After garnering Mississippi’s support of the T-Mobile (TMUS) deal with Sprint, the merger approached a new hurdle yesterday. In July, the Department of Justice (or DOJ) approved the $26.5 billion merger on conditions that the combined entity would divest some assets to Dish Network (DISH).
In a recent working paper by the NET Institute, a group of economists and antitrust experts asked the DOJ to reject the proposed solution. According to the October 10 report by The Verge, the DOJ settled “a remedy that does not meet the standard of restoring the competition currently provided by Sprint.”
Dish to replace Sprint
Under the agreement, the combined entity would divest Sprint’s (S) prepaid business and some spectrum to Dish for $5.0 billion. As a result, Dish would replace Sprint as the fourth-ranked wireless carrier after the merger.
Dish would have access to T-Mobile’s network for seven years. It is expected to establish a 5G network that would cover 70% of the US population by June 2023. Dish would pay a $2.2 billion fine if it doesn’t meet the deadline.
As a pay-TV provider, Dish Network has no experience or presence in the wireless industry. To become a full-fledged wireless carrier, the NET Institute working paper stated, “Dish will have to rely on T-Mobile’s vague and non-credible promises to behave counter to its economic incentives.”
According to the working paper, eliminating Sprint and creating a fourth player would reduce competition and harm consumers. The report added that reducing the field from four players to three would harm competition, but that rejecting the merger leaves all options open.
The multistate lawsuit and the antitrust issues brought forward by these economists could weaken the merger case. Instead of rejecting the deal, the DOJ could ask to renegotiate the agreed terms between the involved parties.
Sprint continues to struggle
Sprint has been struggling financially for a while. The carrier has already said that the merger with T-Mobile would be the best outcome for all its stakeholders. The company has been reporting losses for the last several quarters, driven by ongoing subscriber losses.
T-Mobile said that Sprint would be unlikely to be a meaningful competitor in the industry going forward and that its huge debt burden is also a major concern. To learn more, please read Sprint’s Woes Look Bigger amid Pending T-Mobile Merger.
T-Mobile and Sprint are the third- and fourth-ranked wireless carriers in the industry, with 83 million and 54 million subscribers, respectively. Verizon and AT&T (T) are the leaders, with more than 150 million subscribers each. After the merger, T-Mobile’s subscriber base would reach approximately 125 million considering the divestitures. With its larger size and scale, the new T-Mobile would be a bigger threat to Verizon and AT&T.
The megamerger between T-Mobile and Sprint has been pending for over a year and a half and has overcome numerous hurdles. Despite support from the FCC and approval from the DOJ, the deal faces some serious challenges.
T-Mobile-Sprint merger: Multistate lawsuit
New York and California are leading the multistate lawsuit trying to stop the long-awaited merger. The merger can’t be completed until the case is settled. States are also criticizing the proposed merger on anti-competitive grounds. They believe the merger would unfairly help T-Mobile and reduce the competition in the industry.
Mississippi, once an opponent to the merger, now backs it. The state’s attorney general switched sides when T-Mobile offered some specific commitments benefiting the state. You can read more about this development in T-Mobile-Sprint Merger: Mississippi Leaves Lawsuit. It will be interesting to see whether more states from the lawsuit follow Mississippi.
So far this year, Sprint stock has notably underperformed its peers. It is up only 7% while T-Mobile stock has surged more than 23% so far this year. Dish Network stock has rallied 33% in the same period. For more on TMUS, please read Where T-Mobile Stock Could Be Heading Now.