform that can make it possible.

[36] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[37] For example, smarter self -service for changing 401K contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[38] With ServiceNow's platform, your business can put AI to work today.

[39] It's pretty incredible that ServiceNow built AI directly into their platform, so all the integration work to prepare for it that otherwise would have taken you years is already done.

[40] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow .com slash acquired, and when you get in touch, just tell them Ben and David sent you.

[41] Thanks, ServiceNow.

[42] 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?

[43] Well, how long do you have, Ben?

[44] Yeah, listeners, we're only a couple minutes in right now, but But you know the final episode of length.

[45] We don't.

[46] I suspect it ends up being long.

[47] Well, let's see.

[48] Let's see how fast we can get through this.

[49] 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.

[50] 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.

[51] 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 the late 60s, early 70s, and then would obviously grow throughout the 80s, 90s, 2000s.

[52] 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 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.

[53] And so it triggered really disaster for the company and the family.

[54] They had to sell everything.

[55] They had to sell the family's house.

[56] The family had a yacht.

[57] They had to sell the yacht.

[58] 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 four thousand subscribers.

[59] That was all that was left of basically all of the family's assets.

[60] And so Craig, he's the oldest of the brothers.

[61] He's still an undergrad at Stanford.

[62] I think this is the next year, early 1970.

[63] He's a senior.

[64] While he's a senior, while going to school, he takes over running the company to do something and kind of turn the family's fortunes around.

[65] 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.

[66] And so by the early mid -1980s, the company was then called McCaw Cable Vision.

[67] It was the 20th largest cable.

[68] cable pay TV provider in all the United States.

[69] It was very successful.

[70] And Craig's running it, and he's still very young.

[71] And then something else happens in the early 80s.

[72] The advent of wireless cellular phone technology, analog cell phone technology, is invented.

[73] And to make these calls work, this is the days like people envision this being used as car phones for like wealthy businessmen.

[74] To make the technology work, though, you need to have wireless spectrum.

[75] rights to operate the cell services over.

[76] 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.

[77] They end up landing on holding a lottery.

[78] So they literally, they hold a lottery.

[79] You file an application to win the rights to a spectrum license in a given city or geography.

[80] And then they hold a lottery to see who wins it.

[81] It's certainly fair, David.

[82] It's fair in some sense.

[83] And Craig, you know, finds out about this.

[84] It's much discussed.

[85] 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.

[86] So he applies for the lottery in a whole bunch of geographies throughout the country.

[87] He wins some of them.

[88] And others, there are lots of, they're like plumbers that are applying and accountants, like just random people, like are.

[89] applying to win these spectrum licenses.

[90] Reminds me of the dot com grab.

[91] It totally.

[92] It's like a dot com domain name, uh, grab, except there are far fewer spectrum licenses than there are dot com names out there.

[93] After the, 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, uh, of spectrum real estate, um, throughout the country.

[94] He says, okay, well, I'm going to build a cellular telephone company alongside the cable company.

[95] He uses debt, once again, on the cable company to finance building out this wireless telephone network, ends up calling it McCaw Cellular.

[96] And he's kind of first to the game before any, you know, before AT &T, before what was then MCI, Sprint, all of the large wired telephone landline carriers get into the business.

[97] McCaw Cellular is, is the biggest cell phone business out there, or cellular network business.

[98] And David, in looking into this, the company Lynn Broadcasting comes up.

[99] Do you know how that fits in here?

[100] Lynn broadcasting, I know a little bit.

[101] So there still was, again, all these businesses are all related.

[102] There's, there's TV broadcasting.

[103] So these are like your local ABC, NBC, CBS stations that are literally broadcasting from antennas in cities.

[104] Then there's cable TV, pay TV, so that's where you're getting the, you know, and these days it wasn't ESPN yet or, you know, but pay TV channels, separate channels, and then sell sell business.

[105] So McCaw had gotten also back into the TV broadcasting business that his father was in.

[106] And so they acquired Lynn Broadcasting, which was a major broadcaster, owned a whole bunch of local TV stations throughout the U .S. is a big purchase.

[107] And it was, I think, heavily debt financed to make it happen, $3 .4 billion purchase.

[108] And I believe that Lynn operated or maybe still operates a bunch of the local TV stations in New York City.

[109] So they were one of the biggest local broadcasters in the country.

[110] There's a great New York Times piece from 1990 called Craig McCaw's high -risk phone bet.

[111] 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.

[112] And they actually show you, here's the place in the New York Times business section where this occurred and they highlighted it.

[113] It's super cool that this is on the internet.

[114] 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.

[115] And they say, essentially, Craig McCaw is betting that the public will want cellular phones.

[116] Today, about 1 .5 % of the population uses car phones or portable phones.

[117] The hope is that figure will rise to 14 % in just a decade.

[118] This was 1990?

[119] 1990.

[120] Oh, my Gosh, 14%.

[121] I would assume it had to be higher than 14 % by 2000.

[122] I mean, we hadn't seen like...

[123] I had a cell phone in 2000.

[124] Yeah, I was in a high school.

[125] Probably dramatically higher, but it was 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.

[126] But, you know, that's...

[127] Well, people thought of it as car phones.

[128] I mean, I remember when I was growing up, my parents were lawyers.

[129] and they had car phones in their car.

[130] Like, it was essentially a cell phone, but it was wired, hardwired into the car.

[131] That's what people thought it was.

[132] They didn't see cell phones, just like they didn't see smartphones that it would all become.

[133] Yeah, totally crazy.

[134] So I should have mentioned earlier.

[135] I don't think I did.

[136] 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.

[137] And that's why Bellevue, Washington, just across Lake Washington from Seattle is the at least U .S. if not world headquarters of the cellular phone and wireless industry, which we'll dive back into.

[138] 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.

[139] So 15, 17 years later after the family being completely destitute.

[140] They sell off the cable business for $790 million in 1986.

[141] That's pretty good.

[142] They focus solely on the cellular business.

[143] Keep growing that over the next couple of years.

[144] 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 sell your business, to AT &T, the old legacy telephone company, for $12 .6 billion.

[145] Again, this is 1994.

[146] That's a lot of money.

[147] the company gets renamed AT &T Wireless, it becomes AT &T's wireless division that barely existed before then, which is just crazy.

[148] Ultimately, about 10 years later in the early 2000s and 2004, AT &T Wireless merges with a company called Singular.

[149] Of course, remember Singular.

[150] I'm sure many listeners do here in the U .S. The company keeps the AT &T Wireless name and moves to Singular's headquarters, which are in Dallas, Texas.

[151] And so that's why AT &T is in Dallas instead of.

[152] of in Bellevue now.

[153] But the core of it all came from Bellevue.

[154] 1994 Macaw Cellular Trivia Fact.

[155] David, what else from the Acquired episodes that we have done was related to Macaw Cellular and happened in 1994?

[156] Oh my gosh.

