The prospect of a merger between T-Mobile and Sprint was big news on Wall Street Monday, after the third- and fourth-largest wireless carriers in the United States announced plans for an all-stock deal that would bring Sprint into the fold of T-Mobile, the larger of the two companies.
The deal is far from a sure thing, as analysts expect it to face tough regulatory scrutiny. The implications for consumers also are unclear: While industry experts say it would probably help pave the way for a faster rollout of a nationwide 5G network, speedier service could mean higher monthly bills for users.
“It’s a sure thing that this would be a good deal from the perspective of Sprint and T-Mobile, but from the perspective of the user, it’s less clear,” said independent wireless and telecom analyst Jeff Kagan. “They say it’s going to be lower prices… The problem is, we don’t know for sure.”
Some market watchers say they do have, at the very least, a strong hunch that wireless customers wouldn’t see any benefit from a merger.
“Consumers will be the losers if T-Mobile and Sprint are allowed to merge,” Gigi Sohn, a distinguished fellow at the Georgetown Law Institute for Technology Law & Policy and counselor to former FCC chairman Tom Wheeler, said in a statement. “This combination will not only result in less choice for consumers, it will provide greater incentive for the three remaining companies to act in concert,” she said.
“If this deal is done, the new T-Mobile will still be a distant number three,” Kagan pointed out. “So there is still a reason for lower pricing, but the need to go as low as they are currently may not be there.”
“This combination will not only result in less choice for consumers, it will provide greater incentive for the three remaining companies to act in concert."
Not everyone has a pessimistic outlook when it comes to pricing, though. If the two carriers do merge, “We believe the entity will continue to be a disrupter in terms of pricing,” Wells Fargo Securities senior analyst Jennifer Fritzsche wrote in a research note Monday.
“I think this deal is good for consumers,” said Jonathan Chaplin, managing partner at New Street Research. “T-Mobile has reshaped the mobile industry,” he said, often forcing AT&T and Verizon to follow its lead in areas like pricing, unlimited data and doing away with contract-based service plans.
“T-Mobile led this aggressive, consumer-focused charge… they’ve been forced to follow suit,” Chaplin said of its larger rivals.
Carrie MacGillivray, group vice president of IoT and mobility at IDC, suggested that T-Mobile’s track record of shaking up the market with different pricing structures could still benefit customers going forward.
“I think the merger, if it were to go through, would probably lend itself well for the consumer because of all the work John Legere and team have done with the Uncarrier movement,” she said, but she added, “I do think there will be price innovation. I won’t say it’s necessarily going to be decreased costs.”
But will the merger be approved?
This could give regulators pause. The merger would have to be approved by both the Department of Justice and the Federal Communications Commission — a high bar, many say.
“Competition in the wireless industry has already been waning with fewer promotions even before the risk of four national operators being reduced to three,” said Walter Piecyk, a telecom analyst at BTIG, who expressed doubt that regulators would approve the merger. “The DOJ will have to decide whether three wireless operators is enough for competition in the United States,” he said.
To counter worries about a less competitive market, analysts said they expect T-Mobile and Sprint to make the case that their competition doesn’t just include Verizon and AT&T, but also cable providers and big tech companies, which have been making inroads into the wireless space. Another argument industry observers expect T-Mobile and Sprint to use is that a merger will help the domestic wireless market catch up to other developed nations in its deployment of next-generation 5G wireless service.
“They will play to nationalistic fears by arguing that the U.S. will fall behind China if this deal is rejected,” MoffettNathanson partner and senior analyst Craig Moffett wrote in a research note.
According to this line of thinking, a merged entity would have more resources to work with and better economies of scale, analysts say.
“From a spectrum and network perspective, I do think the combined entity has a better chance of rolling out a nationwide network,” MacGillivray said.
“Whether the deal is approved or rejected is likely to come down to whether the companies can convince the DOJ that consumer welfare is best measured not through the traditional lens of lower prices but instead through the lens of access to the latest and greatest technology,” Moffett wrote.