June 20, 2014
Big things are on the horizon for the third- and fourth-largest wireless carriers in the U.S.
Months of rumors and speculation have pointed to an impending merger between Sprint and T-Mobile – though the parties involved (the two carriers and their owners, Softbank and Deutsche Telekom) have yet to make any official confirmations.
Reports name the price of the merger at about $40 per share for Sprint to purchase T-Mobile, resulting in a total mega-deal of around $32 billion.*
And while many particulars have yet to be determined (e.g. financing, due diligence), rumors and anonymous sources* continue to paint a detailed picture of the initial agreement.
Surprisingly, this mega-deal is only one of several huge-scale communications mergers on the horizon, in light of merger announcements such as AT&T and DirecTV, as well as Comcast and Time Warner.
These deals have the potential to permanently shift the communications industry: Think about a sector of carrier giants wielding a huge amount of industry power, leaving smaller carriers to flounder in their wake.
Preventing this scenario is likely why SoftBank, which owns 78 percent of Sprint, finds this particular merger so attractive. Reports indicate that SoftBank Chairman Masayoshi Son is eager* to create one merged carrier with the resources to compete with market leaders AT&T and Verizon Wireless.
But one thing’s for sure – Sprint and T-Mobile will have to jump through a series of legal hoops before such a merger can come to fruition.
In 2011, U.S. regulators blocked AT&T’s attempt to purchase T-Mobile for $39 billion; now, once again, the FCC and U.S. Justice Department are voicing their concerns (mainly that the merger could raise prices for consumers). The final decision will likely come down to…
As the deal begins to take shape from rumors to reality, experts are beginning to speculate on the finer details.
Allegedly, T-Mobile will receive a $2 billion break-up fee if the deal doesn’t go through†, while Deutsche Telekom, which owns 67 percent of T-Mobile, will retain a 15 to 20 percent stake of the merged company if the deal is approved.*
Plus, rumor has it that the merged entity will move forward with T-Mobile’s name and leave “Sprint” behind. It makes sense: although Sprint is acquiring T-Mobile, it’s undeniable that the brand of T-Mobile is flourishing while Sprint’s brand suffers (despite the fact that Sprint is making progress in LTE and other areas).
Soon, we’ll be able to confirm these speculations: The intended merger is expected to officially be announced within the next few months.†
Last year, it seemed that the wireless market leaned in favor of consumers (as more U.S. users were unhappy about being locked into contracts with top carriers, and smaller carriers were improving their networks).
But today, changes in the industry are coming in the form of big telecom mergers – and this decrease in competition is not a good thing.
These were our thoughts last year, and we still feel the same way:
A little competition is never a bad thing, especially when it breaks up a long-standing industry monopoly of two huge carriers in the wireless industry.
A more evenly-distributed base of customers would ultimately increase the need for all carriers to have a competitive edge, which could mean better pricing, better devices, better contract terms – or maybe even eliminating contracts altogether.
Either way, think unlimited data, innovation and affordability, if not right away, then at least somewhere down the line. For the 326 million wireless subscribers in the US, that’s a wireless industry worth hoping for.
By this logic, smaller carriers banding together to prevent possible monopolies is a good thing – unless this merger backfires, creating another carrier giant to supplant its competition.
* Sprint, T-Mobile Near Acquisition Deal, Reuters. The Huffington Post.
† Epstein, Zach. CNBC: If Sprint and T-Mobile merge, the new company will ditch the name ‘Sprint, BGR. BGR Media, LLC.