T-Mobile-Sprint Merger Antitrust Trial Ends Positively

On December 20, the Federal Communications Commission and the Department of Justice filed court papers supporting the T-Mobile-Sprint merger deal (TMUS) (S). However, antitrust regulators believe that blocking the merger of third- and fourth-largest wireless carriers in the US would harm consumers.

T-Mobile-Sprint merger antitrust trial

According to a Reuters report on December 20, “In their filing, the Justice Department and FCC argued that if the states, led by New York and California, succeed in killing the deal the end result will be that rural areas of the United States will be slower to get access to 5G, the next generation of wireless.”

Also, the report added, “Specifically, T-Mobile has committed to providing 5G coverage to 85% of the rural population within three years, and 90% of the rural population within six years.”

In the last two weeks, the T-Mobile-Sprint merger deal faced an antitrust trial in Manhattan federal court. About 14 Democratic state attorneys general sued to block the pending $26 billion deal. The lawsuit is led by California and New York. The states asked the US Judge Victor Marrero to block the merger deal, saying it would decrease choices for consumers, resulting in higher wireless prices. In addition, critics believe that the consolidation of the two companies would harm retail jobs and innovation in the wireless industry.

On December 20, the testimony ended in the T-Mobile-Sprint merger antitrust trial. According to the Reuters report on December 21, “The states and the companies now have until Jan. 8 to submit proposed factual findings in writing to U.S. District Judge Victor Marrero in Manhattan federal court. The judge scheduled closing arguments for Jan. 15.”

History of T-Mobile-Sprint merger deal

T-Mobile and Sprint argue that the merger is good for wireless consumers and competition. The merger deal would enable the combined entity to rapidly deploy a 5G network nationwide and compete more effectively with larger rivals like AT&T (T).

In April 2018, T-Mobile and Sprint made public their latest merger plans. However, the two carriers are trying to merge for the third time. In 2014, on antitrust issues, T-Mobile and Sprint called off the merger discussions. Meanwhile, the merger negotiations between the two companies failed in 2017 when mutually agreeable terms couldn’t be met.

Nonetheless, there is a similar goal for both the third- and fourth-largest wireless service providers in the US. They want to get closer to top competitors like AT&T. T-Mobile and AT&T gained 754,000 and 101,000 net postpaid phone customers in the third quarter, respectively. Meanwhile, Sprint reported net losses of 91,000 postpaid phone customers.

Regulators approve T-Mobile and Sprint merger deal

In July, the Department of Justice approved the merger after the proposed new T-Mobile agreed to sell certain wireless assets to pay-TV operator Dish Network (DISH). Dish will buy Sprint’s prepaid businesses and a certain spectrum for $5 billion. The pay-TV operator is expected to create a mobile network of its own to make sure that there would still be four major wireless carriers in the US. In October, the Federal Communications Commission officially supported the deal.

According to a CNN Business report on December 20, “Dish’s wireless network will look like if the deal — which would hand over 9.5 million Boost Mobile customers, 500 employees, 7,500 storefronts from Sprint to Dish — is allowed to go through. Dish would also get around 20,000 towers from Sprint and a block of low-band spectrum, the kind of wireless frequency needed to cover large areas and lots of people.”

After the merger deal goes through, Dish would immediately migrate its Boost Mobile subscribers onto a new T-Mobile network. Dish plans to offer both prepaid and postpaid plans for wireless customers. Also, Dish Network chairman Charlie Ergen expects to launch the 5G network in at least one city by the end of next year, reports CNN. Ergen revealed that Dish received letters from three different banks offering $10 billion each to build a wireless network.

However, the states argued throughout the T-Mobile-Sprint merger antitrust trial that Dish was not an appropriate company to replace Sprint. This is because it hasn’t built a cellular network with the help of a wireless spectrum it already owns.

Financial performance

T-Mobile’s Q3 earnings rose 8.6% YoY (year-over-year) to $1.01 and beat analysts’ estimate of $0.96. The company’s strong bottom-line performance was mainly due to its robust wireless customer growth.

In the third quarter, T-Mobile reported revenues of $11.1 billion. However, this was below the Wall Street analysts’ consensus estimate of $11.3 billion. Also, quarterly revenues marked YoY improvement of about 2.0%.

Sprint is the only major mobile operator that is struggling to generate profits. In the September ended quarter, the company reported earnings of -$0.07 on total revenue of $7.8 billion.

Stock performance

T-Mobile stock closed 0.2% higher on December 20 and ended the trading day at $77.40. The stock was trading 9.2% below its 52-week high of $85.22 and 29.1% above its 52-week low of $59.96.

At its closing price on December 20, T-Mobile’s market cap stood at $66.2 billion. It reported returns of 2.6% in the trailing five days and -0.3% in the trailing month. Also, the stock has gained 20.5% in the trailing 12 months.

Based on T-Mobile’s closing price on December 20, the stock was trading 0.6% above its 20-day moving average of $76.95. Also, the stock was trading 2.0% and 1.5% below its 50-day and 100-day moving averages of $78.96 and $78.59, respectively. The stock’s 14-day relative strength index score of 51 suggested that it was neither overbought nor oversold.

T-Mobile stock has risen about 21.7% YTD (year-to-date). In comparison, Sprint, AT&T, and Dish returned -7.4%, 37.2%, and 45%, respectively, YTD.

Read T-Mobile–Sprint Merger Trial: Three Things Dish Chairman Told Court and Why Analysts Are Still Bullish on T-Mobile to learn more.