According to sources cited by CNBC, T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) – the nation’s third-largest and fourth-largest wireless carriers are on close conversations to agree to the tentative terms for their proposed stock-for-stock merger. Reports state that Sprint’s shareholders and its parent company Softbank will own 40-50% of the combined entity. T-Mobile’s shareholders, including Deutsche Telekom, will own the majority of stake. T-Mobile’s CEO John Legere is likely to lead the merged company if the deal goes through.
Both the companies expect to reach an agreement by the third week of October.
Shares of T-Mobile US were 1.81% down to about $62.90, while Sprint’s shares declined 8.28% to $7.81, on Tuesday morning. In terms of market valuation, T-Mobile US is the bigger company at $53.24 billion while Sprint has a market cap of $34.03 billion.
Prospects of Sprint -T-Mobile US
The pairing of T-Mobile US, which has about 70 million subscribers, and Sprint with its nearly 54 million user base, will become a formidable entity which can challenge the telecom market supremacy of Verizon Communications Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) , with their almost 135.7 million and 114.5 million subscribers, respectively.
Several analysts have also estimated that the merger would help the companies save as much as $4 billion annually. They will also witness higher prices eventually. Beyond that, all customers of the combined company will get better coverage and enjoy lucrative facilities. Google's Project Fi service, which uses the U.S. Cellular Corporation (USM - Free Report) network and Wi-Fi for its connections, also utilizes both Sprint and T-Mobile US’ networks. Eventually, the two companies' wireless spectrum will benefit all customers.
Although the merger looks attractive, this requires approval from anti-trust regulators. Moreover, the combination would reduce the number of major wireless carriers in the domestic market to three.
Ever since Republican nominee, Donald Trump, has won the U.S. presidential election, the telecom industry circle is rife with speculations that the Trump regime may pave the way for a merger between T-Mobile US and Sprint.
The previous Democrat regime with Barack Obama at its helm was strictly against further consolidation of the telecom industry which provides nationwide telecom services. The U.S. telecom regulator Federal Communications Commission (“FCC”) firmly stated that it wanted at least four powerful national telecom operators in the country. Therefore, a merger between top four telecom operators seemed a distant dream.
However, it has been widely speculated that the new Republican regime under Trump may not pursue such strict regulatory measures. President Trump has selected existing Republican commissioner Ajit Pai as the new Chairman of the FCC.
Ajit Pai is not against any consolidation. He stated that the number of wireless carriers should not be a matter of consideration, as long as competition exists in the wireless marketplace. The view is contrary to his democratic predecessor, former Chairman Tom Wheeler’s opinion. Tom Wheeler tried to protect competition in the market by opposing any such consolidation.
Consequently, the FCC might be open to a possibility of a merger proposal between the top four national telecom operators.
Notably, both T-Mobile US and Sprint is currently controlled by non-US firms. Deutsche Telekom AG is the parent company of T-Mobile US while Sprint is controlled by Softbank. Since 2011, Deutsche Telekom is looking for a suitable acquirer for T-Mobile US.
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