[157] That's a tough question.

[158] I should know this, of course, but I don't.

[159] It was a gentleman who was Angel investing.

[160] Oh, yes, of course, of course.

[161] How could we forget so instrumental to everything about acquired?

[162] Tom Allberg.

[163] Tom Allberg.

[164] So Tom was an executive at Macaw Cellular and was doing a lot with cellular data.

[165] 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.

[166] Oh, my gosh.

[167] I can't believe I missed that connection.

[168] Like literally Amazon comes up.

[169] out of this.

[170] I mean, Bezos would have been successful, I'm sure, regardless.

[171] But certainly Madrona and thus acquired is a direct offshoot of all of this.

[172] Tom, of course, being, you know, one of the one of the founders of Madrona a few years later.

[173] So back to Craig and McCaw after this transaction.

[174] I mean, Craig is now one of the wealthiest people in the world up there at this point in time with Bill Gates, you know, also in the Seattle area.

[175] But he's not done.

[176] He's still quite young.

[177] He's not done and he's not done with the telecom industry.

[178] The sale to AT &T was all in stock.

[179] So Craig is now one of the largest shareholders of AT &T, this huge, you know, a hundred year long, you know, company.

[180] 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 the telecom business, and start competing with them right away all over again.

[181] So he starts building a stake, an equity stake, in a company called Nextel.

[182] I suspect many listeners remember from the late 90s, early 2000, today is the Nextel direct connect walkie -talkie on your cell phone.

[183] Oh, yeah.

[184] Craig gets involved in Nextel, starts buying up shares.

[185] By 1995, just a year later, he controls the majority of the equity in the company is the controlling shareholder.

[186] Nextel was not doing very well at this point in time.

[187] He completely turns them around.

[188] You know, they end up introducing direct connect.

[189] They become, grow, hugely become much larger.

[190] They end up then.

[191] He sells Nextel in his second transaction to an old legacy telephone company in 2005, 10 years later, to Sprint.

[192] He sells Nextel for $35 billion.

[193] Sprint becomes Sprint Nextel.

[194] And that is the core of Sprint's wireless business.

[195] So thus from one guy from Craig McCaw comes both AT &T and Sprint that we know and probably don't love today.

[196] Yeah, but David, that transaction happens in 2005.

[197] I was going to do your transition for you.

[198] Something happens a year before 2005.

[199] In 2004, Craig McCod does one more thing.

[200] He's still not done.

[201] He's still not done.

[202] He does one more thing.

[203] He's like, the Steve Jobs of telecom, really.

[204] One more thing.

[205] In 2004, he starts a company called Clearwire.

[206] And Craig is starting to see, I don't know that he necessarily.

[207] see smartphones coming in the iPhone, but he does see that data over cellular telephone networks is going to be a big thing.

[208] Smart phones exist.

[209] There's POM, there's Microsoft Windows Mobile or whatever they called it back in the day, BlackBerry, all of those things.

[210] So he founds Clearwire.

[211] And Clearwire is essentially a wireless company, but instead of focusing on voice, it focuses on data.

[212] So they end up doing in November 2008, they do a huge deal, with Sprint, who just a couple of years earlier, Craig had sold NextL2, and Sprint buys half of the company, and Clearwire essentially becomes the data part of Sprint's network, what would become their LTE network.

[213] At the time, it was using a technology called YMAX, which we're not even going to go down that rabbit hole in the interest of time and our sanity.

[214] 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.

[215] 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.

[216] 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.

[217] It's like a particle accelerator.

[218] They literally, these companies are smashing at high speeds into one another.

[219] That's how I picture it too.

[220] But one, I have two small, real fun notes before we wrap up on the McCaw portion of the episode here.

[221] One, Craig finally does sort of rest his pen after Clearwire, has not started any further telecom companies.

[222] But he does pretty well through all of this.

[223] He currently holds the record for the most expensive car ever purchased.

[224] In 2012 at an auction, he bought in 1962, Ferrari.

[225] 250 GTO for over 38 million.

[226] Lest you think all of this is just boring telecom stuff, there is a lot of money to be made in these industries.

[227] And we should say, too, in addition to $38 million, you know, historic sports cars, the McCaw family is also one of the most incredibly philanthropic families, you know, McCaw Hall in Seattle, tons and tons of charitable organizations.

[228] I think much like Bill Gates, their legacy as a family will actually, there'll be room or more for their philanthropic efforts than for the incredible industrial, the value they created in industry.

[229] Basically, every arts organization in Seattle has the McCaw family to thank for their patronage and as well as so many other organizations in Seattle and throughout the country and the world.

[230] The other really fun note, listeners may know that I was involved at Medrona in starting a company called Rover .com.

[231] Rover is now a very successful marketplace.

[232] in many ways led to lots of great things for many people in the Seattle tech scene and for me is a big part of starting wave and our focus on marketplaces.

[233] Rover originally was not called Rover.

[234] It was originally called A Place for Rover.

[235] A place for Rover.

[236] It was, that is still, I believe still the official name incorporation name of the company.

[237] I signed the incorporation documents back in the day when we first started it for a place for Rover.

[238] We wanted to get the Rover .com domain name.

[239] We wanted to get the Rover .com domain name And so we were like, this was super early days.

[240] We were searching around like, you know, okay, like, who has it, like doing who is, lookups, all this stuff.

[241] It turned out that the rover .com domain name was owned by Clearwire because Clearwire had had a product that they introduced and then canceled called the Rover.

[242] And this was like a hockey puck sized device that was essentially a Wi -Fi hotspot.

[243] This was like one of the first Wi -Fi hotspots.

[244] And again, Clearwire was like a cellular data company.

[245] And they were, like, introducing this idea of cellular data.

[246] So it had this product called the Rover.

[247] And they somehow acquired the domain name, rover .com.

[248] They were selling it.

[249] They had canceled the product.

[250] So this is 2011, summer of 2011, when we're starting Rover, the company.

[251] And they had canceled the products.

[252] So they were just sitting on this domain name.

[253] It turned out that one of our partners at the time at Medrona was Brian McAndrews, who had been the CEO of Aquaniv, which was Microsoft's largest acquisition before Skype and then LinkedIn.

[254] And Brian was a partner.

[255] with us at Medrona, and he was on the board of Clearwire and knew Craig McCaw really well and John Stanton, who's going to come into this story in a minute.

[256] And so we said to Brian, hey, like, you're on the board.

[257] Can you like, you know, talk to the company, see if we can buy it from them for you.

[258] Whoever in IT administers that domain, like, see if you can get there.

[259] I know.

[260] You've got this like parked domain name that the company isn't using somewhere in the IT department.

[261] You've got board member coming in.

[262] We ended up getting the deal down.

[263] We bought the, we bought the domain name.

[264] I believe we actually.

