T-Mobile, Sprint may be getting close to a merger
T-Mobile and Sprint appear to be edging ever closer to a merger, with a new report from CNBC suggesting the two companies could announce a deal in late October or early November.
Combining America's third- and fourth-largest wireless carriers would leave the country with just three nationwide providers, including AT&T and Verizon. But a proposed merger between Sprint and T-Mobile could face a tough test before regulators, particularly as many policymakers (and consumers) have been expressing some concern about the consolidation of large, powerful industries. Here's everything you need to know to get up to speed.
Q: Sprint and T-Mobile want to merge?
A: It's basically an open secret at this point. Sprint has been pretty transparent about its intentions, and T-Mobile hasn't really rejected the idea, either.
If this sounds familiar, it's because we've been here before. In 2014, Sprint tried to buy T-Mobile in a deal that ultimately fell apart under scrutiny by the Justice Department and the Federal Communications Commission. Regulators at the time concluded that having four major competitors in the cellular space, not three, would do the most to preserve competition and help consumers. (There are also echoes of 2011, when the government thwarted a similar attempt by AT&T to purchase T-Mobile.)
In the years since, Americans have benefited from lower roaming costs, along with an end to traditional contracts and early termination fees, and a return to unlimited data plans, among other things.
Q: So if regulators didn't like a Sprint-T-Mobile tie-up back then, what makes this time different?
A: Analysts say that a new agreement between the two companies would likely hand the reins to T-Mobile, which overtook Sprint in 2015 as the nation's third-biggest carrier. Given that T-Mobile was behind the push for many of the industry changes we've seen in recent years, it's possible that T-Mobile could do a lot with Sprint if it led the company.
But many of the underlying issues - such as what happens to competition in a world of three national providers - remain. As recently as last week, staff members at the Justice Department were said to be skeptical of a Sprint-T-Mobile deal.
Q: What might the companies argue in response?
A: T-Mobile didn't respond to a request for comment, and Sprint declined to comment. But one argument you can expect to hear, analysts say, is that building out the next generation of wireless data - known as "5G" - will be fairly expensive, and that it would be cheaper for everyone involved if T-Mobile and Sprint could join forces and build a single 5G network rather than build two of them separately.
Another argument you might hear is that Sprint, whose business is weakening, simply can't survive alone and that by teaming up with T-Mobile, the combined company could more effectively compete with AT&T and Verizon. It's hard to say how true this is without a detailed economic analysis by regulators; on the one hand, a merger with Sprint might give T-Mobile enough scale to take on the bigger dogs. On the other hand, reducing the number of national wireless carriers to three could, ironically, make it easier for the remaining firms to unofficially coordinate with one another and raise prices.
"It's easier to divide and conquer when there's three versus four," said one telecom industry official, who spoke on condition of anonymity to speak more freely. "You worry that there's so few in the market, they can coordinate and divide it up amongst themselves and not really compete against each other."
Q: Could politics play a role here?
A: Certainly. The same dynamics that make this potentially a good deal for Sprint and T-Mobile could make it a bad deal for an administration that has championed the average American worker. And while political considerations don't typically play into the economic analysis conducted by Justice Department staff, the review will likely be occurring during a time of heightened political sensitivity. And that raises the stakes for this deal.
In a deep dive on a hypothetical Sprint-T-Mobile merger earlier this summer, industry analyst Craig Moffett estimated that Sprint and T-Mobile would together close as many as 3,000 retail stores. This would still leave the combined company with more retail outlets than either AT&T or Verizon, but would also result in job cuts totaling more than $1 billion in wages that, by 2022, the company no longer has to pay.This retail footprint reduction, Moffett said, would be "perhaps the second-biggest driver of savings" after the closing down of redundant cell towers.
Policy analysts in Washington don't expect the Trump administration to approve every proposed merger or acquisition it faces; politically, they say, the administration would need to block at least one or two to provide the impression of fairness.
This logic could help push the Trump administration to block a Sprint-T-Mobile merger. Not only would the administration be seen protecting American jobs, but it would also be relatively low-risk in that both Sprint and T-Mobile are foreign-owned. Rejecting the deal would dovetail with Trump's "America First" approach to governing, according to analysts.