A T-Mobile-Sprint merger could mean higher prices
Marriage of nation’s No. 3-4 providers would jolt industry
Speculation that TNEW YORK Mobile and Sprint might pair up is mounting, thanks to comments from both wireless carriers’ executives, raising questions about what such a merger might mean for consumers who largely have benefited from the fierce competition that has come to define the business.
The nation’s third- and fourthlargest wireless carriers — and/or parent companies Deutsch Telekom and SoftBank— are engaged in such informal discussions, according to a Bloomberg report.
Mobile users have been the beneficiaries of price wars surrounding “unlimited” data plans, among other goodies competition has thrust their way. Prices for various plans could rise, or at least not fall as much, if a deal goes through.
But getting bigger is attractive for these companies and their parents because of the scale and potential synergies they bring.
T-Mobile Chief Financial Officer Braxton Carter told investors at a conference last week, “It’s not a question of will talks happen; of course they’ll happen.”
And T-Mobile Chief Operating Officer Mike Sievert told USA TODAY in February that “if the right opportunities came along to turbo-charge our strategy, our brand, our set of assets, we’d be open to it.”
SoftBank chairman Masayoshi Son has been open about the possibility. On a recent earnings call, Son, whose SoftBank owns about 83% of Sprint, said he would be “very sincere in trying to start a negotiation” with T-Mobile.
Previous talks of a marriage between the two carriers ultimately went bust because the expectation was that regulators under the Obama administration would never bless the union. The thinking now is that the Trump administration may look upon a merger more favorably.
Craig Moffett, a senior research analyst with MoffettNathanson, says a merger faces a number of obstacles. “First, one has to assume they will find a way to agree on deal terms,” which is complicated by the fact “that Sprint’s accounting is much more aggressive than T-Mobile’s, and after adjusting for those differences, Sprint is trading at a huge premium to T-Mobile.”
Moffett also believes “securing regulatory approval could be very hard. The FCC and DOJ likely feel vindicated for having blocked T-Mobile’s merger with AT&T in 2011, and Sprint’s high stock price makes it much harder to argue that Sprint is a serious bankruptcy risk absent a merger.”
Officials from the Obama administration warned again that a merger would be a bad deal for consumers.
Former Federal Communications Commission chairman Tom Wheeler and Bill Baer, former assistant attorney general for the Antitrust Division of the Department of Justice, wrote in an opinion piece on CNBC.com, “When the government blocks mergers between competitors, good things happen. Ensuring that competi- tion works to consumers’ benefit makes policing mergers among competitors a priority that transcends party and politics. Without it, you pay the price.”
Wheeler and Baer cited recent Labor Department statistics that show prices for wireless services dropping nearly 13% in the last year, a trend that could be halted or reversed should a deal occur.
Industry analyst Roger Entner of Recon Analytics predicts it will be T-Mobile’s maverick CEO John Legere who would be the one to ride off into the sunset (however well compensated) post-merger, with Sprint becoming the surviving carrier.
“The new combined Sprint and T-Mobile would look like Sprint looks today, just larger,” he says. If Entner is correct, that would presumably leave current Sprint CEO Marcelo Claure in charge.
Whatever one thinks of Legere’s brash tactics, he has been at the charge of a disruptive era in wireless that resulted in elimination of onerous wireless contracts and early termination fees, among other consumer-friendly measures.
Both T-Mobile and Sprint have made vast improvements to their networks, though they still trail Verizon Wireless and AT&T, in terms of coverage and network reliability, according to RootMetrics, an independent testing firm.
“Legere as a change figure and instigator would certainly be missed,” Entner says.
Still, Entner doesn’t think wireless prices will rise if a merger goes through, only that the decline in such rates likely will slow.
“There will be another Legere after Legere; the only uncertainty is when and from what company,” Entner says. “We need to look beyond just wireless. Business models are colliding, and competition will come from unexpected and expected areas.”
Indeed, there’s the specter that Comcast and Charter could get involved. The two cable giants are both readying their own wireless offerings for consumers and exploring “operational efficiencies” in the business together. It is possible the two might make a play for T-Mobile or Sprint, which under their partnership agreement they could only do jointly for a period of one year.
Getting bigger is attractive for these companies and their parents because of the scale and potential synergies they bring.