​Jeff Kagan: State of T-Mobile, Sprint Merger Negotiations

Jeff Kagan  |

It looks like T-Mobile (TMUS) and Sprint (S) are making headway in their merger negotiations. Sprint needs to do this deal more than T-Mobile. That’s because T-Mobile has shown strong growth in the last few years compared to Sprint. However, a combined carrier would create a much larger and stronger third place competitor after Verizon (VZ

) Wireless and AT&T (T) Mobility.

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So far, word is Softbank (SFTBY), majority owner of Sprint would own under 50% of the new company. Deutsche Telecom (DTEGY), which currently owns T-Mobile would own over 50%, giving them majority ownership. Because both T-Mobile and Sprint are very aggressive players, that may be difficult to live with for the spitfire owner of Sprint, Masayoshi Son. But first things first. Survival first, then growth.

Today, this deal is apparently just what the two carriers want. Next question, if they come to a deal, will regulators go along with them? Will it be approved? There have been mixed signals of late, so that’s unclear. Let’s take a closer look.

Mixed Signals on Wireless M&A from Regulators like FCC

Both T-Mobile and Sprint started their recovery during the President Obama administration. That’s when Softbank acquired Sprint. However, Sprint was not allowed to merge with T-Mobile at that time, putting Masayoshi Son’s plans on hold.

Then, if you recall, we saw Masayoshi Son with newly elected President Donald Trump at Trump Tower. Things looked much better at that moment and the feeling was the path to a merger agreement would be easier and faster.

However, nothing has happened since that time. We’ve seen Comcast (CMCSA) and Charter (CHTR) talk with Sprint and apparently walk away. That was an exciting moment for the company, but the opportunity seemed to have slipped through their fingers like sand on a beach.

FCC Now Says There is “Effective Competition” in Wireless Industry

To make matters worse, the FCC just issued a statement saying the wireless industry has “effective competition”. They say this for the first time in a long time. So, what exactly does that mean? Does it mean merging two wireless companies will be tougher going forward? Does it mean the FCC sees strong competition and choice for consumers with lower cost? If so, how will they judge M&A requests? If a merger is thought to take away something from the consumer, will it get tougher to win approval?

So, it’s as clear as mud today. There are more questions than certainty. I think T-Mobile and Sprint both really want this deal, for different reasons, but what about the regulators?

Masayoshi Son of Softbank and owner of Sprint had his hopes dashed a few years ago. He wanted to do the same thing in the USA as he did in Japan using Sprint and wireless as the center of his universe.

Now that he has a $20 billion investment in the USA with Sprint, he at least wants to see it grow. But first things first. He will fight tomorrows battles tomorrow. That’s why this kind of deal seems to make sense to him today.

Deutsche Telecom, owner of T-Mobile wants to get bigger, quicker, and that’s why they see value in acquiring Sprint. Going forward, I think this will be seen as an acquisition of Sprint by T-Mobile. T-Mobile will be the big winner and Sprint will dodge a bullet. It’s good for both of them.

T-Mobile, Sprint Merger Will Create Industry Action and Infighting

We don’t know what this company will look like five or ten years down the road, but if they get together I would imagine between Softbank and Deutsche Telecom we would see some real action in the wireless industry. I also wouldn’t be surprised to see infighting for direction and control. These are two industry leaders with potentially different points of view.

I also see the wireless industry splitting into two, distinct areas. One, with AT&T Mobility and Verizon Wireless is expansive working in wireless, telecom, Internet, pay TV, connected cars, IoT, AI and more. Two, with T-Mobile and Sprint, sticking more to the wireless side of the equation.

Assuming they do come together and this deal is announced, the next big question is what will the regulators do? Will they give their blessing, will they extract a pound of flesh and then give their approval, or will they block the entire thing? Do regulators understand the way the industry is splitting into two distinct segments?

Those are the options. We’ll just have to keep our eyes on this deal moving forward. Either way, congratulations to John Legere, CEO of T-Mobile who has turned the limping mutt into a real, lean, mean wireless competitor. And congratulations to Marcelo Claure and Masayoshi Son for their vision at making Sprint stronger and better than they have been in years. Stay tuned.

Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, speaker and consultant. He follows wireless, wire line, telecom, Internet, cable TV, IPTV, Cloud, Mobile Pay, FinTech and communications technology. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.

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