Commentary

T-Mobile And Sprint Declare Intentions To Live Happily Ever After

After years of dalliance — with barbs and darts thrown in between — Deutsche Telekom’s T-Mobile US and SoftBank Group’s Sprint have announced a definitive agreement to wed if federal regulators agree to forever hold their peace. The combined company will be called T-Mobile and will be led by its CEO, John Legere, out of its current headquarters in Bellevue, Wash. There will be a second HQ in Overland Park, Kan., where Sprint has nearly 6,000 employees biting their nails after 500 people were let go last month. 

What’s not to like about the alliance if you watch a video put out by Legere and current Sprint CEO Marcelo Claure, who will serve on the board of the new company? The deal will accelerate the building of a national 5G network, create thousands of jobs and pass along the resulting economies of scale to consumers by way of lower prices.

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And if 5G just seems like a techie’s pipe dream to you, here’s what Claure has to say about it in the video: “Just to put this in perspective, the difference between 4G and 5G is the difference between black-and-white TV and color TV.”

Deutsche Telekom will own 42%, SoftBank Group 27% and 31% will be publicly traded. Nine of the 14 directors will be nominated by Deutsche Telekom; 4 by SoftBank. The deal is expected to close no later than the first half of 2019, the companies believe, if regulators buy their argument that 5G primacy by a U.S. company trumps any antitrust concerns.

“Under the Obama administration, the Federal Communications Commission scuttled AT&T’s attempt to purchase T-Mobile in 2011, arguing it would lead to less competition and higher prices. Similar concerns also prevented Sprint and T-Mobile from forming a merger in 2014. As rumors of their consolidation surfaced, William J. Baer, then assistant attorney general for the antitrust division, said, ‘It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,’” writes Josh Horwitz for Quartz.

But over the last month, Claure has been heavily lobbying SoftBank chairman Masayoshi Son to make a deal even as Legere “worked on convincing Deutsche to come back to the table,” sources familiar with the process tell Bloomberg Technology’s Scott Moritz and Nabila Ahmed. 

“China is now racing ahead on 5G research and investment and the sense was that the Trump administration, distrustful of the Asian power, would be more inclined to green-light a deal than its predecessor, the people said. The market dynamics were also changing: Comcast Corp. was steadily gaining broadband users while other cable operators hovered on the margins,” Moritz and Ahmed write.

The dynamics of the deal have certainly changed since August 2014, when Claure took the helm at Sprint as it decided to drop its bid for the “Uncarrier,” which was No. 4 at the time but on track to overtake it a year later behind Verizon and AT&T. 

“Four years ago, when merger talks were strong, the deal would have gone the other way with Sprint as the leading company after a merger. It was the larger wireless carrier then,” Mark Davis, Steve Vockrodt and Lynn Horsely write for the Kansas City Star. In the new deal, Mike Sievert, T-Mobile’s COO, will be president and COO and “no Sprint executives have been guaranteed a title,” they point out. But Legere and Claure assured them in an interview “that Sprint’s Overland Park headquarters figures prominently in the merged company’s future.”

“Joining forces would create a wireless provider in the same class as Verizon Communications Inc., which reported about 116 million wireless customers in the U.S. at the end of 2017, and close to AT&T Inc., which said it had 93 million wireless customers. T-Mobile and Sprint had roughly 59 million and 41 million, respectively, at the end of last year. The figures exclude some connected devices and wholesale agreements with other carriers riding atop the major carriers’ networks,” Drew FitzGerald, Dana Cimilluca and Dana Mattioli report for the Wall Street Journal.

“The new company would be a combination of different cultures. T-Mobile has ranked at the top of recent customer satisfaction surveys, and Sprint has often lagged behind its rivals in customers’ minds. T-Mobile has invested heavily in marketing itself as an industry rebel, with Mr. Legere out in front, insulting Verizon and AT&T on Twitter. Sprint, on the other hand, is much more reserved and its customers aren’t likely to follow its executives on social media,” point out Cecilia Kang and Michael J. de la Merced in the New York Times.

Strange bedfellows, perhaps, but together they will have a shot at transforming the Uncarrier into the Numero Unocarrier.

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