T-Mobile and Sprint have been trying this for some time now and here we are again with the possibility that T-Mobile may actually merge with Sprint. A question to ask though is whether or not this will be good for the consumer. A lot of talk says it will not be good for the consumer. History also suggests this as not a good thing for consumers but the CEOs of T-Mobile and Sprint have been spotted in videos claiming it will be good for consumers as they make promises of lower prices, faster internet through 5G; and, increased competition.
A merger would reduce the number of major service providers from four to three leave them as a combined company, AT&T, and Verizon. I actually don’t know if any merger in any market that has led to benefit consumers. If anyone knows of any feel free to comment.
Well this merger has been announced on the 29th of April and CEO of T-Mobile John Legere will head the new company. The value of this merger…..unsure actually. Sprint though was valued at $26 billion based the last closing price that I check up on, and T-Mobile was last valued at $55 billion.
Sprint and T-Mobile first discussed a merger in 2014 but scrapped it because of concerns about regulatory challenges from the Obama administration. Now the deal was blocked by regulators who determined that the market could support four major players, which creates competition.
Here we are with the announcement and fact still remains it will be hard to get these regulators to approve. I assume now that this is Trump’s administration the companies are expecting to have a better shot at the merger. It still will not be easy since their stock dropped after the announcement due to investor skepticism.
I will add though that the merger now comes at a good time because Sprint did have a good year last year. I will make it to the point by giving you the rundown.
Fiscal year 2017 postpaid phone net additions of 606,000
Third consecutive year of postpaid phone net additions
Highest postpaid phone gross additions in six years
Fiscal fourth quarter postpaid phone net additions of 55,000 marked the eleventh consecutive quarter of net additions
Fiscal year 2017 prepaid net additions of 363,000 compared to net losses of 1 million in the prior year
Prepaid net additions for the first time in three years
Prepaid churn of 4.58 percent was the lowest in three years
Fiscal fourth quarter prepaid net additions of 170,000
Fiscal year 2017 net income of $7.4 billion , operating income of $2.7 billion and Adjusted EBITDA* of $11.1 billion
Net income for the first time in 11 years, even when excluding $7.1 billion of one-time favorable impact from tax reform
Highest operating income in company history and highest Adjusted EBITDA* in 11 years
Fiscal fourth quarter net income of $69 million , operating income of $236 million , and Adjusted EBITDA* of $2.8 billion
Fiscal year 2017 net cash provided by operating activities of $10.1 billion and adjusted free cash flow* of $945 million
Second consecutive year of positive adjusted free cash flow*
Completed thousands of tri-band upgrades on macro sites, added thousands of outdoor small cells and deployed more than 200,000 Sprint Magic Boxes
If you are a Sprint customer this deal may be a good thing for you. If your service has been sub par this deal will lead to better service for you as T-Mobile’s coverage and performance have jumped farther ahead than Sprint’s.
Update: June 18, 2018
Sprint and T-Mobile are set to file documents with the FCC that will open the transaction for comment from the public and set the stage for the agency to approve or disapprove the merger.
The FCC’s new site link, 18-197 docket , stands as the official home for documents relating to the proposed transaction. “On June 14, 2018, T-Mobile and Sprint informed the Commission that on June 18, 2018, they plan on filing applications seeking Commission approval to transfer control to T-Mobile of the licenses and authorizations held by Sprint and its wholly-owned and controlled subsidiaries,” the FCC PDF states.
The actual transaction at this time is available to the public as a written document under Section 425 of the Securities and Exchange Act of 1934. The document outlines everything about the transaction which has about 12 main arguments. I have made it available for download if you wish to read it yourself but I will list the 12 points.
The main arguments
Sprint will survive as a direct subsidiary of T-Mobile USA. (Page 3)
SoftBank (OTCMKTS: SFTBY) subsidiaries, Galaxy Holdings, Inc. (Galaxy) and Starburst, Inc. (Starburst), which combined own 84% of Sprint stock, will merge into a newly created indirect T-Mobile subsidiary Huron Merger Sub (Huron). (Page 4)
All outstanding and issued shares of Sprint owned by Galaxy and Starburst will convert to .10256 shares of T-Mobile stock. (Page 4)
Next, a second indirect T-Mobile subsidiary, Superior Merger Sub (Superior) will merge into Sprint. (Page 5)
Each outstanding and issued share of Sprint not owned by Galaxy and Starburst will convert to .10256 shares of T-Mobile stock. (Page5)
Deutsche Telekom (OTCMKTS: DTEGF) (DT) will hold 42% of all outstanding shares, and SoftBank will hold 27% of all outstanding shares. (Page 6)
The headquarters for New T-Mobile will be located in Bellevue, Washington. There will be a second headquarters in Overland Park, Kansas. (Page 7)
SoftBank will cede voting rights for its 27% stake to Deutsche Telekom effectively giving control of New T-Mobile to DT even though DT doesn’t own 50% of the stock. (Page 6)
All Sprint FCC licenses will transfer to the New T-Mobile. (Page 8)
FCC Public Interest Evaluation Review
The FCC is reviewing whether the above transaction could result in public harms, which includes but is not limited to, traditional antitrust principles.
There were some interesting points made and citations in the document.