[265] actually leased it first and then with an option to buy 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 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 this Seattle Times article called T -Mobile Sprint Deal would extend Northwest Long Wireless Rain by Rachel Lerman, great piece.

[266] And there's an amazing infographic by Mark Nolan.

[267] 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.

[268] If you are sort of sitting there on your phone and you want to tap to the show notes and check it out, could be sort of helpful in visualizing.

[269] It's certainly helpful as we sit here doing research to keep ourselves straight.

[270] Indeed, indeed.

[271] So to pick back up the story, and again, we apologize for all these companies.

[272] Hopefully the graphic will help keep it straight.

[273] And we'll try and be, we'll try and be as straightforward as possible here.

[274] 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.

[275] Amazon being third.

[276] Yeah, for sure.

[277] 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 McCall.

[278] 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 CEO of McCaw Cellular.

[279] And the other person that ended up being instrumental in what came next was Teresa Gillespie, Terry, she goes by Terry, Terry Gillespie.

[280] She was an SVP at McCaw and was the company's controller.

[281] She had been a public accountant before that.

[282] The two of them, they do two important things.

[283] One, they get married.

[284] That's, I don't know which they would say is more important of that.

[285] The other thing they do is they start T -Mobile.

[286] It wasn't, of course, called T -Mobile at the time.

[287] Not directly.

[288] But T -Mobile, the T -Mobile we know and love that we are talking about in this episode, John Lajer, the Uncarrier.

[289] It's John and Terrible.

[290] who started that.

[291] T -Mobile USA.

[292] T -Mobile USA.

[293] Yes, not Deutsche Telecom.

[294] But we'll get into all that.

[295] Okay, we're going back to the late 80s, early 90s.

[296] John and Terry, I don't know if they were married yet, but they're at McCaw Cellular.

[297] Terry's on the finance side.

[298] John is the CEO of the cellular business.

[299] 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 McCaw for, actually uh actually 92 it started the there too many companies to keep keep track of all right um but leading up to nineteen ninety two in a couple years before uh john started realizing so the focus of macaa was urban areas you know again we're thinking like 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 macaa 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 starting in in rural Washington I believe he decided to leave macaw cellular again this is like an enormous company like people thought he was crazy at the time like he and Terry 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 helman and freedman the big private equity firm based in san francisco to co -purchase it and then a couple years later than in 1994, they merge Pacific Northwest Cellular and General Cellular into a company.

[300] They call it Western Wireless.

[301] At this point in time, they're offering service to 19 Western states under the brand Cellular One.

[302] I don't know if that rings any bells for anyone.

[303] Cellular One telephone in rural areas.

[304] And at this point in time, they've started to get some spectrum assets in urban areas as well in cities.

[305] And they call that part of the service voice stream wireless.

[306] A couple years later, in 1996, they take the company public.

[307] Then a couple years after that, 1999, voice stream, the urban, the city focused service has actually been growing a lot.

[308] They spin that off into a separate public company in 1999.

[309] Two years later, 2001, Deutsche Telecom comes in, the big German telephone company, wired and wireless operator.

[310] And they buy voice stream for $35 billion and rename it T -Mobile USA.

[311] And thus, that is how T -Mobile is born.

[312] And think about this.

[313] Like this is, you know, again, just to recap, McCaw Cellular is, is sold in, what was it, 1994 for 12 .6 billion.

[314] So, you know, a lot of money.

[315] Not that much longer, 2001, so what's that seven years later, the protege at McCaw, you know, John Stanton and his, and his wife Terry, they have created this crazy thing, this rural operator turned it into voice stream.

[316] They sell that for, 35 billion dollars to Deutsche Telecom and it becomes team mobile.

[317] They actually retain Western Wireless, the cellular one, the rural company.

[318] That ends up getting acquired a couple of years later by All Tell for $6 billion.

[319] All tell ends up getting split up and getting acquired by mostly by Verizon, small parts of it by AT &T, and is a big part of the Verizon Network now.

[320] So like, that's kind of crazy.

[321] We now have complete coverage.

[322] We now have John Stanton's starting Western wireless selling to all tell which becomes parts of Verizon we have macaw cellular itself becoming AT &T getting what became AT &T wireless nextel becoming sprint next hell becoming sprint and then lastly voice stream becoming T -Mobile becoming T -Mobile so we we have one more event here one more merger yet to cover that will be the 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 this is I mean all this back story is I hope listeners you've enjoyed it like 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 is 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.

[323] So it all comes back home.

[324] Okay, let's fast forward a little bit.

[325] The industry basically operates at steady state, you know, from our point of view, there are like 57 mergers and acquisitions that happen that we're not even, like, I can't even keep track of all of them.

[326] But basically, this is the state of play.

[327] You have AT &T and Verizon, which are the two largest carriers in the U .S. You have Sprint, which was Nextel, is the third largest.

[328] 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.

[329] And sort of 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 Sprint, but we'll get to that.

[330] They're stealing some share, they're doing some stuff, but actually it's kind of sad.

[331] I mean, they're owned by this super conservative German and German telecom company.

[332] you know, the first decade really from the voice stream acquisition through the first decade of T -Mobile USA is like, eh, it's like, okay.

[333] But we fast forward.

[334] March 2011, AT &T announces a deal that they're going to buy T -Mobile USA.

[335] Deutsche Telecom's like, all right, you know, this hasn't worked out quite as we thought.

[336] We didn't become the dominant carrier in the U .S. Let's cut our losses.

[337] They're going to sell T -Mobile to A -Mobile to AGOC.

[338] 18T for 39 billion.

[339] So 4 billion more than they paid for it in 2001.

[340] But at least they're going to get out of the game, cut their losses.

[341] And this is going to reunite essentially the McCaw and Stanton and Gillespie branches of the, you know, Bellevue Seattle Telecom empires.

[342] It's all going to be reunited under one company.

[343] It's going to be by far the largest wireless carrier in the U .S. And that was its downfall because the U .S. government and the antitrust regulators were like, nope.

[344] They're like, wait, AT &T is going to become the most dominant telephone provider to all of the U .S. We've heard this story before.

[345] We've heard this story before.

[346] We don't like it.

[347] 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.

[348] They call off the merger.

[349] Yeah, they indicate that it would be a bad idea for you guys to stop doing the paperwork.

[350] Yeah, yeah, good idea to stop doing.

[351] paperwork.

[352] So December 2011, the T -Mobile and AT &T call -off the merger.

[353] And T -Mobile is like in a serious bind now.

[354] So the deal fell through.

[355] Their distant fourth place behind Sprint and like way, way behind 18 -D of Verizon, the company is like flatlined.

[356] It basically things suck.

[357] Morale is terrible.

[358] So 2012, this was December 2011, they call off the merger.

[359] 2012, they do two things.

[360] First, they merge with Metro PCS, which was I think the fifth or sixth place carrier in the US.

[361] So that gives them a little bit more scale, a little bit more coverage.

