T-Mobile USA and Sprint today announced an agreement to merge, a deal that would combine the US mobile industry’s third and fourth biggest carriers to create a giant nearly as large as AT&T or Verizon Wireless. The all-stock merger deal would have T-Mobile acquire Sprint for $26 billion worth of stock, according to Reuters.
“The combined company will be named T-Mobile, and it will be a force for positive change in the US wireless, video, and broadband industries,” the companies’ announcement said.
But the deal will reduce competition, leaving the US with three major nationwide wireless carriers instead of four. The companies abandoned a merger attempt in 2014 when it became clear that Obama administration regulators wouldn’t allow it.
Under the Trump administration, the Federal Communications Commission has routinely granted the requests of telecom industry giants and their lobbyists. But while the FCC is likely to approve a T-Mobile/Sprint merger, Trump’s Justice Department is harder to predict. The agency’s antitrust regulators sued in an attempt to prevent AT&T from purchasing Time Warner Inc., and wouldn’t necessarily let T-Mobile and Sprint merge without a legal battle.
T-Mobile CEO John Legere would serve as CEO of the combined company. T-Mobile owner Deutsche Telekom would own 42 percent of the company, and Sprint owner SoftBank would own 27 percent, “with the remaining approximately 31 percent held by the public,” the companies’ announcement said.
T-Mobile and Sprint have periodically discussed merging since Trump took office, but the companies hadn’t previously finalized a deal.
Decline in competition
US regulators may closely examine how reducing competition will affect consumer prices. They could look to Canada, which has three major carriers. Those three Canadian telcos have been known to roll out similar price increases at nearly the same time, making it harder for customers to avoid price hikes.
T-Mobile has 72.6 million US subscribers and Sprint has 54.6 million, or more than 127 million combined, according to the companies’ announcement. Verizon Wireless has 150.5 million subscribers while AT&T has 141.6 million, according to a FierceWireless report based on Strategy Analytics data.
These numbers includes both retail and wholesale connections for smartphones, other mobile devices, and “connected devices” such as machine-to-machine systems.
AT&T tried to buy T-Mobile in 2011, but abandoned the deal after encountering opposition from Obama’s FCC and Justice Department.
T-Mobile was struggling at the time of the failed merger, but has since shown the value of competition by soaring past Sprint and taking customers from AT&T and Verizon with relatively consumer-friendly service offerings.
Carriers try to capitalize on 5G concerns
T-Mobile and Sprint argue that they can provide greater benefits to customers by joining together.
“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 innovation, and a second-to-none network experience—and do it all so much faster than either company could on its own,” Legere said.
Wireless industry lobbyists have recently been arguing that the US could “lose the race to 5G” unless the government enacts more industry-friendly policies.
FCC Chairman Ajit Pai has also been focused on “reducing regulatory barriers” to encourage upgrades from 4G to 5G wireless networks. The T-Mobile/Sprint announcement echoes this rhetoric, claiming that neither T-Mobile or Sprint alone “can create a nationwide 5G network with the breadth and depth required to fuel the next wave of mobile Internet innovation in the US and answer competitive challenges from abroad.”
The companies’ spectrum licenses will pair well together for high speeds and widespread coverage in both urban and rural areas, they also argued. “With Sprint’s expansive 2.5GHz spectrum, T-Mobile’s nationwide 600MHz spectrum, and other combined assets, the New T-Mobile plans to create the highest-capacity mobile network in US history,” they said.
Consumer advocates are warning that the deal will hurt consumers, though.
“Just as the Department of Justice and the Federal Communications Commission concluded when the government rejected AT&T’s 2011 attempt to acquire T-Mobile, such a drastic reduction in competition is likely to harm competition and increase costs for consumers,” consumer advocacy group Public Knowledge said.
A combined T-Mobile and Sprint could raise prices, while removing incentive for AT&T and Verizon to lower their prices, Public Knowledge Senior Policy Counsel Phillip Berenbroick said. “Unless the merging parties can demonstrate clear competitive benefits we have yet to see, we will urge the Department of Justice and the FCC to reject this deal,” he said.