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Possibility of FCC Support Adds Hope to the Sprint-T-Mobile Merger Proposition

May 18, 2014 | About:
Quick Pen

Quick Pen

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Sprint (S) and T-Mobile (TMUS) merger seems to be a way out for fighting the long drawn tyranny of Verizon (VZ) and AT&T (T). This is exactly what Sprint has been advocating for a long time since the carrier made a proposal to join forces with T-Mobile. But chances looked very bleak as regulators are inconsiderate when it comes to combination transactions involving two big names.

But nothing is impossible. The Federal Communications Commission (FCC) seems to have moved a bit from its firm take and rigidity on the proposed merger between the third and fourth largest U.S. telecom providers. In meetings with the telecom players and Wall Street, Jessica Rosenworcel democratic commissioner at the FCC accepted that both Sprint and T-Mobile would not be able to pull off their businesses in isolation – and run viably without each other’s assistance and cooperation.

Good Reason

This suggests that the regulator has at least understood that there’s a good reason behind Sprint’s proposition of combining with T-Mobile. This brings a small ray of hope to the telecom player in support of the merger. Though the FCC has desired to have at least four carriers at national level, an expression like this is quite encouraging. Both Sprint and T-Mobile require a massive sum of around $10 billion over a period of 18 months to manage their costs and stay competitive. But that’s absolutely impossible for the two as they do not have enough finances to satisfy their needs, nor do the companies generate sufficient revenue for that matter.

The FCC and Department of Justice (DoJ) are evaluating the deals to ascertain if they are in public interest. Currently they seem contended with the level of competition that’s established in the telecom space. However, they also understand that if the smaller carriers are finding it tough to retain their position and keep the business going, it would dampen the existing competition.

FCC chairman Tom Wheeler, however isn’t supportive of the Sprint-T-Mobile deal and believes it could hurt competition. Another development that indicates that the regulatory agency is not in favor of the deal is its decision of keeping aside a portion of the spectrum at the incentive auction scheduled for 2015. But how much spectrum would be kept aside for smaller players, remains a question. Ms. Rosenworcel is a bit taxed about the entire proposition of reserving airwaves, as the main purpose of holding spectrum auction is to raise fund to aid in the nationwide deployment of network.

Sprint and T-Mobile still complain that they would not be able to fight the two giants during the auction unless they can merge.

Persistent Effort

Although Sprint hasn’t received much of positive vibes from the FCC, Softbank CEO and Sprint chairman Masayoshi Son is bent on getting the green signal for the merger. Even if the FCC agrees to the deal, Sprint would have to seek another approval from the DoJ, which again is quite apprehensive about the proposal.

Masayoshi discloses his enormous plans for the U.S. wireless industry saying that he desires to introduce “network war and price war” in the nation just the way he did it in Japan. Hinting at Verizon and AT&T’s services, Masayoshi says, “I'd like to be a third alternative with 10 times the speed and lower price.” T-Mobile CEO John Legere seconds Son’s sentiments and says it’s high time for the industry to have a strong third player to crush the duopoly.

Departing Thoughts

Clearly the FCC and DoJ still look far from convinced for the proposition, but Ms. Rosenworcel’s remark on Sprint’s and T-Mobile’s unfeasibility to stay as an independent wireless provider shows that there might be some difference of opinion among the FCC commissioner, which might lead them to discuss over the possibility of the deal. Investors are closely watching the development of the deal and its prospects. What needs to be seen is how the merger, in case it happens, would change the telecom industry by large, and shake the duopoly of Verizon and AT&T.

About the author:

Quick Pen
A seasonal writer with a Management Degree in Finance and interests in automotive, technology, telecommunication and aerospace sectors.

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