Categories Earnings, Technology

T-Mobile, Sprint to create the third great pillar of US telecom

On Friday, we had reported that the T-Mobile-Sprint merger may happen this week, and it’s finally taking off. T-Mobile US (TMUS) and Sprint (S) have agreed to a merger valued at $26.5 billion. This deal comes after many failed attempts and it is expected to change the landscape of the US wireless industry. A combination of Sprint and T-Mobile will bring down the number of major telecom companies from four to three, and it will create an entity strong enough to take on Verizon (VZ) and AT&T (T).

The deal, which is estimated to bring in annual cost savings of over $6 billion, is expected to close by the first half of 2019. The combined company will be called T-Mobile, with T-Mobile US’ parent company Deutsche Telekom holding a 42% stake in it and Sprint’s largest shareholder SoftBank holding a 27% stake.

The companies said that in an environment where telecom and media companies are increasingly collaborating to provide better services, the deal would give them the necessary competitive advantage. It would also be extremely beneficial in the fast and efficient development and deployment of 5G technology so that the US does not lose out to China in the 5G race.

The new company is planning to invest $40 billion in its network in the first three years and compared to TMUS’ current network, the new T-Mobile network is expected to be able to deliver at speeds that are 15 times faster on average by 2024. This increased investment will also help in hiring more people and expansion of service to rural areas. The combined company’s resources will also help in delivering lower prices for consumers. Concerns exist among consumers and labor unions over the possibility of higher prices and job losses and it remains to be seen whether these promises will be enough to placate them.

The deal, which is estimated to bring in annual cost savings of over $6 billion, is expected to close by the first half of 2019.

However, the biggest hurdle is getting the regulatory approval. The transaction will face scrutiny from the Federal Communications Commission (FCC) and the Justice Department. The deal was denied approval earlier by the Obama administration but there have been changes in the wireless market since and there is a chance the deal could go through this time.

Deutsche Telekom’s CEO Tim Hoettges is optimistic that the deal will make it through as he believes it is good for both consumers and the country as a whole. There are others who do not share this confidence. It is likely the government will ask for certain conditions to be met in exchange for approval, and these changes could affect the estimated synergies.

What about the mobile bill?

Then comes the question of the average Joe and his mobile bill. Although both Sprint and T-Mobile have promised lower prices, history has proved that lower prices and better offers thrive in an environment of increased competition. There is also the question of whether T-Mobile will offer the same flexibility it offers now in terms of roaming charges and other fees to customers post-merger.

In terms of networks, once the companies are combined, customers might be able to enjoy better coverage. Both companies have entered into a roaming agreement, which will enable their users to use each other’s network even if the deal does not go through. If it does go through, it will help in developing a joint infrastructure.

The integration of both services might be a bit difficult and could lead to temporary difficulties but this would get solved over time.

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