Is Sprint Working on a Bid for T-Mobile?

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The Wall Street Journal reported on Friday that Sprint Corporation is working toward a possible bid for T-Mobile US Inc. If these two giant telecoms merged there would be three major carriers in the wireless game, reducing competition and dominating the industry. “Sprint is studying regulatory concerns and could launch a bid in the first half of next year, the people said. A deal could be worth more than $20 billion, depending on the size of any stake in T-Mobile that Sprint tries to buy. A bid would cap a period of extraordinary consolidation in the U.S. wireless market, coming just months after SoftBank Corp. acquired Sprint and T-Mobile merged with MetroPCS Communications Inc.,” The Wall Street Journal explained. 

There’s been a lot of questions regarding the possibility of this merger and whether antitrust authorities would oppose this deal for fear of lack of competition. Consumers may suffer without a fourth national competitor to keep a check on prices. Sprint hasn’t made a final decision about going forward with this bid. The Wall Street Journal explained, “Going forward despite regulators’ concerns would be highly risky. Any pursuit of a bid by Sprint could be aimed at testing antitrust officials’ reaction to a deal, and a bad reaction could put an end to the effort.”

Two years ago the Justice Department shot down AT&T’s $39 billion deal to buy T-Mobile for the reasons mentioned above. T-Mobile may be cautious to enter into an agreement with Sprint for fear of the same outcome. Driving the current effort is SoftBank Chief Executive Masayoshi Son, an aggressive acquirer who bought control of Sprint in July and now owns more than 80% of Sprint. Deutsche TelekomAG owns about 67% of T-Mobile US and is looking to possibly exit the U.S. market, the people said. T-Mobile became publicly listed in May after merging with smaller rival MetroPCS, and now has a market capitalization of just over $20 billion. (Source: The Wall Street Journal)

If Sprint and T-Mobile were to merge, they would have nearly 53 million postpaid subscribers while Verizon Wireless will have 95 million, and AT&T will have about 72 million. According to The Wall Street Journal, “Executives from Sprint and T-Mobile have argued publicly that the government should allow a combination of the two companies, as it would give them the scale to make the network investments and spectrum purchases needed to compete against Verizon Wireless and AT&T. The market leaders have more than two thirds of the country’s wireless subscribers and account for virtually all of the U.S. industry’s profits.”

With Sprint and T-Mobile lagging behind Verizon Wireless and AT&T in number of customers, a merger would give them a chance to gain a real foothold in the industry. In an effort to gain more customers, the two smaller carriers have pushed unlimited data plans and lower prices at a time when AT&T and Verizon Wireless have shifted to plans that get more expensive as subscribers use more data to watch video, play games or shop online. If Sprint and T-Mobile were to merge, then the next leading carrier would be U.S. Cellular who only has 4.3 million postpaid customers.

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