The T-Mobile (TMUS) and Sprint (S) merger is in jeopardy again. According to a CNBC tweet, T-Mobile and Sprint have to settle the deal by July 29. If the companies don’t sell the assets to clear the merger condition, the Department of Justice will sue to block the potential merger.
T-Mobile and Sprint have poured their blood, sweat, and tears into completing the deal. However, they haven’t obtained regulatory approval. The stocks fell 1.2% and 2.4% and closed at $77.97 and $6.92, respectively, on Thursday. The shares have gained 22.6% and 18.9% year-to-date.
Sprint and T-Mobile face regulations
The $26.5 billion merger between T-Mobile and Sprint is facing regulatory obstacles. The FCC (Federal Communications Commission) was concerned that the merger would raise prices for wireless users. The parties agreed to keep the prices low for at least three years after the deal closes. The companies also agreed to deploy maximum 5G for the rural population, according to the FCC’s conditions.
The FCC wanted the companies to divest their prepaid brand, Boost Mobile, to get regulatory approval. The FCC is concerned that Boost Mobile would give T-Mobile a dominant position in the prepaid wireless market. Notably, Boost Mobile is a vital brand for Sprint. The brand offers four lines with unlimited data, talk, and text for $100 per month. Most of Sprint’s prepaid customers are on Boost Mobile. Other customers are on prepaid brands like Virgin Mobile and Assurance Wireless. Sprint had around 8.8 million prepaid customers in the fourth quarter of fiscal 2018, which ended on March 31. T-Mobile has a more successful prepaid brand. The company has a higher prepaid customer base of around 21.1 million customers.
The Department of Justice is concerned that the Sprint-T-Mobile merger would reduce the number of carriers to three and disrupt the competitive environment. The antitrust division also wanted the companies to create a new mobile carrier by divesting their assets and spectrum. Apart from Sprint and T-Mobile, the top two US mobile carriers are Verizon and AT&T.
T-Mobile agreed to divest its assets
Late in May, US e-commerce retailer Amazon showed interest in the Boost Mobile’s prepaid brand. According to reports, purchasing Boost Mobile would allow Amazon to use T-Mobile’s wireless service for at least six years.
Comcast and Charter Communications were also interested in buying the spectrum divested by T-Mobile and Sprint. According to reports, the cable companies could combine their resources with the divested spectrum to become the fourth wireless network.
T-Mobile agreed to divest some of its assets to Dish Network to satisfy the regulatory conditions. The assets would include the Boost Mobile prepaid brand and additional spectrum. The acquisition of T-Mobile’s divested assets would make Dish Network the fourth wireless carrier in the US.
Dish Network as the fourth carrier
According to the CNBC report, Dish Network could become a viable fourth wireless carrier. The cable company has been piling up wireless spectrum since 2011. The company wants to use its more than $20 billion worth of wireless airwaves. Reportedly, Dish Network is ready to pay $6 billion for Boost Mobile and additional spectrum licenses, which is higher than the earlier value of around $3 billion. The deal is also crucial for Dish Network. The company has been struggling with declining pay-TV customers for the past four years. The company’s DISH TV subscriber losses were 259,000 in the first quarter—worse than the subscriber losses of 94,000 in the first quarter of 2018.
However, the assets divested to Dish Network might have sale restrictions in the future, according to Reuters. Also, T-Mobile and its stakeholder Deutsche Telekom aren’t willing to divest the assets to a cable or technology company.
T-Mobile and Sprint are optimistic about completing the deal. The two companies might also extend the July 29 deadline, according to reports. Notably, the companies told the court last month that they wouldn’t close the deal until the state attorney generals complete the case. In June, several state attorney generals filed a lawsuit to block the deal. They argued that the merger would cost more than $4.5 billion annually for consumers. The trial would start in October.
Merger might boost customers
The companies think that the merger would allow them to grow their customer base. Sprint and T-Mobile are struggling to grow their postpaid phone subscribers. Dominant telecom players and online streaming giants like Netflix and Amazon are taking away most of their customers. The telecom companies are struggling to retain their subscribers in the saturated wireless industry in the US.
In the fourth quarter of fiscal 2018, which ended in March, Sprint lost net 189,000 postpaid phone customers, while Verizon lost 44,000 customers. AT&T and T-Mobile had postpaid phone net additions of 80,000 and 656,000 customers in the quarter ending in March. Meanwhile, Sprint is expected to attract more consumers after it gets merger approval for T-Mobile.
Cost synergies and expansion in 5G
The merger is also expected to bring cost synergies, which would help Sprint reduce its debt levels. Sprint’s debt was $32.9 billion—up ~3% year-over-year at the end of the fourth quarter of 2018, which ended on March 31.
The merger would help the companies expand their 5G wireless technology. The companies said that they won’t be able to compete in 5G technology as a standalone company. The merger with T-Mobile would likely help Sprint expand its 5G services in more places. Meanwhile, T-Mobile doesn’t plan to launch 5G services before the second half of 2019.