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What the T-Mobile-Sprint Merger Delay Could Mean

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T-Mobile (TMUS) and Sprint’s (S) merger met with new uncertainty last week when the FCC (Federal Communications Commission) accused Sprint of subsidy misconduct. It said Sprint had received millions of dollars from federal subsidies that were meant for low-income subscribers. FCC Commissioner Geoffrey Starks pressed for a pause on the pending merger until the subsidy issue was investigated.

There have been several ups and downs regarding the $26.0 billion megamerger since its announcement last April. The recent subsidy issue could delay the merger. Adding to the companies’ woes, more and more state attorneys general are joining the lawsuit trying to block the merger. Last month, Pennsylvania became the 18th state to join the multistate lawsuit. The trial will begin on December 9.

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T-Mobile’s delayed 5G rollout

T-Mobile was expected to close the merger by the middle of this year. However, given the states-led lawsuit and Sprint’s alleged fraud, the merger might be delayed to the first half of 2020. The delayed merger has paused T-Mobile’s 5G network deployment efforts. As the merger scenario looks cluttered, T-Mobile put off the purchase orders for its 5G network buildout to next year, WirelessEstimator reported in August.

T-Mobile is expected to deliver a nationwide 5G network by next year. It believes that it will be in much better shape to deliver 5G services if its Sprint merger obtains approval. However, the pause in the merger could also delay its 5G rollout.

According to Wells Fargo, some tower companies expect a slowdown in growth to continue next year. The expected slowdown is driven by the pending merger reported by FierceWireless on September 27.

More concern for Sprint investors

Sprint has already said that the merger with T-Mobile would be the best outcome for its stakeholders. The fourth-largest wireless carrier is struggling financially. It’s grappling with continuous subscriber losses and a huge debt burden. It’s been reporting losses for the last few quarters. Read Sprint’s Woes Look Bigger amid Pending T-Mobile Merger for more info.

T-Mobile said in response to the lawsuit that it’s not likely Sprint will be a meaningful competitor in the coming years. The longer the delay, the more concerning things will become for Sprint investors.

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Dish has to wait longer

The Department of Justice approved the T-Mobile-Sprint merger when the two agreed to divest some assets to Dish Network (DISH). Dish is expected to get around 9 million prepaid customers from Sprint, which could generate over $3.3 billion in revenue for it. The company could jumpstart its wireless operations once the merger is complete. However, the delay could hinder Dish’s efforts to build on its wireless operations.

About the T-Mobile-Sprint merger

Critics are claiming that the T-Mobile-Sprint merger will reduce the competition and impose higher bills on customers. However, T-Mobile will remain in third place among its peers after the merger, with Dish replacing Sprint. The merger will likely increase the competition with the new T-Mobile’s larger size and scale. T-Mobile is expected to save around $6.0 billion per year from combining operations after the merger. It will also gain a significant customer base by merging with Sprint.

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AT&T and Verizon, the top two wireless carriers in the industry, could be feeling some relief every time the T-Mobile-Sprint merger hits a new snag. Verizon and AT&T are market leaders with more than 150 million customers each. T-Mobile and Sprint have around 85 million and 54 million subscribers, respectively.

Considering market cap, the top two wireless carriers are currently valued at over $250.0 billion each. T-Mobile and Sprint have market caps of $67 billion and $25 billion, respectively. There’s a large void between the top two and the latter two players in the telecom industry. The proposed merger, if completed, will likely bridge the gap in terms of subscribers and size as well.

TMUS and S: Investors could remain cautious

Amid the increased uncertainty surrounding the merger, T-Mobile and Sprint stocks could be range-bound. Both stocks surged to their annual highs when the Department of Justice approved their long-awaited merger in late July. T-Mobile has clarified that it will address the states’ concerns before going ahead with the merger.

T-Mobile stock is up about 25%, while Sprint has increased 5% so far this year. Read T-Mobile and Sprint Stocks: What to Expect This Week for more info. Any increase in confidence related to the merger going through could boost positivity among investors.

T-Mobile and Sprint collectively form approximately 6% of the iShares U.S. Telecommunications ETF (IYZ). IYZ is up more than 10%, while the S&P 500 has surged 18% so far this year.

Peer AT&T stock has surged more than 30% so far this year. Read about its recently declared dividend in AT&T Declares a Quarterly Dividend: What to Know.

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