[362] Because remember, coverage is super important.

[363] At this point, national coverage is really important.

[364] People use their smartphones, we're in the smartphone era.

[365] Everywhere, all the time, they travel if you're, you only get data in your home city and not when you're traveling, that sucks.

[366] And I think Metro PCS unlocked new addressable market for them in terms of like market segment, because it was the pay as you go, it was the sort of lower cost carrier.

[367] they could get their infrastructure and coverage and then also sort of a new segment of people that were able to use the broader merged infrastructure also.

[368] Yep, yep, totally.

[369] And we're not even going to get, I'm not going to go anywhere near cellular standards.

[370] We talked about that on the Qualcomm Broadcom episode.

[371] Listeners, if you care, you can go somewhere else.

[372] It's important technically, but we're not even going to go there.

[373] Okay, Metro PCS was a public company.

[374] As a result of the merger, the Metro PCS shareholders own 26 % of the combined entity.

[375] So Doge Telecom now owns, what's that, 74 % of the company, and then 26 % is publicly traded on the U .S. stock markets.

[376] Okay, that's one.

[377] The other thing they do is they bring in a new CEO to turn around the company after, you know, this disastrous falling through of the merger.

[378] And they find a really boring, non -polarizing run -of -the -mill CEO.

[379] Yes.

[380] Yes, that was the plan.

[381] So they bring on a turnaround expert, a guy who has just sold a company called Global Crossing.

[382] We're not going to get into Global Crossing.

[383] It's like the most boring, wired telecom conference bridge corporate telecom company, you can imagine.

[384] 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 $3 billion acquisition the year before in 2011.

[385] So like, great, this guy turned them around.

[386] He saved it.

[387] you know, went from zero to three billion.

[388] Hopefully we can do the same.

[389] Let's bring him on see what he can do here.

[390] This is a guy who before global crossing, he had been an executive in the telecom industry at AT &T for almost 20 years.

[391] He'd also worked at Dell.

[392] So he had a little bit of, you know, you could argue device, you know, sensibility at that point in time.

[393] This was like relatively early days of smartphone time, you know, 2012, 2013, whatever.

[394] Great.

[395] Let's bring him in.

[396] What's his name again?

[397] His name is John, John Ledger, you know, whatever.

[398] 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 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 they he led to the exit of global crossing you know 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 do it to telecom you know again big German corporate conservative company they think they're getting like the turnaround CEO here.

[399] So John starts as CEO in the fall of 2012 of T -Mobile.

[400] And what is the first thing he did?

[401] He's from the telecom industry, but he doesn't know a lot about wireless.

[402] He's from the wired, corporate wired side of things.

[403] So he's like, well, I'm going to learn about what customers think about this company.

[404] I'm going to start listening into customer service calls, like literally people calling to complain about their, you know, his cell phone carrier.

[405] So he spends the first couple of months doing this and he's just like, I guess, asked.

[406] He's like, oh, my God.

[407] This is, 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.

[408] And he's just like, whoa.

[409] What have I got myself into?

[410] A couple months go by, he's doing this.

[411] It's January 2013 at CES in Las Vegas.

[412] And CES is, you know, in the U .S. There's Mobile World Congress.

[413] 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.

[414] And so, John, this is going to be his first keynote address as CEO of T -Mobile at CES in Vegas, 2013.

[415] So he goes, they're all scheduled.

[416] All the T -Mobile execs are there.

[417] It's got this whole thing.

[418] It's, you know, it's a keynote.

[419] And it's the night before at the hotel suite.

[420] and John's there and he's talking about the execs or the other senior execs and he's like, what should I wear?

[421] What should I wear at this keynote?

[422] Now, to be fair, this is how the story is told today.

[423] Who knows what the reality is?

[424] But he's like, what should I wear?

[425] And 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.

[426] That's cool, right?

[427] And like, okay, so they start riffing on that.

[428] And the night goes on and apparently things get a little crazy.

[429] And John's like, oh, yeah, I'll wear a tee.

[430] t -shirt, but let's get a hot pink, you know, t -shirt to go with our corporate colors.

[431] And I'll, uh, and let's see if, let's see if we can get a t -shirt made overnight to put the T -Mobile logo on this hot pink t -shirt.

[432] I'll wear that under my seat.

[433] Things keep going crazy.

[434] John shows up the next morning for this keynote.

[435] Not only is he wearing a t -shirt under his suit jacket.

[436] He's got a suit jacket on.

[437] He's got a sleeves rolled up.

[438] He's got a Yankees hat on.

[439] 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 this is amazing so there are all these other team mobile like senior execs you know there in their like super button -up suits a bunch of them are european they came from germany like all this stuff and john's there and he looks like i don't know i don't even know what to like somebody trying to impersonate 50 cent like like what's that like how do you do fellow children Yeah, exactly, exactly.

[440] It's amazing.

[441] So there's literally this moment, again, we'll look to it in the video.

[442] All the other execs are standing in a circle around him as he's giving his keynote.

[443] And I guess like, I don't know, like there are articles about this afterwards.

[444] Apparently he goes off script and makes all this up on the spot.

[445] Whether this was all planned, we don't know.

[446] But the story is.

[447] Which at the time feels like heresy.

[448] But if you know about the guy now, you're like, well, of course he went off script.

[449] Yeah.

[450] Totally.

[451] So he goes on.

[452] soft script.

[453] 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.

[454] But instead of talking about how much they hate T -Mobile, he starts talking about how much they hate AT &T.

[455] And he's like, takes all these shots at AT &T, calls their network crap.

[456] He says there's more truth in online profiles on online dating sites than AT &T has on their network maps.

[457] Like it's just crazy.

[458] And like, remember, this is the telecom industry.

[459] People go nuts.

[460] people like, we haven't seen anything this interesting in decades.

[461] And it gets all this press.

[462] And people like, wow, Team Mobile, Mavericks, they're breaking the rules.

[463] And Ledger totally embraces it.

[464] He basically goes like full on performance art over the next couple of years.

[465] He gets on Twitter.

[466] He starts like, you know.

[467] And Instagram, there's like, his Instagram is kind of amazing to follow.

[468] Aside from his like AT &T lambasting.

[469] There's like, you know, every Sunday, he's like, here's me grocery shopping and cooking with the fam.

[470] Like, it's like an intensely personal thing.

[471] Yep.

[472] He does a live show, a Facebook live show every Sunday.

[473] 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.

[474] He does selfies all the time.

[475] He like curses all the time.

[476] So there were lots of people, I'm sure, have been wondering sort of how do you pronounce the guy's name?

[477] Is it Leger or is it the Ledger?

[478] He had a tweet a while ago that is, I know there's.

[479] been some questions about it.

[480] It's pronounced, quote, ledger, as in AT &T is about to jump off the ledger.

[481] His whole persona now is like, we know you hate AT &T and Verizon and like, we are your other answer.

