A U.S. District judge on Tuesday ruled that Sprint and T-Mobile, the nation’s
third- and fourth-largest mobile carriers, could
go forward with a US$25 billion merger. The deal will not close
until the California Public Utilities Commission approves the
transaction, but clearing this latest hurdle moves the two companies one step closer to a merger that has been years in the making.
Attorneys general from several states — California,
Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan,
Minnesota, Oregon, Pennsylvania, Virginia, Wisconsin — and the
District of Columbia brought lawsuits to block the deal following past
approval from both the Department of Justice and the Federal
Communications Commission.
The states argued that such a merger would limit competition and
result in higher prices for consumers. Sprint and T-Mobile countered that as a combined entity they would be positioned to compete better with AT&T and Verizon. In addition, the carriers suggested that pooling their resources would help them build a nationwide 5G mobile
network.
In the end, U.S. District Judge Victor Marrero ruled in favor of
Sprint and T-Mobile, finding that the combined company would not
result in higher prices or lower-quality wireless service. He also
disagreed with the argument that Sprint would be able to operate as a
strong competitor without the merger.
Dish Network, the Colorado-based satellite pay-TV service, will
enter the market as the fourth nationwide mobile carrier.
As a condition of the merger, T-Mobile and Sprint must divest Sprint’s
prepaid business, including Boost Mobile, Virgin Mobile, and Sprint
prepaid, to Dish. In addition, T-Mobile will provide Dish with access
to the T-Mobile network for a period of seven years, while Dish
transitions the business and builds out its own 5G network.
The proposed settlement also calls for a divestiture of substantial
spectrum assets to Dish. Also, T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations.
Bridging the Networks
Going into the merger T-Mobile has the wider coverage map, which
should be good news to Sprint customers. However, the companies
operate on completely different network technologies. T-Mobile’s network is GSM
while Sprint is CDMA. Sprint customers may be
forced to buy a new phone after the merger.
For T-Mobile customers, very little is expected to change, as it is
taking over Sprint’s billing once the deal closes. Sprint
customers on prepaid services, including Boost Mobile and Virgin
Mobile, won’t be heading to T-Mobile and instead will become Dish
customers.
Consumer advocates have warned that unlimited plans could be in
jeopardy. Both Sprint and T-Mobile tried to lure consumers with
such plans. With less competition, there is an argument that AT&T and
Verizon won’t need to continue to offer such plans. However, it is unlikely that either of the big two carriers can cut prices, or that T-Mobile’s pricing will increase much, at least in the short term.
“Wall Street values both companies on profit margin,” noted Roger
Entner, principal analyst at Recon Analytics.
“Any reduction in margin is harshly punished with a lower stock price,
so I don’t think ‘New T-Mobile’ will raise prices,” he told the
E-Commerce Times.
“T-Mobile gets rewarded for customer growth. Its continued low prices
would ensure more new customers,” added Entner.
Reduced Competition
One of the biggest arguments against the merger of the two carriers
was that it would reduce competition, limit consumer choice, and
raise prices.
“The question before judge Marrero, and still before the California
Public Utilities Commission, is whether the merger will reduce or
increase competition in the U.S. mobile services market,” said Steve
Blum, principal analyst at Tellus Venture Associates.
“I don’t agree with Marrero. Going from four national competitors to
three will reduce competition, particularly at the low end of the
market,” he told the E-Commerce Times.
“Consolidation of two such wireless powerhouses means significantly
reduced competition in the U.S. in an already highly concentrated
market,” said telecommunications analyst
Gil Regev, consultant at
Gil Regev Communications.
The result is “mainly bad news for consumers, translating into hiking
prices, with U.S. mobile subscribers already paying some of the
highest plans in the Western world,” he told the E-Commerce Times.
Serving the Same Customers
Arguable, the pre-merger wireless landscape is not a four-way competition. AT&T and
Verizon are top-tier competitors of relatively equal strength, while T-Mobile and Sprint are second-tier rivals.
“T-Mobile and Sprint compete against each other for customers AT&T and
Verizon aren’t particularly interested in,” noted Blum.
“With that dynamic gone, T-Mobile can either set ‘affordable’ prices
at a point that maximizes profit, or ignore that market segment
completely,” he added.
“They say they won’t do that, but economic reality says otherwise. Everybody hates a monopoly until they are one,” Blum quipped.
Improved Innovation
Another concern is that with one less carrier innovation could suffer — at least until Dish is
able to make the transition from satellite pay-TV service to full
mobile phone carrier. However, the
counter argument is that the combined T-Mobile and Sprint could be far
better positioned to roll out a 5G network to compete with AT&T and
Verizon.
“This merger does present an opportunity on the technological front. The recent ruling stipulates that the newly merged T-Mobile/Sprint
company is required to provide 97 percent 5G coverage across the U.S.
in the next three years,” said Regev.
“The rolling out of this advanced infrastructure will not
only be available in big cities and financially strong states but
throughout the country, presenting new opportunities for employment
and an advanced-connected technology rollout throughout the U.S.,”
he added.
“This could potentially increase T-Mobile/Sprint’s current —
relatively small — market share, compared to AT&T and Verizon,”
suggested Regev.
Another consideration is how the two companies, which have each seen
their fair share of mergers and acquisitions, actually will handle
their joining of services.
“Both companies have showed the best and worst in merger integration,”
said Recon Analytics’ Entner.
“T-Mobile’s integration of Metro PCS was probably the best I’ve ever
seen, while Sprint’s integration of Nextel was probably the worst,” he
added. “[T-Mobile US President] Mike Sievert is a known
operator and has experience on how to pull a merger off. I am
optimistic for T-Mobile.”
Peter Suciu has been an ECT News Network reporter since 2012. His areas of focus include cybersecurity, mobile phones, displays, streaming media, pay TV and autonomous vehicles. He has written and edited for numerous publications and websites, including Newsweek, Wired and FoxNews.com.
Email Peter.
