Feature Article

July 29, 2014

Sprint & T-Mobile Merger? Not Before September

The idea of a merger between Sprint and T-Mobile has been the kind of thing that's had industry watchers paying particular attention for some time now. On the surface, it makes perfect sense, especially considering the nature of the two firms in the larger market. But a new report has emerged saying that, if such a deal does ultimately go down, it won't go down before September.

What's holding up this deal? Pretty simply, the two companies are getting the metaphorical ducks in an equally metaphorical row. Sprint—currently under the control of SoftBank Corp. in Japan—and T-Mobile, as represented by its owner Deutsche Telekom, are both working to set up the case to U.S regulators, and performing all the necessary due diligence to make this merger happen. Reports suggest that there are also some fine points of the deal to work out, though the broad points of the deal are established, with Sprint paying $40 a share for T-Mobile, bringing T-Mobile's market value to about $32 billion, according to word from Reuters.

The duo reportedly expects heavy scrutiny from lawmakers eager to prevent a monopoly possibly in progress. Reports suggest that the big problem seems to be the attitude of the Federal Communications Commission (FCC) and the Department of Justice (DOJ), both of whom are hoping for at least two network operators to compete against current front-runners AT&T and Verizon.

But SoftBank's chairman, Masayoshi Son, makes a good point in counter: while having two firms against the top two is a good thing—more competition in the field is never really a bad thing—allowing Sprint and T-Mobile to combine would make the resulting firm a greater power in the field, and one that's more likely to effectively compete against the other two. Son also points out that a potential merger between Comcast and Time Warner, as well as AT&T and DirecTV, would further drive down Sprint and T-Mobile since the resulting firms would be all the more powerful and able to suppress competition.

What the FCC and the DOJ aren't considering here is that it's not so much about the total number of competitors in the market, but about how viable these competitors are. After all, there are more than four firms in the mobile market as it is; firms like Boost Mobile and U.S. Cellular are both in play in the market, but are these firms significant threat to AT&T and Verizon? No, not really; as sound as these firms are in terms of overall offering, these two still aren't much match for the product lines and investment capability that AT&T and Verizon can bring into play. The number of competitors really doesn't matter as long as there's more than one. But it's the ability to compete, long-term, that really matters; what good does it do to have a field of 10 with one clear leader and the other nine inches from self-destruction?  A market of three competitors, on the other hand, that can actively work against each other and compete in the field, now...that changes the market and makes it viable.

Only time will tell how the T-Mobile/Sprint merger comes out—if it does at all, much like it is too soon to say if the AT&T/DirecTV and Comcast/Time Warner Cable mergers happen as well, but one thing is clear: the communications market may be about to be very much shaken up, and soon, may not be recognizable against what it is today.




Edited by Maurice Nagle


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