Mobile giants T-Mobile and Sprint on Sunday announced their unanimity to a $26 billion all-stock merger, in what is being perceived as a bid to combine forces and, indeed, their plentiful resources, to take on the likes of Verizon and AT&T.
“This combination will create a fierce competitor with the network scale to deliver more for consumers and business in the form of lower prices, more innovation, and a second-to-none network experience — and do it all so much faster than either company could do on its own,” T-Mobile US CEO John Legere said in a statement.
Of course, the merger has to get past antitrust regulators at the Department of Justice, which could well throw a spanner in the works, as we saw in 2014 under the Barack Obama administration that put paid to the first round of merger negotiations between the two companies.
The second round of talks, however, was nixed because they were “unable to find mutually agreeable terms,” per the joint statement by the two companies.
“While we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own,” Sprint CEO Marcelo Claure said at the time.
Assuming that all goes well with the regulatory authorities, SoftBank’s stake under the new deal will about 27 percent, while T-Mobile owner, Deutsche Telekom (DTEGF) will end up with a 42 percent stake in the new company, in addition to having control of the board and voting rights.
The merger move will see the third and the fourth largest forces among wireless service providers combine their might against Verizon and At&T, the top two in the pecking order, as of now; but, all that could change very quickly in times to come.
Based on the last closing price of its shares, Sprint is worth $26 billion, while T-Mobile was last valued at $55 billion.
The new company will pump in $40 billion over the next three years to revamp its network infrastructure in preparation for the next-gen 5G technology, which promises the requisite speed to support drones and self-driving cars, Legere said in a statement.
The combined company will be called T-Mobile and the incumbent T-Mobile US CEO John Legere will be at the helm of the merged entity.
T-Mobile COO Mike Sievert will take over as the COO and President, while Sprint CEO Marcelo Claure and SoftBank CEO Masayoshi Son will be members of the unified board.
In a tweeted statement, Legere expressed his excitement over the merger agreement, saying that the new company would emerge as a formidable competitor and a “force for positive change for all US consumers and businesses.”
I’m excited to announce that @TMobile & @Sprint
have reached an agreement to come together to form a new company – a larger, stronger competitor that will be a force for positive change for all US consumers and businesses! Watch this & click through for details.
— John Legere (@JohnLegere) April 29, 2018
‘Georgetown Law’ professor and telecommunications attorney, Andrew Schwartzman, expressed his apprehensions to CNNMoney about the merger breaking ice with the regulators.
His observation is based on the fact that regulators blocked the deal in 2014 on the premise that the wireless market was large enough to accommodate four major stakeholders, and that the competition would be in the interest of consumers.
What he did not mention, though, is the fact that the merger was disallowed under the Obama administration, and that the outcome may not be the same this time around.
Schwartzman is of the opinion that the DOJ may not be convinced that the situation has changed enough to warrant the merger.
“It will be difficult to convince the Justice Department that circumstances have changed so much that it’s necessary to go down to three providers,” he said. “That’s the major hurdle that has to be confronted,” he told CNNMoney.
The concerned parties, however, are optimistic of a positive outcome, expecting the regulators to rule in their favor.
“This isn’t a case of going from four to three wireless companies – there are now at least seven or eight big competitors in this converging market,” Legere said, taking cable companies in the equation, as well.
He said that a unified T-Mobile and Sprint would compel these companies to invest aggressively.
Both the companies’ CEOs have pledged a stronger single competition that will not only make the transition to 5G a quick reality but also generate jobs, with Legere dispelling the theory that mergers lead to downsizing.
Marcelo said that the merger would enable the unified company to give the Verizon and AT&T juggernauts a good run for their keep.
Experts have long foreseen consolidation in the wireless industry and consider the T-Mobile and Sprint unification as the most suitable merger.
What this, actually, does is basic arithmetic in terms of customers; add the existing 72.6 million T-Mobile customers to the 54.6 customers that Sprint boasts and you have a customer base of 127.2 million, meaning a substantially bigger market presence and, hence, more revenue, in addition to the combined resources for bigger investments.
Obviously, it levels the playing field to a great degree, bringing the combined company more or less at par with Verizon and AT&T that currently have 116.2 million and 143.8 million customers, respectively.
The announcement comes at a time when AT&T and CNN-owned Time Warner are negotiating an $85 billion merger and are awaiting the outcome of a case in federal court, pending the judge’s decision, on which the fate of the deal depends.