[482] And I'm just going to be so obnoxious about that.

[483] They rebrand T -Mobile as the uncarrier because they're unlike any other carry out there.

[484] Ledger, he's like getting into fights on Twitter with Donald Trump.

[485] Like, it's amazing.

[486] He has, so he has 5 .7 million million Twitter followers now.

[487] Randall Stevenson, who's the CEO of AT &T, has 123 Twitter followers and has never tweeted.

[488] And you look at Randall Stevenson and he's like the telecom exec you would expect.

[489] And now there's all this like controversy.

[490] Apparently they like colluded with the Trump administration and Michael Cohen and all this stuff.

[491] It's just like ridiculous.

[492] And all this time Ledger's just like, F you guys shouting from the rooftops.

[493] 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.

[494] I mean, it's really become kind of the Elon Musk, Steve Jobs, like, cult of personality.

[495] 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.

[496] Yep, totally.

[497] It's a complete, it's like an architected strategy at this point.

[498] And Ledger actually talks about it in an interview.

[499] This is the quote from him, the strategy behind it, what they decided is the way to win when you are like, have no way to win, is you declare victory.

[500] Kobayashi Maru.

[501] Yeah.

[502] I mean, it's basically like he does the Donald Trump playbook.

[503] Declare victory, even though you're obviously like winning at nothing.

[504] You just declare victory and then you designate an enemy.

[505] Then you attack that enemy and the bigger the enemy the better.

[506] And that's just what he did.

[507] Like, T -Mobile declared victory.

[508] And it totally works.

[509] So this was, this all begins in January 2013.

[510] The company has 19.

[511] straight quarters of adding over a million subscribers, net new subscribers.

[512] It quickly passes Sprint to become the third largest carrier.

[513] There's this giant vacuum happening in the industry where like subscribers, mostly from Sprint, as you were saying, Ben, but also from AT &T and Verizon are just like getting sucked into T -Mobile over the last couple of years.

[514] You know, it's been this like crazy PR thing with John as the CEO.

[515] 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 Verizon in order to get it done.

[516] And there's lots of people that swear by T -Mobile, they're like, yeah, yeah, yeah, the service is worse.

[517] Like when I go out in the mountains or whatever, there's no way I'm making a phone call.

[518] But they have all this cool zero rating stuff where Netflix doesn't count against my plan.

[519] There's a bunch of plans that have unlimited data that were like way before the AT &T and Verizon ones.

[520] 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.

[521] Honestly, all the credit in the world goes to the U .S. government here because this is why they blocked AT &T buying T -Mobile because they're like, this would have preventing competition.

[522] What does T -Mobile do?

[523] They start, like, competing incredibly fiercely, and it's great for consumers.

[524] I mean, five years ago, like, it sucked.

[525] Like, of course people hated their cell phone plans.

[526] It was so, so crappy.

[527] And it's still not good, but it's, like, way better than it used to be.

[528] You're not locked into contracts as much anymore.

[529] You have unlimited data plans, like all this stuff.

[530] And even though Team Mobile didn't, like, meaningfully steal share from Verizon and AT &T, they did end up making those customers' lives better by existing and forcing the hands.

[531] Yep, totally.

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[581] Okay.

[582] One more piece and then we're going to wrap it up is that right around the same time that T -Mobile is transforming itself and ledgers is joining.

[583] This is late 2012, early 2013.

[584] There emerges another figure in the industry here, one we've talked about in this season, and quite a force unto himself, and that is Masayoshi -san and SoftBank.

[585] So this is Pre -Vision Fund.

[586] This is SoftBank itself and Masa through the company.

[587] Remember, SoftBank is the largest mobile carrier in Japan.

[588] and has investments all around the world in mobile carriers.

[589] They decide they want to enter the U .S. market and they want to buy Sprint.

[590] And so they end up getting into a bidding war with Dish Network, the satellite television provider, because all this is converging.

[591] It always has been.

[592] It's broadcasting and cable and telephone and wireless.

[593] It's all the same, or it's all the same business dynamics.

[594] They end up winning the bidding war with Dish Network.

[595] They buy 78 % of Sprint in July 2013 for $21 .6 billion.

[596] And the best part about this bidding war with DISH is that SoftBank makes the offer to acquire Sprint.

[597] Dish Network then announce a higher offer to acquire Sprint Nextel at that point, which they then decide to retract so that they can focus on buying none other than Clearwire, which they also retract, and then Clearwire gets bought by Sprint as well.

[598] The drama is just too much.

[599] I can't handle all the drama.

[600] I thought telecom was going to be the most boring thing.

[601] There's so much drama, it's boring.

[602] I think it's boring because I just can't handle this drama.

[603] Like, it's too much.

[604] One quick aside, because we would be remiss to cover all this without covering this fun bit of history.

[605] Sprint, back before Next Hill, when it acquired Craig McCaw's second act and became the wireless company, Sprint was a landline telephone operator.

[606] They were third behind, I believe third behind 18th.

[607] of course, and the Bells being won, and then MCI and then Sprint.

[608] Sprint, the landline company, started as the Brown Telephone Company in 1899, in Abilene, Kansas, eventually became the Southern Pacific Communications Corporation.

[609] They didn't like that name.

[610] They decided they need a new name, so they run an internal naming contest.

[611] 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.

[612] Like when you think about like that, like American history, like the South Pacific Rail, you know, or formerly 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.

[613] 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.

[614] 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.

[615] And so they had this internal communication network that in the early 70s they decided after this this ExecuNet2 decision, they could actually decide, hey, 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.

[616] 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 you're a, it's a B2B company.

[617] 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?

[618] Like, thinking about that infrastructure is completely nuts.

[619] It's totally nuts.

[620] Well, so do you want to finish the story about the naming contest?

[621] I would love to finish the story.

[622] This is like one of my favorite facts.

[623] And I've mentioned it to friends and some listeners to the show like, I can't believe this is a thing.

[624] Sprint, while a cool word, is actually an acronym.

[625] And the contest that David was referring to, the naming contest for what would be better than Southern, you know, SPC or the Southern Pacific Communications company, is Sprint, the Southern Pacific Railroad Internal Network Communications.

[626] Internal Network Telecommunications.

[627] Yes, got to get the tea in there.

[628] unreal well that's where spring comes from okay back to soft bank and masayoshi san they win masa likes to win as we have seen on this show and uh in all of our daily lives 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 Clearwire, too.

[629] Sprint ends up acquiring Clearwire as well.

[630] It already owned 50%.

[631] They, on the rest of it, Dish walks away, empty handed.

[632] Okay, so all this happens in 2013.

[633] But then over the next couple of years, Sprint is like a punching bag.

[634] 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.

[635] And like, Sprint at that point in time was bigger than T -Mobile.

[636] Now they are way smaller.

[637] TeamMobile is just taking basically all of their customers.

[638] Masa, of course, is not oblivious to this.

