Categories Earnings, Technology

A glance at the Sprint-T-Mobile merger and what comes with it

T-Mobile (TMUS) and Sprint (S) want to merge and they are trying to convince the authorities that they are doing the right thing, although not everyone is convinced. Both companies faced a hearing with the Senate Judiciary Committee’s Antitrust Subcommittee. At the hearing, T-Mobile and Sprint brought up various points to justify their union, mainly 5G, jobs and competition.

Sprint and T-Mobile argued that the biggest benefit of their merger would be in the deployment of the 5G technology. The duo argued that rather than doing it separately, there would be huge advantages in their combination in terms of infrastructure and technology needed for a 5G rollout. They also said it was imperative for the US to gain dominance in 5G as early as possible or the whole equation would shift in favor of China.

For American companies to gain that dominant position, they would have to make the necessary investments on time. Rivals like AT&T (T) and Verizon (VZ) have very advanced networks and are in pretty good shape to welcome the 5G trend. Sprint and T-Mobile would have to combine forces to catch up with them and be ready with their own infrastructure.

The combination of Sprint and T-Mobile would give them the increased capacity and the ability to expand into more rural areas. The combined company would also have more competitive capabilities and will be able to move into newer markets like broadband.

As is the case with every merger, this one too comes with its share of skepticism. Those not in favor of a combination argued that Sprint and T-Mobile should stick to their initial plans of investing in their own 5G networks and continue to compete with each other as this would be more beneficial to consumers. Keeping the two companies separate would also be better for innovation and pricing as prices tend to stay down when there are more players in a sector.

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The opposing side also argued that as separate entities, Sprint and T-Mobile currently have the best prices for their prepaid offerings and a merger between them would affect these prepaid services and their pricing. The merger also raises doubts on the fate of mobile virtual network operators, or MVNOs, particularly those that cater to low-income groups. They have pointed out that since the entire control lies in the hands of the wireless carriers, MVNOs have no protection in terms of their deals.

Related: Survival instinct brings Sprint and T-Mobile back to the merger table

Those against the merger believe there should be some form of divestment to even things out and also measures should be taken to protect dealers and MVNOs such as fixed contracts for a particular period of time, thus giving them stability.

When the issue of job losses was raised, Sprint and T-Mobile countered by saying that although some redundant jobs in areas like retail will be lost in the urban regions, more jobs will be created through the merger in rural places and in new areas of service like broadband. The combined entity would also bring back overseas jobs resulting in more domestic job creation.

The merger is yet to be reviewed by the Department of Justice and the Federal Communications Commission and although both sides have made compelling arguments, the outcome cannot be predicted as of now. However, looking at the growth of competition in the market, it might be beneficial for Sprint and T-Mobile to team up after all as this would help them improve innovation and increase the breadth of their services, thus benefiting themselves and customers.

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