T-Mobile (TMUS, Financial) and Sprint (S, Financial) merger talks have been in the headlines ever since the news broke last November. Though the Federal Communications Commission and the U.S. Department of Justice must still approve the deal, T-Mobile CEO John Legere continues to keep up hopes on the merger. The combination has the potential to bring about cost savings worth billions of dollars and create a company that can effectively take on the supremacy of top players, such as AT&T (T, Financial) and Verizon (VZ, Financial), Legere said.
T-Mobile and Sprint have also said that their merger would lead to faster development of the next generation wireless network 5G. However, there are obvious concerns among consumer groups and analysts regarding the power that the merged entity would carry, which could lead to higher prices with fewer wireless options.
Intention behind the merger - Building 5G?
The FCC and the antitrust regulators have always opposed mergers that threaten the existence of the four major wireless carriers. However, Sprint and T”‘Mobile argue that their combination would bring together greater resources in order to build the new 5G network infrastructure faster than either could separately. Legere was able to persuade T-Mobile’s corporate parent, Deutsche Telekom, and Masayoshi Son, chairman of Sprint’s majority owner, SoftBank to proceed with the merger deal by using the 5G argument. In an interview with Fortune, Legere said on the $26.5 billion deal:
“The awareness by the United States of its trailing countries like China and the possibilities of what we could do together”‰…”‰that became kind of the pushing point for this last emphatic push.”
If the deal receives a green signal from the regulatory bodies, Legere could be seen as the CEO of the combined entity. However, there are several groups that are skeptical about the deal. The skeptics have questions, such as: Is it intended to build 5G, give tougher competition to AT&T and Verizon, offer lower prices or higher prices? Will it impact low-income families, reduce special offers and prohibit new entrants?
Sprint and T-Mobile had first attempted to join forces in 2014 while AT&T had proposed to buy T-Mobile in 2011. Both the proposals fell through. Though wireless carriers promise the combined company will compete even more fiercely to keep prices low, economists groups believe that once the merger happens and the market shrinks, industry dynamics will shift in favor of the wireless carriers more than the consumers.
Persuading the regulators
U.S. consumers are currently in a fix regarding supporting or opposing the deal. As per a survey conducted on some 2,000 people older than 18, around 59% were unsure about their stand on the deal. Factors such as service improvements, price cuts, improved customer service and economic growth through job creation would make consumers “much more likely” to favor the combination. Also, consumers appeared interested in the merger because it would allow for the investment of $40 billion into the nationwide 5G network. The  deployment of the 5G network would ensure that the U.S. becomes a frontrunner in the upcoming network.
Legere and Sprint executive chairman Marcelo Claure have been putting in all effort to convince regulators at the Department of Justice and FCC regarding the merits of the deal. The Department of Justice began its investigation into the proposed merger shortly after the deal was announced on April 29. During the earnings call in early May, Legere said that his initial meetings with the FCC commissioners went quite well and that regulators listened to the proposal with an open mind.
Disclosure: I do not hold any position in the stocks mentioned in this article.
