Merger between T-Mobile, Sprint depends on creating fourth wireless carrier; which company will rise to top?
The second deadline for closing the massive $26 billion merger between T-Mobile and Sprint will likely pass as the companies continue to negotiate with the U.S. Department of Justice over the divestiture of assets to create a fourth U.S. wireless carrier. Dish Networks is leading the way, but other potential suitors, including cable company Altice and cloud giant Google, are coming up in discussions, according to published reports.
The Lowdown: The Justice Department is holding up the merger as it wants T-Mobile to create an independent fourth wireless carrier to maintain competition. Dish Networks reportedly reached a deal with T-Mobile to take on certain assets to create a wireless carrier. Additionally, the deal will reportedly allow Dish access to the T-Mobile network for its services. Dish was always a contender as it previously acquired wireless spectrum.
The Details: Altice – a cable company formed over the past few years with the rollup of Suddenlink Business and Cablevision – is reportedly interested in joining the discussions to acquire T-Mobile and Sprint assets, according to a report by Seeking Alpha. Altice, headquartered in New York, provides commercial and residential cable, public Wi-Fi, and content services. Adding wireless cellular service would greatly expand its offerings, but the company is limited in geographic coverage.
T-Mobile is reportedly willing to divest of certain assets and spectrum to allow the Sprint deal to go through. What it’s trying to avoid is giving the new wireless carrier too many capabilities and latitude to create problems for its own development. The Justice Department terms are liberal, as it wants to ensure the new carrier has a fighting chance in a field of stiff competition. T-Mobile, which must also satisfy its majority shareholder, Germany-based Deutsche Telekom, doesn’t want the new carrier to have the ability to undercut prices and erode the value of the merger.
Additionally, T-Mobile reportedly wants to limit the ability of outside investment in the new company. By capping external ownership to 5%, T-Mobile wants to handicap the new company’s ability to raise money to build its capabilities. T-Mobile’s concerns materialized when reports serviced that Google wanted to join Dish in financing the new carriers. Google denied any interest in the deal.
The Impact: Everything about the T-Mobile/Sprint deal hinges on the creation of the fourth carrier. The Federal Communications Commission (FCC) has all but approved the merger. It’s the Justice Department that wants a strong alternative to the new T-Mobile, Verizon, and AT&T Wireless.
If the deal goes through, T-Mobile will become the second-largest U.S. wireless carrier, just ahead of AT&T and just behind Verizon. If it doesn’t, the existing U.S. market of four carriers will remain, although Sprint will find itself in an increasingly challenging competitive position. T-Mobile will still win big, though, as it commands the fastest growth rate and customer satisfaction scores in the industry.
Background: T-Mobile and Sprint announced their intended merger in 2017. Merger talks continue as the two companies face stiff opposition. In addition to the extended Justice Department review requiring the divestiture, nine states’ attorneys general are suing to block the deal out of concern it will lead to less competition and higher consumer prices. T-Mobile and Sprint say the deal is necessary to maintain competitive footing with market leaders AT&T and Verizon.