A U.S. District judge on Tuesday ruled that Sprint and T-Mobile, the nation’s third- and fourth-largest mobile carriers, could go forward with a US$25 billion merger. The deal will not close until the California Public Utilities Commission approves the transaction, but clearing this latest hurdle moves the two companies one step closer to a merger that has been years in the making.
Attorneys general from several states — California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Pennsylvania, Virginia, Wisconsin — and theDistrict of Columbia brought lawsuits to block the deal following past approval from both the Department of Justice and the Federal Communications Commission.
The states argued that such a merger would limit competition and result in higher prices for consumers. Sprint and T-Mobile countered that as a combined entity, they would be positioned to compete better with AT&T and Verizon. In addition, the carriers suggested that pooling their resources would help them build a nationwide 5G mobile network.
In the end, U.S. District Judge Victor Marrero ruled in favor of Sprint and T-Mobile, finding that the combined company would not result in higher prices or lower-quality wireless service. He also agreed with the argument that Sprint would be able to operate as a strong competitor without the merger.
Dish Network, the Colorado-based satellite pay-TV service, will enter the market as the fourth nationwide mobile carrier.
As a condition of the merger, T-Mobile and Sprint must divest Sprint’s prepaid business, including Boost Mobile, Virgin Mobile, and Sprint prepaid, to Dish. In addition, T-Mobile will provide Dish with access to the T-Mobile network for a period of seven years while Dish transitions the business and builds out its own 5G network.
The proposed settlement also calls for the divestiture of substantial spectrum assets to Dish. Also, T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations.
Bridging the Networks
Going into the merger, T-Mobile has the wider coverage map, which should be good news to Sprint customers. However, the companies operate on completely different network technologies. T-Mobile’s network is GSM, while Sprint’s is CDMA. Sprint customers may be forced to buy a new phone after the merger.
For T-Mobile customers, very little is expected to change, as it is taking over Sprint’s billing once the deal closes. Sprint customers on prepaid services, including Boost Mobile and VirginMobile, won’t be heading to T-Mobile and instead will become Dish customers.
Consumer advocates have warned that unlimited plans could be in jeopardy. Both Sprint and T-Mobile tried to lure consumers with such plans. With less competition, there is an argument that AT&T and Verizon won’t need to continue to offer such plans. However, it is unlikely that either of the big two carriers can cut prices or that T-Mobile’s pricing will increase much, at least in the short term.
“Wall Street values both companies on profit margin,” noted RogerEntner, principal analyst at Recon Analytics.
“Any reduction in margin is harshly punished with a lower stock price, so I don’t think ‘New T-Mobile’ will raise prices,” he told the E-Commerce Times.
“T-Mobile gets rewarded for customer growth. Its continued low prices would ensure more new customers,” added Entner.
One of the biggest arguments against the merger of the two carriers was that it would reduce competition, limit consumer choice, and raise prices.
“The question before judge Marrero, and still before the California Public Utilities Commission, is whether the merger will reduce or increase competition in the U.S. mobile services market,” said SteveBlum, principal analyst at Tellus Venture Associates.
“I don’t agree with Marrero. Going from four national competitors to three will reduce competition, particularly at the low end of the market,” he told the E-Commerce Times.
“Consolidation of two such wireless powerhouses means significantly reduced competition in the U.S. in an already highly concentrated market,” said telecommunications analyst Gil Regev, consultant at Gil Regev Communications.
The result is “mainly bad news for consumers, translating into hiking prices, with U.S. mobile subscribers already paying some of the highest plans in the Western world,” he told the E-Commerce Times.
Serving the Same Customers
Arguably, the pre-merger wireless landscape is not a four-way competition. AT&T and Verizon are top-tier competitors of relatively equal strength, while T-Mobile and Sprint are second-tier rivals.
“T-Mobile and Sprint compete against each other for customers AT&T and Verizon aren’t particularly interested in,” noted Blum.
“With that dynamic gone, T-Mobile can either set ‘affordable’ prices at a point that maximizes profit or ignore that market segment completely,” he added.
“They say they won’t do that, but economic reality says otherwise. Everybody hates a monopoly until they are one,” Blum quipped.
Another concern is that with one less carrier, innovation could suffer — at least until Dish is able to make the transition from satellite pay-TV service to a full mobile phone carrier. However, the counterargument is that the combined T-Mobile and Sprint could be far better positioned to roll out a 5G network to compete with AT&T and Verizon.
“This merger does present an opportunity on the technological front. The recent ruling stipulates that the newly merged T-Mobile/Sprint company is required to provide 97 percent 5G coverage across the U.S. in the next three years,” said Regev.
“The rolling out of this advanced infrastructure will not only be available in big cities and financially strong states but throughout the country, presenting new opportunities for employment and an advanced-connected technology rollout throughout the U.S.,” he added.
“This could potentially increase T-Mobile/Sprint’s current — relatively small — market share, compared to AT&T and Verizon,” suggested Regev.
Another consideration is how the two companies, which have each seen their fair share of mergers and acquisitions, actually will handle their joining of services.
“Both companies have shown the best and worst in merger integration,” said Recon Analytics’ Entner.
“T-Mobile’s integration of Metro PCS was probably the best I’ve ever seen, while Sprint’s integration of Nextel was probably the worst,” he added. “[T-Mobile US President] Mike Sievert is a known operator and has experience on how to pull a merger off. I am optimistic for T-Mobile.”