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13 February 2020

T-Mobile/Sprint merger set to go ahead following federal court ruling

The proposed merger between Sprint and T-Mobile USA now looks certain to go ahead, after a federal court ruled in their favor this week. Legal action by a group of 10 US states, citing fears of a decline in competition for consumer services, had put the merger in jeopardy, even though it had been cleared by all the regulatory and governance authorities last year.

But now, with the Judge Victor Merrero cautioning the states not to appeal his decision, 2020 should see the USA’s national MNOs reduced temporarily from four to three, before Dish Network achieves broad coverage for its planned 5G network. Divesting customers, including Sprint’s Boost Mobile division, to Dish, along with some spectrum and network assets, was a condition of the merger, to seek to allay fears of reduced competition and higher prices.

It remains to be seen how far and fast Dish is able to move – that may rely on it gaining further partners, such as a potential passive infrastructure sharing deal with Sprint/TMO, or a commercial tie-up with the 5G alliance of leading cablecos Comcast and Charter. Further M&A is not out of the question down the line, and we suspect the Sprint/TMO marriage will not be the end of the USA’s decade-long saga of consolidation and changing market structure.

The winning argument, in TMO’s and Sprint’s favor, has always been that they could build out 5G better and faster together than separately, and so provide a better counterweight to Verizon and AT&T, and a better platform for innovation and new services. The combination of Sprint’s plentiful 2.5 GHz spectrum with TMO’s nationwide 600 MHz offers a strong mixture of capacity and coverage, without over-reliance on the challenging millimeter wave bands (though TMO does hold some of those assets).

There will be challenges, including those for the new management team, which will have to address (finally) Sprint’s long-established weaknesses in customer retention and quality of experience, to ensure there are no repeats of the integration disasters that beset Sprint’s merger with Nextel – whose ripple effects were still weighing on the results of its next marriage, when it was taken over by Japan’s Softbank.

And there will be challenges to merge very different network platforms, and technological cultures. Sprint has always been an experimentalist, and heavily technology-focused, while TMO is all about marketing, and spending as little as possible as long as it can deliver the experience users want. However, both are changing in the 5G era – Sprint has become more cost-conscious and less maverick; TMO is investing in moving towards enterprise services while promising a full TV, fixed wireless and mobile multiplay offering based on its expanded 5G network, courtesy of the Sprint spectrum.

Judge Victor Marrero of the United States District Court for the Southern District of New York issued a huge 173-page decision after a lengthy trial. He stated: “T-Mobile has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes. The proposed merger would allow the merged company to continue T-Mobile’s undeniably successful business strategy for the foreseeable future.”

T-Mobile issued a statement saying: “Now the companies will be moving to finalize our merger to create the New T-Mobile, a supercharged Uncarrier that is great for consumers and great for competition!”

It promised “America’s first transformational nationwide 5G network and services that that will supercharge innovation throughout the US economy, connect people throughout the country and help bridge the digital divide. With speeds up to 5x faster than current LTE in just a few years and reaching as much as 15x faster by 2024, New T-Mobile’s 5G network will change the way consumers think about and use the Internet.”

It reiterated some of its arguments during the approvals process, saying “New T-Mobile will challenge a system that is not working for America’s consumers, driving competition and innovation that benefits everyone, everywhere.” That includes promises to build better rural coverage and to provide price plans for all income levels. In addition, New T-Mobile Home Internet will offer an alternative to wireline in-home broadband, it said, “to provide much needed competition to Big Cable … It will deliver 100+ Mbps speeds for wireless broadband to 90% of the population and in-home service to over half the country’s households by 2024.”