Could the T-Mobile and Sprint merger be a good thing?
This past weekend, T-Mobile and Sprint finally announced that the two companies have agreed to merge. Talks have been going on for years, but they were finally able to hammer out terms which were agreeable to both sides.
We’re still at least a year away from US regulators green-lighting the merger, but let’s take a few minutes to explore the implications of the “New T-Mobile” and its impact to consumers and the US wireless industry.
Why Do They Want To Merge?
Whenever two companies merge, the main benefit is cost savings. T-Mobile and Sprint both operate independent networks and both have enormous workforces. The T-Mobile and Sprint merger would allow for a significant reduction in operational costs in keeping the network running, but it would also mean a reduction in overall employees which are currently spread between the two companies. A good number of Sprint stores will be closed if they are within close proximity of T-Mobile stores, but the New T-Mobile is promising to open new stores in rural areas as it expands it coverage. The new customer service and sales teams would be larger than what T-Mobile and Sprint currently have on their own, but the total number of people currently employed by the two networks will be cut significantly.
“The combined company will have lower costs, greater economies of scale, and the resources to provide US consumers and businesses with lower prices.”
The cost savings from the merger would be a huge boost to Deutsche Telekom and SoftBank’s bottom lines which will own a respective 42 percent and 27 percent of the new company. But John Legere, who will take on the role of CEO of the New T-Mobile, is promising lower prices for consumers and increased investment into network infrastructure for its 5G rollout.
For the past few years, T-Mobile’s “un-carrier” moves have forced Sprint, AT&T and Verizon to offer unlimited plans to their customers. Since the New T-Mobile will have over 90 million customers, AT&T and Verizon should feel even more inclined to match any outrageous offers that T-Mobile lobs into the air.
Better 5G, Faster
The main benefit that the merger will bring to consumers is a faster, more comprehensive 5G rollout. T-Mobile and Sprint have individually announced their 5G plans, but the New T-Mobile would benefit from having more than 150MHz of spectrum in nearly every major market. This would give the newly formed company a competitive advantage over Verizon and AT&T in most of the country, allowing for a much quicker rollout of its 5G network. Sprint and T-Mobile claim that their combined 5G network would have 30x more capacity and be 100x faster than what their current networks offer. Those speed and capacity improvement will likely not come for another 10 years, but we should see noticeable improvements as soon as the 5G switch is flipped.
The New T-Mobile claims that its 5G network rollout will be even more significant than the change from 3G to 4G, especially for those who live in rural communities across the US. The company is hoping that its offerings will be far-reaching and competitive enough for consumers to ditch their hard-wired internet service in favor of a wireless 5G connection in their homes.
Not A Done Deal
While T-Mobile and Sprint have agreed to the terms of the merger, the DOJ and the FCC will have both have to sign off on the deal. The full merger is expected to wrap up within 3-4 years as long as the government approval process is completed before July of 2019.
Since the merger has such a massive impact on the American’s wireless market, the Department of Justice will be taking a serious look at its implications. T-Mobile has been down this road before in 2011 when it agreed to be bought out by AT&T. At the time, the DOJ decided to block that mergerdue to concerns that it would create a duopoly with AT&T and Verizon controlling 75% of the market, eventually lead to higher prices for consumers.
If the Department of Justice finds that the T-Mobile and Sprint merger will be detrimental to US consumers, there’s a good chance it will block this merger as well. That being said, the US wireless market is much different now than it was in 2011. While significantly smaller than Verizon and AT&T, T-Mobile has been challenging its rivals with aggressively-priced plans and services which have been wildly popular. Based on what we’ve seen from John Legere over the years, he’ll likely be emboldened if the merger goes through and apply even more pressure to AT&T and Verizon.
In a perfect world, more competition is always better. It leads to innovation, price wars and improvements to customer service. While Sprint has been struggling these past few years, T-Mobile has been making huge strides in stealing customers from the other players – forcing everyone to offer unlimited plans at significantly lower prices. T-Mobile has shown that it doesn’t need 100 million customers to make a lasting impact on the wireless industry, but there’s a chance that it could do even more with Sprint on its side.
What’s your take on the T-Mobile and Sprint merger? Do you think the New T-Mobile would be beneficial to consumers or will it lead to a stagnant wireless market in the US?