[639] 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.

[640] News comes out that Sprint and Masa are working on a plan to acquire T -Mobile and merge the two companies.

[641] And what year is this, David?

[642] This is not now.

[643] This is 2013, late 2013, early 2014.

[644] Once again, regulators, just like they did with AT &T and T -Mobile, the first time, are like, I don't know about that.

[645] You might not want to do that.

[646] So they abandoned the deal.

[647] Which is interesting because they were not the first player, not the second player.

[648] Like they, you know, I think they were three and four then, maybe three and five.

[649] Three and four.

[650] Sprint was three and T -Mobile was four at this point in time.

[651] But remember, Sprint, you know, sucked.

[652] They were not doing what T -Mobile is doing now, which we'll get into.

[653] in discussion.

[654] They worked on the deal.

[655] They abandoned it.

[656] Sprint's like, okay, we got to be cool too.

[657] We got to be, you know, an uncarrier.

[658] What can we do?

[659] They're looking around.

[660] They're like, we're going to make an investment in a really hip, cool new company.

[661] I was hoping you found this.

[662] This is going to be my.

[663] Oh, yes.

[664] This is the best part of the whole episode.

[665] We're going to be so cool.

[666] January 2017, they buy a 33 % minority steak in the hottest, the hottest streaming.

[667] music company around.

[668] That's right.

[669] You guessed it as covered on acquired title.

[670] Jay -Z.

[671] That doesn't work out so well.

[672] So wait, David, do they still own 33 % of title, right?

[673] Do you know if they've sold that off?

[674] It does.

[675] Does it really?

[676] Yep.

[677] I think they do.

[678] I don't know.

[679] Because like presumably if this goes through, then like T -Mobile owns some of title it's as well i would love to see title with you know team mobile anyway clearly that doesn't work so now that was january 2017 by mid 2017 soft bacon maser 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 going to you know rationalize all this they're like okay if we can't acquire team mobile.

[680] Maybe we'll sell Sprint to you.

[681] By the way, as an aside, yeah, you can, you can stream J. Loe featuring DJ Collid and Cardi B right now on title.

[682] Oh, that actually sounds pretty.

[683] I'd like to listen to that.

[684] Cardi B is awesome, by the way.

[685] Okay.

[686] So SoftBank, they're trying to sell, he's like, I'm going to sell Sprint to Doit Telecom, to the parent company who, you know, still own 70 -some odd percent of Team Mobile.

[687] He's great.

[688] I'm going to sell Sprint to Deutsche Telecom.

[689] They can't agree.

[690] price, get the deal down.

[691] Finally now, a couple weeks ago, April 29th, 2018, they take a new tack.

[692] Clearly, John Ledger, you know, the, the boring turnaround CEO, like, he's won.

[693] He's like the man. We just got to have him do this.

[694] T -Mobile and Sprint are going to, they've announced that they're going to merge directly.

[695] So whereas before it was Sprint was going to buy T -Mobile.

[696] Then it was SoftBank was going to sell Sprint to Deutsche Telecom.

[697] Again, leaving T -Mobile kind of, you know, they would get merged, but like, nope, T -Mobile wins.

[698] T -Mobile is going to be the combined company.

[699] It's going to be based in Bellevue.

[700] John Ledger is going to remain the CEO.

[701] I mean, they are essentially taking over Sprint.

[702] Deutsche Telecom will have a 42 % stake in the combined company.

[703] SoftBank will have a 27 % stake.

[704] The rest will be publicly traded.

[705] Masa will be on the board.

[706] I love that it's like build as a merger when it's 9 .75 Sprint shares for every one T -Mobile share.

[707] No. Well, I mean, this shares, because the share price, I mean, that share counts don't matter.

[708] But, like, clearly, T -Mobile is taking over the company here.

[709] The enterprise value of the deal, so this includes debt in addition to the equity, values sprint at $59 billion and $146 billion for the combined company.

[710] So $87 billion for T -Mobile.

[711] And there we have it.

[712] As we alluded to in the beginning of the show and talked about throughout, who knows if this is actually going to happen.

[713] This is.

[714] is the third time that two of the four major U .S. telecom wireless carriers have tried to merge.

[715] The government blocked it the first time with AT &T and T -Mobile, and then where it's going to do the second time when Sprint was going to buy T -Mobile.

[716] Why is it going to be different this time, is the question.

[717] It was these exact companies and their exact market positions.

[718] But it was a different administration.

[719] Different administration.

[720] Sure.

[721] It was a different administration.

[722] I mean, T -Mobile is a majority foreign -owned.

[723] company.

[724] So you have a majority foreign owned company.

[725] Also is buying.

[726] Owned by software.

[727] Right.

[728] buying another majority foreign owned company.

[729] So you could make an argument like, well, it's not really an overseas business buying an American business.

[730] So it's more like a foreign subsidiary buying another foreign subsidiary.

[731] So at least that's not going to set off the alarm bills that, you know, an American company being owned by someone overseas, that that sort of transaction would set off.

[732] The company is very confident that this thing is going to happen.

[733] And they've released lots and lots of materials.

[734] It's actually pretty hilarious.

[735] If you go and look at their T -Mobile's investor relations site, like the press release is completely over the top.

[736] It's hilarious.

[737] For folks who've written a press release, like the type of language that you put in there, this is like John Ledger writing a press release.

[738] It's like, here's all the great reasons why this is amazing for everyone, including people looking for jobs.

[739] We're going to create so many jobs also also our shareholders should be happy because there's economies of scale and you're like wait wait wait wait wait wait those things how wait say again how this is going to create jobs while you're you know de -duplicating a lot of your infrastructure so like it's it's almost to the point where like they're 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 of all.

[740] Well, and the headline of the press release, the headline is T -Mobile and Sprint to combine accelerating 5G innovation.

[741] Okay.

[742] And increasing competition.

[743] Wait, what?

[744] You're literally taking two competitors and you're merging them and then you're saying that's going to increase competition.

[745] But actually, I mean, I think where I come out on this, why is, why would it be different this time?

[746] I actually think that is the kernel of it, which is that the last time it was Sprint, which sucked, buying T -Mobile.

[747] So it's like, okay, you're going to go from, you know, three -secchi and one sort of, and now some interesting consumer option to just three -sucky ones.

[748] Now you're going from three -sucky and one like, you know, oh, really interesting to a bigger, really interesting one.

[749] So I think the thesis is like now we can compete head on with AT &T and Verizon with our uncarrier strategy.

[750] Yes.

[751] I don't know.

[752] So I buy your logic.

[753] Here is the explanation from the T -Mobile press release.

[754] This isn't a case of going from four to three companies.

[755] There are now at least seven or eight big competitors in this converging market.

[756] And in 5G, we'll go from zero to one.

[757] Like, we're going to be the only 5G company.

[758] That's thin.

