U.S. District Judge approves T-Mobile- Sprint merger; New T-Mo will be #2 wireless carrier in U.S.

A federal judge has ruled in favor of T-Mobile USA’s merger with Sprint, despite evidence presented that showed the deal will likely erode competition, raise U.S. wireless data prices, and result in significant layoffs as redundant jobs are eliminated.  U.S. District Judge Victor Marrero concluded the T-Mobile USA merger with Sprint, worth $26 billion when it was struck two years ago, wasn’t likely to substantially lessen competition, and rejected the main arguments by a group of states seeking to block the deal as anti-competitive.  The judge praised T-Mobile in his ruling, calling it “a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes” and describing its business strategy as “undeniably successful.

Judge Marrero wrote:

“While Sprint has made valiant attempts to stay competitive in a rapidly developing and capital-intensive market, the overwhelming view both within Sprint and in the wider industry is that Sprint is falling farther and farther short of the targets it must hit to remain relevant as a significant competitor.”

“Finally, the FCC and DOJ have closely scrutinized this transaction and expended considerable energy and resources to arrange the entry of Dish as a fourth nationwide competitor, based on its successful history in other consumer industries and its vast holdings of spectrum, the most critical resource needed to compete in the RMWTS markets.”

“Dish’s statements at trial persuade the court that the new firm will take advantage of this opportunity, aggressively competing in the RMWTS markets to the benefit of price-conscious consumers and opening for consumer use a broad range of spectrum that had heretofore remained fallow.”

The two companies said they would move forward to finalize their long-delayed merger. The deal’s current terms offer Sprint shareholders new stock equal to 0.10256 of one T-Mobile share.

“Today was a huge victory for this merger… and now we are FINALLY able to focus on the last steps to get this merger done!” cheered T-Mobile CEO John Legere (pictured below) in a press release.

The states might decide to appeal the ruling and another U.S. district judge in Washington must approve the existing Justice Department arrangement. Letitia James, New York’s attorney general, said the states disagreed with the decision and would review their options. “There is no doubt that reducing the mobile market from four to three will be bad for consumers, bad for workers and bad for innovation,” Ms. James said.

The two companies also need clearance from California’s Public Utilities Commission and face a private antitrust suit challenging the merger. A judge in the Northern District of California ruled in January 2020 that the case could proceed if the carriers overcame the state-led challenge.

T-Mobile and Sprint hope to close the merger by April 1st. The two telcos have spent more than seven years pursuing a combination in some form. They abandoned previous attempts in 2013 and 2017 before their boards struck an agreement in early 2018 that would allow T-Mobile to take over its smaller rival, creating a company closer in size to Verizon and AT&T.

The new T-Mobile would be a formidable rival to Verizon and AT&T, the two largest wireless carriers in the country.  In fact, the total number of “New T-Mobile” wireless subscribers will be more than AT&T currently has.

The “New T-Mobile” will be strengthened by a massive stockpile of wireless radio licenses held by Sprint. Those spectrum holdings allow the new company to serve more customers with high-speed internet service on the go, putting pressure on AT&T and Verizon to match them as carriers upgrade to faster 5G mobile networks.

The court victory also benefits T-Mobile parent Deutsche Telekom AG and Japan’s SoftBank Group Corp., Sprint’s majority owner. SoftBank Chairman Masayoshi Son, a billionaire investor who upended the telecom business in Japan, had been seeking a way to rescue an investment that proved less successful in the U.S.

Tuesday’s court verdict will test the idea that three big players will compete as effectively as four did. Dish enters the market with fewer customers than Sprint, making it a distant No. 4 in the consumer-cellular business.

Dish Chairman Charlie Ergen testified during the trial that his Englewood, Colo., company was better equipped to compete than Sprint. His new wireless service will ride over T-Mobile’s network at first, though customers will eventually use a new cellphone system Dish is required to build over seven years.

Quotes from opponents of the deal:

“We are profoundly disappointed that the judge approved a merger that will harm communities of color and low-income communities across California,” said Greenlining Institute Technology Equity Director Paul Goodman, in a statement.

“While the court may think it unlikely for a newly entrenched trio of enormous wireless carriers to collude rather than compete, the history of broken and abandoned merger promises from these companies – to say nothing of the mountains of evidence and expert analysis in this trial – say otherwise,” said Free Press Vice President of Policy and General Counsel Matt Wood, in a statement.

