There are currently four nationwide mobile networks in the US, but that number is about to drop to three. After years of flirting, T-Mobile and Sprint have announced that they’re finally ready to tie the knot. The carriers have a plan to combine into a strong third-place competitor behind AT&T and Verizon with the capacity to roll out a capable 5G network. The companies claim consumers will benefit from this merger, but that’s not usually the case when the number of choices decreases.
While this deal is presented as a merger of equals, the new carrier will simply be known as T-Mobile. The all-stock deal is valued at around $26 billion, but it would have been substantially more if Sprint’s parent company Softbank hadn’t been so indecisive last time. Sprint’s value has been on a steady decline as T-Mobile’s keeps going up. After the deal goes through, Japan-based Softbank will own a 27 percent stake in the new T-Mobile. Deutsche Telekom, which owns T-Mobile right now, will have 42 percent. The remaining value goes to individual shareholders.
One of the main arguments in favor of merging Tmo and Sprint is that a combined carrier could compete in 5G with the current market leaders. T-Mobile has a nationwide 600MHz license that’s great for building penetration, but it doesn’t have very much bandwidth. Meanwhile, Sprint owns a heap of unused 2.5GHz spectrum that’s not great for getting through obstacles, but has high bandwidth. The companies claim the new T-Mobile could be the first to roll out a nationwide 5G network with these assets.
I’m excited to announce that @TMobile & @Sprinthave reached an agreement to come together to form a new company – a larger, stronger competitor that will be a force for positive change for all US consumers and businesses! Watch this & click through for details.
— John Legere (@JohnLegere) April 29, 2018
The deal is solid on the carriers’ end, but regulators will still have their say. If the merger is allowed to go through, T-Mobile might be required to sell off some assets or agree to specific restrictions on its business going forward. With just three carriers instead of four, it’s likely consumers will eventually see higher prices for service. T-Mobile and Sprint dispute that, but history suggests three similarly sized carriers won’t compete as aggressively as four. After all, T-Mobile kicked off big changes in the wireless industry when it was the smallest of the four national carriers. That’s why we don’t have phone contracts anymore, and carriers will pay your switching costs.
Analysts are giving the merger even odds of approval. This does reduce the amount of competition in the US wireless market — no, MVNOs don’t help matters when the carriers have full control over those deals. However, Sprint might not be able to survive on its own. This deal may be the only option for Sprint’s shareholders.