There’s been lot of talks about a possible Sprint (S) and T-Mobile (TMUS) merger. Where’s the relation between the two U.S. telecom giants headed remains a question. Would they continue to be compatriots or join forces together to make a new third entity in the wireless arena? Softbank CEO Masayoshi Son has been quite keen on T-Mobile.
The company entered the U.S. telecom market by virtue of its majority interest in Sprint. Softbank said that it targets to make the U.S. market more competitive by offering financial cushioning to Sprint so that it could effectively compete with Verizon (VZ) and AT&T (T). But Son says that it’s virtually impossible for the Kansas carrier to pose threat to the tyranny of the two biggies given its tiny size compared to the two. Thus he proposes a merger with T-Mobile which according to him would create a stronger third player in the market. But the FCC has a different take on the same.
What does the FCC have to say?
The regulator’s reaction is nothing surprising. After Son met the Federal Communications Commission (FCC) to convince them about the prospects of the proposed deal, Reuters reported that FCC chairman Tom Wheeler wasn’t quite impressed and had dubious thoughts on it.
The FCC has not really had a good history when it comes to agreeing to a merger involving two big players. We have seen that in the past in 2011 when AT&T had a mind to acquire T-Mobile and offered a $39 billion deal. The deal fell through as the FCC and the Department of Justice (DoJ) didn’t agree saying that the transaction would kill wireless competition. So whether or not Son’s proposal would receive FCC’s blessing stays a question.
Let’s see what T-Mobile has to say.
T-Mobile CFO Braxton Carter promoted the merger proposal saying that “a third-scale national player that has the scale benefits with the right business model could be very competitively enhancing in the U.S.”. If the Kansas carrier acquires T-Mobile the total subscriber base would receive a tremendous boost. Presently Sprint has around 53 million subscribers, but if T-Mobile’s customer base is added to it then it would stay tad away from the bigger rivals.
Carter also nattily hints at the U.S. spectrum auction which he believes is more dangerous and biased towards bigger players AT&T and Verizon that have solid finance than the Sprint-T-Mobile merger. The merger isn’t as harmful as the regulators think; rather it would improve the combined entity’s ability to fight for spectrum at the auction.
What are Verizon’s and AT&T’s thought on the same?
AT&T is quite sure that the deal wouldn’t receive a go-ahead signal from the regulators. This is a lesson it’s learnt from its past experience when it intended to acquire T-Mobile. The company CEO John Stephens said that he’d rather be taken aback if he learns that the regulators have passed the proposal.
Verizon CEO Shammo had very little thoughts to share. The only point he highlighted was that the wireless industry ideally needs four national carriers. Also consolidation would lead to concentration of airwaves in the hands of the new entity.
The deal would have to face FCC’s strict regulatory procedure. This would only be possible if Son can strongly convince that the merger would not only prove better for the wireless industry but also leave the industry more competitive.