[759] And this like seven or eight big competitors thing is like, well, I mean, you guys are merging for a reason.

[760] Like it doesn't feel like anyone else is really a competitor other than those two.

[761] Yeah.

[762] Well, they're increasing competition because before the merger, there were four companies.

[763] It's going down to three, but they're creating four new competitors out of thin air.

[764] I was trying to figure out, like, who are the other three or four?

[765] I think that they're arguing that it's like, to our point earlier in the show, that all of these businesses are related, that it's like Comcast and it's, you know, dish network.

[766] And, well, DirecTV is part of AT &T now, so they can't claim that.

[767] but it's that there's going to be a convergence between television companies and satellite companies and wireless carriers.

[768] I don't know.

[769] I mean, they're probably right.

[770] 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 these days that you need to be of a sufficient scale in order to do that, and neither T -Mobile or Sprint are.

[771] So I buy the argument that we're going from two to three, particularly with the 5G build outcoming.

[772] I just think in many ways, T -Mobile may have sold past the close.

[773] On the other hand, though, I mean, like, you need to sell hard because obviously the government blocked it.

[774] But it was a different administration blocked it before.

[775] But all right.

[776] It is actually, so I want to say a couple more quick things.

[777] So so there is a website you can go to all for 5g .com they've actually stood 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 for startups like there's kind of an amazing allegory if you go look at their their their this investor dot team mobile dot 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 vc's 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 you actually kind of lose the narrative a little bit in in how many advantages this is going to have for everyone in the world there's a slide with 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.

[778] And on the right, it has a headline called Global Leaders, and it has Amazon, Apple, Netflix, Microsoft, and Facebook.

[779] And, like, I'll just leave it at that.

[780] Like, it's a really fun slide deck to go and look at.

[781] And that Department of Justice is why you should approve this merger.

[782] Yeah.

[783] Yeah.

[784] Wow.

[785] All right.

[786] that's our section on on risk to why the deal may not get done yeah 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 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 i'm on that argument.

[787] Yep, yep.

[788] Yeah, I think I am too.

[789] Well, category.

[790] Well, actually, I want to say one thing before moving out of, that's actually more of the acquisition history and facts.

[791] It's interesting to note that the wireless industry was growing massively from the time when SoftBank bought Sprint until today.

[792] And SoftBank bought Sprint, they bought 70 % for, what was it, $21 billion?

[793] $78%.

[794] Yeah, 21 .6 billion.

[795] 78%.

[796] And today, you know, the enterprise value, or I'm sorry, the market cap, or not today, but at the day that it was announced, was $26 .5 billion.

[797] And I think SoftBank lost money.

[798] Yeah.

[799] Despite the fact that it was a tremendously growing market.

[800] T -Mobile has been taking all of the growth.

[801] 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 going to T -Mobile.

[802] 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.

[803] And most of that was at the cost of Sprint.

[804] 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.

[805] For folks who are new to the show, usually we say people, technology, business line, asset, or other.

[806] I guess it's a business line, but it's the same business line that they have.

[807] So it's really, you know, I think it's just consolidation to realize economies of scale.

[808] Yeah, 100%.

[809] 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.

[810] Like how many episodes have we made it since I last said synergy?

[811] I hope a lot.

[812] But there actually is something that makes a lot of sense here.

[813] And that's that the un -finalized 5G network spec, there's a lot of sort of things that may be 5G.

[814] 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.

[815] We neither are qualified to, nor have the time to go into all the technical things here.

[816] But basically, people believe that the 5G network is going to require a lot more antennas.

[817] So it's going to be a very expensive buildout.

[818] 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.

[819] length.

[820] Let me look this up real quick.

[821] A much higher frequency spectrum.

[822] So T -Mobile has lots of spectrum in the 600 megahertz range where they operate now.

[823] You're going to need a much higher frequency spectrum in order to deploy the 5G networks.

[824] Guess who has that from the clear wire acquisition?

[825] It's Sprint.

[826] So Sprint actually has...

[827] Craig McAstrix again.

[828] That's right.

[829] The spectrum that is likely needed for what 5G will be.

[830] They have no money.

[831] They're way, way, way in debt.

[832] So Sprint has no way to do the expensive buildout necessary to compete on the spectrum that they actually have the rights to.

[833] 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.

[834] So imagine VR over 5G and these super high bandwidth things.

[835] So there is something that make 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.

[836] Bring that over here.

[837] We'll develop it and then we can really compete.

[838] Maybe you can argue that in the not too distant future, Comcast and the like are competitors in this world.

[839] Because like, come 5G, are you still going to have a wired internet connection into your home?

[840] Probably not, right?

[841] it's just more convenient like why would you do this is it going to 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 it's just you know have your have your wireless devices right like who needs wifi 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 yeah me neither or how far away it is yeah so yeah totally consolidation uh for the business line i'm scared of what would have happened otherwise there's just too much here i there's one thing i want to throw out uh yeah what would have happened otherwise had this merger not happen and like 50 % chance that that it doesn't yeah um this is something i wanted sort of ask you and pick your your investor brain on after the after the the deal was announced both companies share prices dropped dramatically.

[842] Like, neither company's shareholders like this deal.

[843] And so, you know, that it's interesting that they can announce a merger that's going to have a certain enterprise value, that places a value on Sprint at, you know, that's based on their current market cap.

[844] The market cap has dropped.

[845] And as they are working the deal out, so sort of, how does that work?

[846] What happens?

[847] What does it signal about the shareholders of those companies?

[848] 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 that 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, like, you're assuming a lot of risk to the deal, not getting done because of regulatory issues.

[849] I could be completely wrong on all this, but I think that might be what's going on.

[850] I like that hypothesis.

[851] And to put some numbers behind it, T -Mobile share price went from $64 before it was announced down to $56, and Sprints went from the high, high value of $6 .50 down to $5 .10.

[852] So, you know, what more, What matters there is the market caps.

[853] So current market caps of both companies are $47 billion for T -Mobile and $20 billion for Sprint.

[854] But that doesn't include the debt for either.

[855] Which is massive.

[856] We should also say, it's worth touching on for these companies.

[857] I did a little math earlier.

[858] Sprint's total current liabilities and long -term debt is $42 billion and T -Mobiles is $24 billion.

[859] Oh, wow.

[860] So T -Mobile is much better capitalized with a, what did you say, their market cap?

[861] is like 40 something?

[862] 47 .7.

[863] Okay, so 47 billion dollar market cap, equity value versus 20 -something billion in debt, whereas Sprint is probably what, like, one, less more debt than equity, right?

[864] Yes.

[865] Yeah, yeah.

[866] So there you have it.

[867] Well, do tech themes?

[868] Yeah, let's do it.

[869] One of them is how much 5G is talked about in the reason.

[870] 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.

[871] 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.

[872] And like, we've just seen this before with, with 3G, with LTE.

[873] Like, it was, it was this like nebulous, unclear thing until it wasn't.