“The Rural Wireless Association disagrees with Judge Marrero’s decision to approve this deal, which has been consistently and drastically altered from what was originally proposed in early 2018, and now includes Dish, a company that has zero experience operating as a facilities-based mobile wireless carrier network as the savior for wireless competition,” the association said in a statement.

Quotes from supporters of the deal:

“I’m pleased with the district court’s decision. The T-Mobile-Sprint merger will help close the digital divide and secure United States leadership in 5G,” said FCC Chairman Ajit Pai in a statement.

“We appreciate Judge Marrero’s thorough evaluation of this merger. The ruling, in addition to the DOJ and FCC approvals, accelerates our ability to deploy the nation’s first virtualized, standalone 5G network and bring 5G to America,” said Dish Network’s Charlie Ergen in a statement. “We are eager to begin serving Boost customers while aggressively growing the business as a new competitor, bringing lower prices, greater choice and more innovation to consumers. We look forward to the Boost employees and dealers joining the Dish family.

Analyst Opinions:

“This is clearly a big win for T-Mobile, which will now how [sic] a superior spectrum position which it can use to launch 5G and handle even higher growth,” wrote the Wall Street research analysts at Lightshed in a post. “We also see this as a big win for Dish based on what we have learned about its MVNO terms. It’s not great news for Verizon, given that it removes Sprint and Dish’s spectrum as an alternative, created a new competitor in Dish and has empowered T-Mobile with the tools to deliver a superior network experience to consumers.”

“We view a deal as initially negative to AT&T/Verizon despite our view that consolidation should help to further rationalize the competitive/pricing environment long term considering T-Mobile is likely to be aggressive at least early on to help validate the premise of the deal which is it will result in more favorable pricing for consumers,” wrote the Wall Street analysts at Cowen in a note to investors.

“Dish will need to execute on a myriad of levels including building a cloud-native nationwide network followed by the operational challenges that come with competing against three very well entrenched wireless players,” the Cowen analysts added.

“The wireless industry is going to get tougher. Cable would have had a much easier time sucking subscribers out of Verizon and AT&T in a four-carrier market with a capacity constrained T-Mobile. Now they are going to have to fight T-Mobile for every one of those subs, and industry pricing is likely headed lower,” wrote the Wall Street analysts at New Street Research in a note to investors.

However, the New Street analysts pointed out that cable companies may also see some silver lining in the merger of Sprint and T-Mobile, if it is ultimately approved. “Cable will have one more company competing for its MVNO business. We have been surprised the companies haven’t announced new MVNO terms with Verizon or AT&T; negotiations were in full force in October / November last year. Perhaps they have been waiting to see what T-Mobile might offer them if the deal went through. Altice will be the most immediate winner; their MVNO with Sprint now moves to a much better network.”

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Addendum from  Robin Hood Snacks:

Here’s the history of this complex courtship:

  • June 2018: T-Mobile’s CEO announces that his company has agreed to merge with Sprint. The combo company – valued at $146B – would be split between 3 owners: Deutsche Telekom (T-Mobile’s parent), SoftBank (which owns most of Sprint), and retail investors like you and us who own remaining shares.
  • November 2019: The Department of Justice and the Federal Communications Commission approve the merger under certain conditions… But 13 states plus DC sued to block the deal, saying it would hurt competition and lead to pricier phone bills.

Sprint has been lagging rivals for a while… so the judge doesn’t think this deal will substantially hurt competition. Plus, regulators will make sure that Dish Network enters the game as a viable new service provider. Sprint will have to sell Dish 9M customers, but that’ll still be a distant competitor to the Big 3.

THE TAKEAWAY

We have a three-opoly on our hands… Here’s the pecking order now: Verizon #1, New T-Mobile #2, and AT&T #3. And a three-opoly could affect your bill:

  • Interpretation A: Competition has been reduced, now that we’ve gone from 4 major players to 3. When there’s less competition, companies tend to charge higher prices.
  • Interpretation B: Actually, this merger increases competition, because Sprint was never a real player and T-Mobile wasn’t big enough to compete over future 5G networks. Now T-Mobile + Sprint can effectively challenge AT&T and Verizon.

 

 

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