The FCC’s public interest standard is broader than the DOJ’s. (Page 9)
The FCC can only impose conditions to remedy harms related to the transaction, not pre-existing harms. (Page 10)
The FCC does not “employ a balancing act” or a sliding scale approach. (Page 11)
The FCC has already agreed that licenses can be freely transferred. (Page 10)
Construct and Deploy a World Leading 5G Network
The cost savings gained from the merger amount to $43.6B in net present value by 2024. (Page 15)
New T-Mobile will invest $40 B in the new network over the next 3 years, which is triple what it could have done alone. (Page 15)
Faster and Cheaper Deployment
On a standalone basis neither S nor TMUS has enough spectrum or the right combination of spectrum to provide a robust, nationwide 5G network. (Pages 17-31)
The merger will allow combined access to spectrum, cell sites and additional radios to build an unrivaled 5G network, and leapfrog AT&T (NYSE: T) and Verizon (NYSE: VZ). (Page 16)
Compared to the standalone networks of S and TMUS, the New T-Mobile network will provide 3 times the capacity, 4 to 6 times the average data throughput (Mbps), 1.5 to 5.8 times the peak data throughput, and 1.6 to 2.8 times the number of US population that will have access to over 100 Mbps. (Page 18)
The merger will stimulate the US efforts to be first in building a 5G network. (Pages 18, 69-70)
The combined company’s spectrum assets are complementary and span all ranges to create a true nationwide 5G network. (Page 31)
New T-Mobile requires spectrum preservation for existing LTE functions to continue operations. The merger would allow enough spectrum for existing LTE and new 5G services and evolution. (Pages 36-37)
New T-Mobile could convert roughly 50% or 20M of current S subscribers to New T-Mobile via over-the-air software upgrades. The 1900 PCS band shared by both S and TMUS will allow seamless integration for the remaining S subscribers to the New T-Mobile network. (Pages 38-39)
The merger will cause VZ and T to accelerate and increase investments in their 5G networks. (Pages 47-50)
Enormous Consumer Benefits and Offerings
Economic analysis found that the merger would cause a 55% decrease in cellular data price and a 120% increase in cellular data capacity for the New T-Mobile. (Pages 52-53)
New T-Mobile will enhance IoT deployments and be more competitive to VZ and T. (Page 56)
The New T-Mobile will enhance medical and agricultural coverage in rural communities via 4K video and unlimited data. (Page 57)
Consumers will have a lower priced and higher quality competitive option for in-home Internet access. (Pages 57-63)
New T-Mobile is projecting $60/month which includes 100Mbps internet access and mobile service. (Page 64)
Rural areas will see increased expansion and offerings for Internet service and mobile voice services. (Pages 64-69)
Improved Enterprise and Video Services
New T-Mobile will be able to go after enterprise accounts competing with VZ and T while cross selling bundled packages. (Pages 71-73)
The merger will facilitate a larger sales force to target enterprise and government accounts. (Page 73)
The merger will allow the new company to offer fixed broadband, cloud computing, security and other complementary services to enterprise and government accounts. (Pages 73-74)
The new network will expand and enhance IoT offerings to enterprises. (Pages 74-76)
The new network will allow the company to offer Pay-Tv services and enhanced video in direct competition to MVPDs (Comcast (NASDAQ:CMCSA), Charter (NASDAQ:CHTR) et. al. (Pages 76-79)
Create Thousands of Additional Jobs
Economic analysis estimates that the New T-Mobile will add 24,960 jobs annually or 124,800 from 2019 to 2023. (Pages 68, 80-84)
The New T-Mobile will add 11,000 internal, direct new jobs of the aforementioned 124,800. (Page 82)
The Merger will Intensify, Not Harm Competition
Sprint and T-Mobile both face significant challenges on a standalone basis. Even with T-Mobile’s Un-Carrier campaign and Sprint’s cost-cutting initiative they still lag far behind both Verizon and AT&T in terms of EBITDA, revenue, market share, borrowing capacity, network advantages, business investments, spectrum allocation, and bundling. (Pages 84-88)
The merger would allow the New T-Mobile to partake in the “Convergence Driven Business Model” that Verizon and AT&T have both used. (Pages 89-92)
Verizon and AT&T have adopted a restrained approach to 5G evolution, and competition from the New T-Mobile will hasten and expand the 5G initiative. (Page 93)
Ability to go Toe-to-Toe with VZ and T
Despite the best efforts of Sprint and T-Mobile, they could not take away significant gains in terms of the two-thirds market share that AT&T and Verizon control. (Pages 93-94)
Sprint faces serious challenges for the future and cannot compete at the level of AT&T and Verizon, but will be a second-tier player. (Pages 94-98)
T-Mobile also cannot compete at the level of AT&T and Verizon, but will also be a second-tier player. (Pages 98-100)
The merger will give the new company the necessary tools to take it to new levels and compete more aggressively against the market leaders and new entrants to the market. (Pages 100-102)
Converging Industries are creating a Singular Broadband Marketplace
The wireless space is being populated by new competitors beyond the traditionally recognized carriers. These include cable operators, satellite companies and content / service providers. (Pages 102-105)
Comcast and Charter are aggressively entering wireless. (Pages 105-111)
Dish is preparing to enter wireless delivery services. (Pages 112-114)
Tracfone now provides wireless service to 23 million subscribers. (Pages 114-116)
No Significant Likelihood of Harmful Effects or Coordinated Interaction
It would be irrational for New T-Mobile to hold idle capacity from the new network instead of using it to seize market share. (Pages 118-119)
Economic incentives will flow from the improved mobile network. (Pages 119-124)
The combined spectrum will give New T-Mobile extra 4G LTE capacity it can use today to seize market share. (Pages 124-128)
Coordinated action is implausible due to the diversity in spectrum among the carriers and geographic licensing. (Pages 129-132)
No Harm to Local Markets
With only one exception (Puerto Rico) there would be no local markets that had less than 3 competitors with at least 2% market share. (Pages 132-136)