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T-Mobile and Sprint announce plans to merge

The third- and fourth-largest American wireless carriers announced a $26 billion merger on April 29. (Video: Reuters)
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T-Mobile and Sprint, the nation’s third- and fourth-largest wireless carriers, respectively, agreed to a nearly $27 billion merger Sunday that could dramatically reshape the U.S. telecom industry while testing the appetites of consumers and regulators alike for further corporate consolidation.

The deal marks the latest attempt by T-Mobile, operated by Germany’s Deutsche Telekom, and Sprint, run by the Japanese conglomerate SoftBank, to combine forces as they seek to amass subscribers and challenge the national footprints of AT&T and Verizon. The move comes at a time when the industry is racing to deploy the next generation of ultrafast wireless technology, called 5G. The combined company's name would be T-Mobile.

For years, T-Mobile and Sprint had considered such a tie-up, only to abandon their plans. Their hurdles have included government regulators, who previously argued that consumers are best served — with better prices and more choices — if there are four major wireless carriers, not three.

Sprint and T-Mobile aim to convince the Trump administration that they would be in prime position to advance 5G, a next-generation data network for everything from smartphones to Internet-enabled cars and other technologies — with major investments that they could not have mustered individually.

“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses 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 on its own,” John Legere, the chief executive of T-Mobile, said in a statement. Under the newly announced merger, Legere would serve as leader of the combined company.

“As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf,” he said.

If the deal is completed as proposed, a combination of T-Mobile and Sprint could unseat AT&T as the country’s second-biggest wireless provider. The new firm would have roughly 100 million customers, more prepaid and postpaid subscribers in the United States than AT&T’s 93 million. And it would put the newly formed wireless giant within striking distance of Verizon’s customer base of 116 million.

“Telecom is a scale business,” said Blair Levin, a policy adviser for the analysis firm New Street Research. “There are huge advantages of scale, and T-Mobile and Sprint have been carrying the cost of a network over a much smaller number of customers.”

Yet the companies must overcome myriad political hurdles — including consumers’ heightened skepticism about the rapid pace of consolidation in the media and telecom industries. From President Trump to Sen. Elizabeth Warren (D-Mass.), policymakers recently have sounded off against these deals and may train their fire soon on T-Mobile and Sprint’s latest gambit.

Sen. Amy Klobuchar (Minn.), the top Democrat on the Senate's antitrust subcommittee, raised concerns about the proposed merger. “Competition among the four largest cell phone carriers has led to lower prices, better service and more innovation,” she said in a statement. “I remain concerned that increased consolidation could undermine benefits to consumers.”

Asked about the political climate, Legere stressed in a later interview: “I don’t see us as large, I see us as a competitor driving competition for the good of consumers and the country.” Legere added that he and Sprint chief executive Marcelo Claure plan to visit Washington in the coming days to meet with federal regulators.

For years, T-Mobile and Sprint had flirted with such a combination, only to abandon their plans because of political troubles or boardroom squabbles. Notably, in 2014, Sprint dropped an attempt to acquire T-Mobile after the Obama administration hinted it would be likely to block the merger because eliminating a rival would be bad for competition. Those same concerns thwarted AT&T’s plan to acquire T-Mobile in 2011.

The Federal Communications Commission and the Justice Department — which will review the proposed merger to ensure it protects consumers and competition — declined to comment. T-Mobile and Sprint said they expect the deal to close by the first half of 2019.

But some analysts said that the government’s argument for opposing such a merger in 2014 since has proved correct. Preventing consolidation paved the way for T-Mobile to launch its Uncarrier campaign to reshape the wireless industry, said Craig Moffett, a telecom analyst at the research firm MoffettNathanson. The result has been lower prices and more consumer-friendly business practices, such as the end of long-term customer contracts.

“The DOJ's decision to block the transaction has been validated in every conceivable way,” Moffett said, speaking of the attempted merger of AT&T and T-Mobile. “T-Mobile has not only survived — it has thrived. The market has become more competitive. Consumers have unambiguously benefited from the DOJ's decision. That poses a problematic backdrop for this merger.”

For Sprint, the troubles have been more acute, partly because it holds considerable debt. Combined, though, the two wireless companies have argued they’re better positioned to deploy the infrastructure necessary to power 5G. They already have pledged to invest $40 billion in their network in their first three years after merging, while creating new U.S. jobs.

Cost-savings from the merger could amount to $64 billion, according to some analyst estimates. Meanwhile, T-Mobile and Sprint are poised to cite recent efforts by the cable industry to launch nascent wireless products, such as Comcast’s Xfinity Mobile, as evidence that the marketplace has changed with new competitors.

“This isn’t a case of going from 4 to 3 wireless companies — there are now at least 7 or 8 big competitors in this converging market. And in 5G, we’ll go from 0 to 1. Only the New T-Mobile will have the capacity to deliver real, nationwide 5G,” Legere said in a statement.

A potential obstacle toward completing the deal may be Sprint's and T-Mobile’s foreign ownership. In 2013, SoftBank invested $21.6 billion for a 72 percent stake in Sprint. Its chief executive, Masayoshi Son, has since increased Softbank’s stake to roughly 85 percent.

But the White House has taken aim at some mergers involving foreign companies. Broadcom — a chip manufacturer that was based in Singapore until this month, when it relocated to Delaware — was forced to abandon its takeover of the U.S.-based chipmaker Qualcomm, over concerns that it could give China an edge in the development of 5G networks. The White House did not respond to a request for comment.

President Trump has also opined on other companies in the telecom and media industries that are seeking deals. He famously attacked AT&T’s proposed purchase of Time Warner during the 2016 campaign, for example, citing the deal as an example of too much power “in the hands of too few.” The Justice Department is wrapping up its trial to block that $85 billion merger, and a court decision is expected in the coming weeks.

Although much of the staff at Justice and the FCC has not changed since the Obama administration, the 2016 election brought the agencies new leaders who might find T-Mobile and Sprint’s arguments persuasive, Levin said.

But the two companies’ promises, particularly on 5G, require regulators to “guess” what may happen next at the expense of competition, former FCC chairman Tom Wheeler said.

“The Trump FCC has seldom met a corporate proposal they don’t like,” Wheeler said. “The Trump FCC seems to say, ‘It’s corporations first, and consumers second.’ This is something that is going to benefit the companies and there is no proof that it will benefit consumers.”