The FCC May Be Inclined to Approve a Sprint/T-Mobile Merger

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While it’s been highly debated whether or not the FCC would approve a merger between the third and fourth major mobile carriers, there’s reason to believe that this deal could go through. Despite the fact that AT&T’s proposal to buy out T-Mobile was denied a little over two years ago, industries are changing and Sprint is in a completely different position than AT&T. Oligopolies may have been something that were frowned upon years ago for fear of reducing competition, that isn’t the case these days—as recently illustrated by the airline industry. The top 5 airlines in the United States are Delta Air Lines, United Airlines, Southwest Airlines, American Airlines, and US Airways. A few weeks ago American Airline and US Airways partnered, taking their number of enplaned passengers from 91,153,375 and 54,204,283, respectively, to total 145,357,658, which surpasses Delta’s year to date number of enplaned passengers and their fleet size. American Airlines and US Airways are in similar positions to T-Mobile and Sprint when looking at the mobile carrier market. Neither of these companies is at the top, but they are certainly close.

Technically Sprint and T-Mobile are recognized as being part of the top four; however, they significantly trail Verizon Wireless and AT&T Mobility in number of current subscribers. Verizon checks in with 117.194 million subscribers, with AT&T at 107.884 million then Sprint with 54.977 million, and T-Mobile with 45.039 million. An AT&T/T-Mobile merger would have given the company a huge advantage over the competition, almost having tripled the number of subscribers as Sprint. You can see how this proposal was declined. However, if Sprint and T-Mobile were to join forces, they would have a total of 100.016 million subscribers, which would place them in equal territory with Verizon and AT&T. This could create an even more competitive market place than before.

The major question is: If approved, would this merger pay off? Alex Cho at Seeking Alpha explained that, “it’s likely that over the short-term subscriber figures could drop even further. However, as cost efficiencies and further investment into network technologies continue a higher percentage of revenue can be converted into profit. Currently Sprint’s operating margin is 1.23%, and T-Mobile’s is 5.18%. Currently, Verizon’s operating margin is 14%. So you ‘d have to think that by Sprint and T-Mobile being combined they can drive operating margins that are closer to Verizon’s, and in turn grow profit exponentially in a very short period of time. By having positive cash flow, Sprint and T-Mobile can invest more aggressively into network infrastructure to keep pace with Verizon and AT&T.”

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