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The Wireless War Gets a Little Tougher

With Verizon (VZ) and AT&T (T) in total domination of the wireless market in the U.S., the competition is struggling to keep up. Realizing just how difficult it will be to compete against Sprint and AT&T, competitors are starting to consolidate in order to put up a better fight.

Back in October, T-Mobile USA announced that it would be acquiring MetroPCS, which would result in around 42.5 million users for the combined company. T-Mobile made this deal in order to put it in closer competition with the nation’s number 3 carrier Sprint (S).

Soon after T-Mobile announced its acquisition, Sprint made an announcement of its own… that it was selling a majority stake of the company to SoftBank of Japan for $20.1 billion, giving SoftBank 70% ownership of the company. The deal was a major step forward for Sprint, giving it plenty of financial ammunition to use for expanding its network and look at possible acquisitions of its own.

The general consensus was that the company would go after Clearwire. Quickly after the SoftBank deal was announced, Sprint increased its ownership in Clearwire to give it a majority stake of the company, and today it announced a $2.1 billion offer to buy the remainder of the company.

Acquiring Clearwater would give Sprint control of the unprofitable business, but would also give it access to Clearwire’s vast reserves of spectrum. As Sprint continues to try to expand its own broadband network, Clearwire’s spectrum will come in very handy.

Sprint is not content with being the nation’s number 3 carrier, but if it ever wants to compete on a level playing field with Verizon and AT&T it absolutely has to boost its wireless-data capabilities. Taking control of Clearwater will help move it in the right direction, but it will still not be enough to help propel the company out of the number 3 slot.

The T-Mobile deal offers substantially more upside. T-Mobile has been seriously trailing the rest of the major carriers since it has not been able to work out a deal to offer its customers Apple’s (AAPL) iPhone. This will change next year, as the company has finally worked out a way to bring the iPhone to its retail stores.

The MetroPCS deal gives T-Mobile access to its LTE network, which allows the iPhone onto the network. T-Mobile could seriously pose a risk to AT&T and Verizon, since it will sell the phone in a different way. Instead of giving customers a subsidy, it will charge full price, which may sound like a bad decision, but will give its customers the chance to upgrade any time they want, and the monthly plans will be cheaper.

As any iPhone user will tell you, there is nothing more frustrating than finding out they are not eligible to update their phone when a new one is released. This will not a be a problem for T-Mobile customers, and that may be just the thing that propels T-Mobile into closer competition with the big boys.

What is obvious is that the wireless market is more competitive than ever. I expect to see more consolidation in the near future as everyone tries to grab as much of the market as possible.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.