T-Mobile and Sprint announced Sunday that they reached an agreement to combine into a new company that would reshape the U.S. wireless landscape by reducing it to three major cellphone providers.
The big unknown is whether the combination will win the necessary approval from the Trump administration’s antitrust regulators.
The merger would help the companies slash costs and could make them a stronger competitor to larger AT&T and Verizon. But consumers might see higher prices because there would be fewer competitors in the industry.
The proposed all-stock deal values Sprint at about $59 billion US and the combined company at $146 billion US, including debt.
It comes after Sprint dropped its bid for T-Mobile more than three years ago following concerns by the Obama administration about wireless competition. The two were also poised to combine in October, but that deal was called off, too.
The supersized company would have nearly as many wireless subscribers as Verizon and AT&T. T-Mobile and Sprint could save money by merging their networks and closing stores.
The deal will have to be reviewed by the Justice Department and the Federal Communications Commission.
National carriers had not been able to get a deal through under President Barack Obama. But the FCC in September deemed the wireless market “competitive” for the first time since 2009, which some analysts say could make it easier to present a deal.
FCC Chairman Ajit Pai, President Donald Trump’s appointee, has not criticized the idea of just three national carriers, as his Democratic predecessor did.
T-Mobile does not need a merger with Sprint to succeed, but Sprint might need one to survive– Walter Piecyk, BTIG Research analyst
Sprint dropped its bid for T-Mobile more than three years ago after running into concerns about wireless competition in the Obama administration. The two companies were poised to combine in October, but that deal was called off, too.
Sprint and its owner, the Japanese conglomerate SoftBank, have long been looking for a deal as the company has struggled to compete on its own.
Sprint has a lot of debt and has posted a string of annual losses. The company has cut costs and made itself more attractive to customers, BTIG Research analyst Walter Piecyk says, but it hasn’t invested enough in its network and doesn’t have enough airwave rights for quality service in rural areas.
T-Mobile, meanwhile, has been on a years-long streak of adding customers. After the government nixed AT&T’s attempt to buy the company in 2011, T-Mobile led the way in many consumer-friendly changes, such as ditching two-year contracts and bringing back unlimited data plans. Consumers are paying less for cellphone service, thanks to T-Mobile’s influence on the industry and the resultant price wars.
“T-Mobile does not need a merger with Sprint to succeed, but Sprint might need one to survive,” Piecyk wrote in a research note.
But MoffettNathanson analyst Craig Moffett said T-Mobile’s momentum is slowing, which may explain why the company and its parent, Germany’s Deutsche Telekom, “have warmed to the idea of a merger sooner rather than later.”
The Communications Workers of America, a union for telecommunication workers, says the merger will cost at least 20,000 U.S. jobs and reduce competition in wireless, bringing higher prices.
But the cost savings could help the combined company build infrastructure and buy rights to the airwaves needed for faster “5G” service that is expected to be up in running within the next few years.
The combined company still wouldn’t be able to fully compete as Verizon, AT&T and Comcast morph into communications-and-content giants.
Verizon and AT&T have been expanding their video-content businesses, while cable companies have been moving into wireless. That allows a single company to combine home and wireless internet and use content to support the communications businesses.
Comcast, the cable giant that finished buying NBCUniversal in 2013, offers customers wireless service by reselling access to Verizon’s network. So does another dominant cable company, Charter.
T-Mobile’s chief finance officer suggested last year that a deal in which Sprint and T-Mobile worked with Comcast and Charter would be “very, very exciting.” The cable companies could resell service from the combined company, perhaps getting better terms than the Verizon arrangement. That could lead to more customers getting a wireless and home internet bill from the same company.
AT&T and Verizon, meanwhile, are becoming more like media and cable companies. They are both testing a type of home wireless that could be as fast as or faster than cable.
AT&T, the country’s biggest TV provider since its purchase of DirecTV, is facing a lawsuit from the Justice Department related to antitrust concerns over its deal for Time Warner, parent company of HBO, CNN and Warner Bros. movie studio. To lure wireless customers, AT&T offers discounts on DirecTV and could soon do so with HBO.