[874] And there was like always a three or four year period where, where there was business hype around it and reasons why certain carriers were going to be in a better position than other carriers sort of before it was actually a thing.

[875] And it's it's just like 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.

[876] On the other hand though, like yeah, I agree.

[877] Like there's so much hype.

[878] It's overblown all this stuff.

[879] But like think about our data networks now versus like 2008 or 2010 or 2012.

[880] Like I don't really think.

[881] think about or care when I go off Wi -Fi on my phone and I can still do every that 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 uh we had fun researching at least but like why does masa care so much about this and like I mean he's as we talked about on the soft bank episode like most his whole career has been in these types of phone wireless businesses or, you know, hard asset, utility -like cash flow businesses.

[882] 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.

[883] What's up with these businesses?

[884] And I think that we're kind of brought back to me and made me think about is like they are stable, cash flow businesses.

[885] Like, these are Warren Buffett -style businesses, meaning that, yes, there is existential risk to them over, like, the multi -decade long period where, like, broadcasting went to cable, went to wireless.

[886] Like, there is transition that happens.

[887] But during those periods, you have customers locked into paying you, like, $100 to $150 a month.

[888] And, you know, like, customers, by customers, we mean, like, basically every person in America or in the world or whatever geography you're in.

[889] Like, that's a lot of money with very, very, predictable, stable cash flows, and you can use that to just create enormous businesses.

[890] And so I think about, like, how can you apply that to the internet and internet business models?

[891] Actually, one of our investments that we're making right now at Wave is a form of a subscription type business, it has marketplace aspects.

[892] But subscription businesses, I'm kind of coming around on how powerful they can be.

[893] Like, this is what Netflix is.

[894] This is what, you know, Amazon Prime is.

[895] This is like, if you know, like, how much money you're, 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.

[896] So subscription businesses, perhaps still yet underrated.

[897] To generalize that to something we've talked about more on the show and really specifically the soft bank episode, stable and predictable cash flows.

[898] You can do amazing, amazing things when you have that in your business.

[899] Yep.

[900] Yep.

[901] Well, you're preaching to the Warren Buffett Choir there.

[902] are anything else on tech themes not that we haven't already touched yeah same yeah uh all right grading what are we grading here are we 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 it's a stock deal it's a merger, like the, but it's Deutsche Telecom and SoftBank and public shareholders here are all have staking the upside of risk here.

[903] Is there more value when all the dust settles than then existed before by combining if it goes through?

[904] Yeah.

[905] I got to say 100 % right.

[906] Like if it goes through now look, is this going to create a trillion dollars in value like, you know, Next did or you know, Instagram maybe will or something like that like no. If this goes through and goes the regulators, like, 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.

[907] That's where I come down.

[908] 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 variance grade.

[909] But like, you know, I completely agree.

[910] I think this is the right move for all shareholders to do this.

[911] Number one, it has to clear regulation.

[912] and then it's an execution challenge from there 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 here right right we decided shares that 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 in a i mean i don't know i guess it yeah it breaks our scale is what it does it breaks our scale it's in a it's in a it's in a different uh different physical dimension what i'd like to do at some point is chart all of these, like with the x -axis being episode and the y -axis being A, B, C, D, F, and then, like, have error bars, like, for the variants that we wish to assign each of those, but, uh, that would be cool.

[913] I, I don't know, like B plus, A -minus with high variants.

[914] Yeah, hard to.

[915] Yeah.

[916] That actually would be really cool.

[917] Any, any questions, if you want to do a, create an acquired data visualization on that, that would be awesome.

[918] We'll put it on the site.

[919] We absolutely would.

[920] Yeah, my question is like is this the right time to do this like is should it 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 thing you'll certainly more so than a democratic administration than a democrat administration yeah i I don't know.

[921] We still live in a democracy, despite out where we're going to the next.

[922] This is where we should cut to the next section.

[923] Yeah, let's just go to the next section.

[924] All right.

[925] Okay, that sounds good to me. Carvouts?

[926] Yeah, there was an awesome podcast episode with Andrew Chen of Andrew Chen .com.

[927] The amazing growth marketer, who formerly was growth at Uber and now as a general partner at Andrews and Horowitz as of about a month ago.

[928] He was on Intercom's podcast, and Intercom has a great podcast.

[929] 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 figure out that in a large organization you can have 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 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.

[930] 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.

[931] 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.

[932] 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 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.

[933] Anybody who's listening to this podcast surely doesn't care about long, long episodes anyway.

[934] 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.

[935] And that's the way it's always been.

[936] It's just a matter of the cycle of one new tricks shift to old.

[937] Yeah.

[938] That's actually a really good point.

[939] It is like a law of nature like all all acquisitions 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 you know they're so I think about the scooter companies and the bike companies like growing on having your thing on the sidewalk Yeah, he points that out.

[940] Somebody, they ask him, what's your favorite onboarding tactic recently?

[941] 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.

[942] Like, that's the best onboarding ever.

[943] Yeah, it's great.

[944] But it's not going to work forever.

[945] 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.

[946] Sidewalks are going to look like my app screen, like my home screen.

[947] Yeah, remember homescreen real estate was like a good?

[948] tactic for a while and then people like know more apps on my home screen all right my car bout also a podcast a whole podcast series not an episode a podcast itself uh the nine nine six podcast this is great uh so it's done by zara zang and uh hans tung at gb capital uh which is a really really great uh vc firm and investor both in the u s and china they do cross border us and china and are in some of the largest chinese internet companies early and and great companies here in the U .S. 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 and China.

[949] And so, like, if you care about tech today, like, you've got to care about China, whether you operate in China or not.

[950] Like, there's just so much innovation over there.

[951] 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.

[952] China or at least it's on par.

[953] This is a great podcast for understanding what's going on.

[954] They have great guests and I can't recommend it enough.

[955] I listen to the first episode this morning on your recommendation and excited to dig into more.

[956] The first episodes with Jerry Yang.

[957] Jerry Yang.

[958] So like 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 and work with it.

[959] It's really cool story.

[960] Yeah, yeah.

[961] Really cool.

[962] And they have one of the co -founders to Shameh and, um, um, but they talk about all the bike sharing companies.

[963] I highly recommend.

[964] If you, uh, like our, our show, I think you will like theirs equally.

[965] Well, I think that's what we got.

[966] I think that's it.

[967] If this is your first time listening to an episode and you liked it, you should totally subscribe from your favorite podcast client.

[968] And we would love a review.

[969] And that's can happen wherever you choose, and that is all we have for you.

[970] Thanks to the telecom industry for providing a century of insane deals going down to give us the fodder for this research.

[971] Yeah.

[972] Thanks to the telecom industry for providing Amazon.

[973] And Rover and Madrona and the Acquired podcast.

[974] So there we go.

[975] All right, have a good one, everyone.

[976] Later.

[977] Thank you.