T-Mobile and Sprint are combining in a deal that would create a bigger No. 3 cellular carrier in the U.S., but could also signal the end of an era of aggressive competition for customers.
The merger, in an all-stock deal announced Sunday after years of on-again-off-again courting, would create a company using the name T-Mobile. It would value Sprint at $59 billion and the combined companies at $146 billion, including debt. Excluding debt, the deal would value Sprint at about $26 billion.
T-Mobile and Sprint say their merger, if approved by regulators, would mean lower customer prices, greater innovation, more jobs and better wireless service, especially in the rural U.S. They also tout the deal as a way to best position the companies to compete in the forthcoming 5G race for faster mobile Internet. But critics worry that the merger will curb competition and results in job losses.
The new company, which would have more than 90 million retail wireless subscribers, still trails the top two carriers, with AT&T reaching 93 million subscribers, and Verizon 116 million.
“It’s a very simple rule of business. Both companies need each other,” said Sprint CEO Marcelo Claure told investors on a conference call Sunday. “The reason why this is going to work is that T-Mobile cannot do the 5G strategy without Sprint and Sprint cannot do it without T-Mobile.”
An AT&T spokesperson declined to comment on the deal; Verizon did not respond to a similar USA TODAY request for comment.
The executives said the merger will result in thousands of new jobs right away, with the potential to create “tens of thousands” later. The merged company’s plans to invest up to $40 billion in its new network and business in the first three years alone is a massive capital outlay that could fuel job growth across related sectors, too.
But analysts say job cuts are inevitable with so many business-function redundancies between T-Mobile and Sprint. These could number in the tens of thousands and call centers could take the heaviest brunt. The two companies employ more than 80,000 people.
The new company is expected to achieve $6 billion in synergies — redundancies between the two corporations, like sales, marketing, back office functions and customer service — says Roger Entner of Boston-based research firm Recon Analytics. But 93% of that figure is operating expenses and the majority of those operating expenses are people.
“Will they be able to (offset) these job losses with new hiring? How much will regulators hold their feet to the fire?” he said.
Lay-offs may become a focal point for opposition. Trump won the White House with a campaign steeped in promises to make life better for the American worker, and he twinned his sweeping 2017 tax cuts with vows of job creation.
Telecommunications workers aren’t likely to allow the bigger company to cut jobs or reduce full time positions without a fight. Unions have been pressuring companies like AT&T to return some of that tax windfall to workers in the form of jobs returned to the U.S. from offshore centers and higher wages.
The deal also risks toning down the cycle of price cuts and improved features the wireless companies have engaged in for the last five years.
Gigi Sohn, a distinguished fellow at the Georgetown Law Institute for Technology Law & Policy, said the deal will mean fewer choices for customers and could prompt the three remaining companies to “act in concert.”
“Consumers will be the losers if T-Mobile and Sprint are allowed to merge,” said Sohn, who served as counselor to former Federal Communications Commission Chairman Tom Wheeler.
“Both companies have been feisty competitors to the two biggest national mobile wireless carriers, Verizon and AT&T.” she said..
But Recon’s Entner, said worries about higher prices are over-blown.
“They’re really intense competitors. Prices will continue to decrease, but how soon will they decrease?”
The two companies executives argue that it’s short-cited to view the competition for customers as fight between phone companies. Cable and broadband companies like Comcast have rolled out their own wireless plans.
T-Mobile CEO John Legere said, “convergence between mobile broadband and cable isn’t just a hypothetical. It’s a reality of our business on a day to day basis.”
Should the companies merge, Sprint subscribers might see some new pricing arrangements available and could become eligible for T-Mobile promotions such as free Netflix subscriptions.
Those on T-Mobile might get Hulu or Tidal subscriptions in return, which Sprint has been promoting under some of its plans.
Government blessing
The deal still requires regulatory approval and that step is far from assured.
The nation’s No. 3 and No. 4 wireless carriers had tried to join forces before. In 2014, they considered merging but eventually called off talks because it was believed the hurdles under the Obama administration were too high.
T-Mobile’s growth since then may factor against the new deal. Opponents are likely to argue that halting a merger of the two companies four years ago resulted in a stronger T-Mobile, with more benefits to customers.
Legere, who has aggressively promoted the T-Mobile brand on social media and television — frequently taking swings at rivals — has overseen a more than doubling of T-Mobile’s subscriber base since joining the company in 2012. The company dropped a practice of requiring smartphone customers to sign on to onerous two-year contracts and was at the forefront of a return to unlimited data plans.
Sprint’s owners have tried to clear the way. SoftBank CEO Masayoshi Son was one of the first technology leaders to throw his support behind Trump, meeting with the then-President-elect in December 2016 at Trump Tower. Trump then announced SoftBank Group planned to invest $50 billion into the U.S. economy and add 50,000 jobs.
The meeting rekindled speculation that SoftBank would renew talks between Sprint and T-Mobile efforts under a Republican administration. But a year later, negotiations between the two companies hit a wall. In early November, both companies said they officially ended merger plans saying they couldn’t agree on terms.
If the third time proves a charm, Legere will remain CEO of the new T-Mobile. Marcelo Claure, who co-founded wireless company Brightstar and who was named Sprint CEO in 2014, will become a member of T-Mobile’s board.
Mike Sievert, T-Mobile’s current chief operating officer, will become president and COO of the new T-Mobile.
T-Mobile’s parent company, Deutsche Telekom, would own 42% of the combined company. Sprint’s parent, Japanese telecom titan SoftBank Group, run by Sprint chairman Son, would own 27% while the remaining ownership would be public.
