Sprint, T-Mobile plan to merge in $26bn deal | Analysis

Sprint, T-Mobile plan to merge in $26bn deal | Analysis

UPDATED US wireless companies Sprint and T-Mobile have announced that they are to merge in an all-stock deal which values the combined company at $146 billion, including debt. With debt stripped out, the deal is worth $26.5 billion.

The new company, called T-Mobile, will be headquartered in Bellevue, Washington, under the leadership of T-Mobile chief John Legere. Sprint CEO Marcelo Claure will serve on the board.

The aim is to take the fight to the US’ largest wireless carriers, Verizon and AT&T, from a consolidated position at number three in the market, with a promise to build out a large-scale 5G network and compete on quality and depth.

Behind the scenes

The powers behind the throne are Deutsche Telekom, which owns 66 percent of the existing T-Mobile, and Japanese communications and robotics group SoftBank, which owns a majority stake in Sprint.

Deutsche Telekom wants to reduce its exposure to both T-Mobile and the US market, and the merger will leave it with a reduced 20 percent stake in the debt-laden firm.

SoftBank’s billionaire CEO Masayoshi Son, who will serve on the board of the new T-Mobile, will be waiting in the wings to pick up Deutsche Telekom’s remaining stake, should the company decide to sell. Son’s intention is to be a major player in the US telecoms sector, where he has made no secret of his desire to take on Verizon and AT&T.

Among its other holdings, SoftBank owns robotics group Boston Dynamics, acquired from Alphabet/Google, and Alderbaran Robotics (now SoftBank Robotics), maker of the NAO, Pepper, and Romeo humanoids.

Consumer choice

However, the Sprint/T-Mobile merger will come under close scrutiny by US regulators, as it will reduce choice in the US market to just three major players – albeit with the newly consolidated T-Mobile still having a steep hill to climb on subscriber numbers.

In 2011, AT&T attempted to purchase T-Mobile for $39 billion, but the deal was blocked by the Department of Justice (DoJ) and the Federal Communications Commission on competition grounds.

It’s a familiar scenario for the company. AT&T’s proposed merger with media giant Time Warner is currently in court, with arguments closing today.

The DoJ believes the $85 billion merger will harm consumer choice. However, the antitrust case is a high-stakes gamble by the government, because while AT&T and Time Warner have multiple alignments within their core businesses, they aren’t direct competitors.

If the DoJ loses, it may embolden other companies to pursue transformative deals across complex media/technology portfolios, and may harm the DoJ’s ability to block both vertical and horizontal mergers.

All of this takes place in the context of the end to net neutrality in the US, where deals such as AT&T/Time Warner could have negative impacts on customers’ ability to make independent choices or see the full range of data on any subject.

Speaking yesterday, Judge Richard Leon, who is overseeing the DoJ case against AT&T/Time Warner, indicated that he may opt for a compromise solution: neither approving nor blocking the deal, but insisting on an asset sale to lessen the impact. A decision is expected on 12 June.

Internet of Business says

Wall Street analysts, initially bullish about the Sprint/T-Mobile deal, have cooled towards the merger. According to investor forum Seekingalpha, analyst Craig Moffett gives the deal a 50/50 chance of being accepted by regulators, while BTIG says it has “less than a 40 percent chance of approval” in an environment where US authorities may be reluctant to allow wireless competition to drop to three major firms.

Another factor in any case brought against Sprint and T-Mobile may be probes into possible market collusion. The US Department of Justice is looking into potential coordination between Verizon, AT&T, and industry standards body GSMA which, the DoJ believes, may be making it difficult for consumers to switch carriers.

The two companies are accused of working with the GSMA on new standards that would let them lock devices to their networks in spite of eSIM technology. As a result of the investigation, GSMA is holding off on releasing the official eSIM standard.

According to CNBC, the DoJ has also contacted T-Mobile and Sprint in its investigation. However, it is not clear whether they, too, may be implicated.