Ever since two of America’s biggest telecom firms – T-Mobile (Nasdaq: TMUS) and Sprint (NYSE: S) – announced their merger plans last year, questions were raised about the feasibility of the deal, in terms of anti-competition. When the merger was moving closer to materialization, after overcoming a series of adversities, it ran into trouble this week when regulators took a harsh stance.
The mammoth buyout valued $26 billion was tentatively scheduled to close in the first quarter of 2019 after it received the unofficial approval from the chief of the Federal Communications Commission (FCC), pursuant to an extensive review.
FCC chairman Ajit Pai is of the view that the anti-trust concerns could be addressed through measures such as a mandate to Sprint for selling its subsidiary Boost, and also by asking the companies to enhance network speed and provide 5G service across the country. The FCC is yet to grant an official sanction.
The deal was tentatively scheduled to close in the first quarter after it received unofficial approval from the FCC chief
A section of industry experts and consumer advocacy groups are not ready to buy Pai’s argument. Together, T-Mobile and Sprint cater to more than 50% of the country’s pre-paid wireless market, where the majority of the customers are middle class. Those who oppose the deal fear that the coming together of the two giants will lead to monopoly.
Trouble started brewing when the proposal faced objection from various quarters, including industry peers like Dish Network (DISH), raising concerns that it will give undue advantage to the companies in terms of pricing and quality of service.
Also see: T-Mobile US Q1 2019 Earnings Conference Call Transcript
Due to the high market value of T-Mobile and Sprint, the third and fourth largest telecom firms in the US after AT&T (T) and Verizon (VZ), the deal needs to undergo an extensive approval process. When the Department of Justice (DoJ) pitched in around six months ago, it was expected that the proposal by T-Mobile’s majority owner to buy Sprint would get the final nod within a few weeks.
Adding to the uncertainties, the DoJ this week sought to prevent the buyout, raising concerns that it would breach the antitrust norms. According to the DoJ, the outcome of the deal would not be in the best interest of customers due to the absence of sufficient competition. According to sources close to the matter, attorneys of the DoJ’s antitrust division are expected to file a suit in the court against the merger.
It has been more than a year since T-Mobile’s majority stakeholder Deutsche Telekom signed an agreement to acquire Sprint with the aim of scaling up operations so as to compete effectively with rivals AT&T and Verizon.
T-Mobile’s stock, which hit a peak a few days ago, traded lower in the early hours of Thursday. In contrast, Sprint had a positive opening and gained sharply soon after the session started.