T-Mobile, Sprint announce plans to merge
Move could reshape industry, pave way for more consolidation.
T-Mobile and Sprint, the nation’s third and fourth largest wireless carriers, announced a roughly $26.8 billion merger on Sunday that could dramatically reshape the U.S. telecom industry while testing the appetites of consumers and regulators alike for further corporate consolidation.
The deal marks the latest attempt by T-Mobile, operated by Germany’s Deutsche Telekom, and Sprint, run by the Japanese conglomerate SoftBank, to combine forces as they seek to amass subscribers and challenge the national footprints of AT&T and Verizon, particularly at a time when the industry is racing to deploy the next generation of ultra-fast wireless technology, called 5G.
T-Mobile and Sprint have sought such a tie-up in the past, and much as before, they could face tough regulatory scrutiny in Washington. Federal officials have repeatedly signaled that they believe consumers are best served when there are at least four national wireless providers competing against one another, not three.
This time, though, executives for Sprint and T-Mobile aim to convince regulators in the Trump administration that offering 5G wireless service around the country — a network for everything from smartphones to internet-enabled cars and other technologies — will require more resources than either of them could sustain individually.
“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more inno-
vation, and a second-to-none network experience — and do it all so much faster than either company could on its own,” said John Legere, the chief executive of T-Mobile, in a statement. Under the newly announced merger, Legere would serve as leader of the combined company.
“As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf,” he said.
If they complete their deal as proposed, a combination of T-Mobile and Sprint could unseat AT&T as the country’s second-biggest wireless provider. The new firm would have roughly 100 million customers, more prepaid and postpaid subscribers in the United States than AT&T’s 93 million. And it would put the newly formed wireless giant within striking distance of Verizon’s customer base of 116 million.
“Telecom is a scale business,” said Blair Levin, a policy adviser for the analysis firm New Street Research. “There are huge advantages of scale, and T-Mobile and Sprint have been carrying the cost of a network over a much smaller number of customers.”
Yet the companies must overcome myriad political hurdles — including consumers’ heightened skepticism about the rapid pace of consolidation in the media and telecom industries. From President Donald Trump to Sen. Elizabeth Warren, D-Mass., policymakers recently have sounded out against these deals.
For years, T-Mobile and Sprint had flirted with such a combination, only to abandon their plans because of political troubles or boardroom squabbles. Notably, in 2014, Sprint dropped an attempt to acquire T-Mobile after the Obama administration hinted it would be likely to block the merger because eliminating a rival would be bad for competition. Those same concerns thwarted AT&T’s own plan to acquire T-Mobile in 2011.
The Federal Communications Commission and the Justice Department — which will review the newly formalized merger to ensure it protects consumers and competition — declined to comment. T-Mobile and Sprint said they expect the deal to close by the first half of 2019.
But some analysts say the government’s argument for opposing such a merger in 2014 since has proven correct. Preventing consolidation paved the way for T-Mobile to launch its Uncarrier campaign to reshape the wireless industry, said Craig Moffett, a telecom analyst at the research firm MoffettNathanson. The result has been lower prices and more consumer-friendly business practices, such as the end of long-term customer contracts.
“The DO J’s decision to block the transaction has been validated in every conceivable way,” Moffett said. “T-Mobile has not only survived — it has thrived. The market has become more competitive. Consumers have unambiguously benefited from the DO J’s decision. That poses a problematic backdrop for this merger.”
For Sprint, the troubles have been more acute, not the least because it holds considerable debt. Combined, though, the two wireless companies are bound to argue they’re better positioned to deploy the infrastructure necessary to power 5G. They already have pledged to invest $40 billion in their network in their first three years after merging.
Cost-savings from the merger could amount to $64 billion, according to some analyst estimates. Meanwhile, T-Mobile and Sprint are poised to cite recent efforts by the cable industry to launch nascent wireless products, such as Comcast’s Xfinity Mobile, as evidence that the marketplace has changed — and new competitors are on the scene — in recent years.
“This isn’t a case of going from 4 to 3 wireless companies - there are now at least 7 or 8 big competitors in this converging market. And in 5G, we’ll go from 0 to 1. Only the New T-Mobile will have the capacity to deliver real, nationwide 5G,” Legere said in a statement.