The question on everyone’s mind today is whether T-Mobile’s planned acquisition of Sprint will be approved by regulators and become a reality. Analysts are torn about this — and rightly so. The wireless industry has been through this before.
I still remember that Sunday back in August 2011 when I was packing to leave for a major wireless convention and got a call from an analyst alerting me that AT&T was about to announce its plans to acquire T-Mobile for $39 billion. When the Department of Justice (DOJ) later said that it was going to block the deal because it was viewed as being harmful to consumers as it whittled the competitive landscape to just three national wireless players, AT&T abandoned its acquisition plan and the two companies soldiered on as independent entities.
More recently, the DOJ has blocked AT&T’s attempt to purchase Time Warner because it says it will be harmful to consumers and result in higher prices. The DOJ filed a lawsuit over the deal, which AT&T is currently defending in court. Some believe the outcome of this case could provide some clues about what will happen with T-Mobile and Sprint. If AT&T prevails, it could pave the way for the T-Mobile deal to go through. If AT&T loses, it could be a sign that the government will continue to crack down on these types of deals.
Will They Or Won’t They?
On the investor side, analyst Walt Piecyk with BTIG, gives the likelihood that this deal will get approval from regulators at 40 percent or less as it is currently positioned. In a research note, Piecyk said that it’s a “hard sell” for T-Mobile to claim $6 billion in cost synergies while also increasing headcount.
That contradictory claim also caught the attention of Roger Entner, analyst and founder of Recon Analytics. Entner said that he thinks the government will focus heavily on whether this acquisition will result in layoffs. And although T-Mobile and Sprint said that the new company will invest up to $40 billion in its new network and that will result in job growth, Entner is skeptical. “On one hand, they are telling investors about the massive synergies. At the same time they are saying that this merger will create many jobs and they will hire more people. It’s a little hard to reconcile job losses and opex savings.”
But others are more optimistic. Mark Lowenstein, analyst with Mobile Ecosystem, said in a research note that he thinks the deal will pass muster with the FCC and the DOJ because the industry has changed significantly in recent years. “Cable appears serious about wireless, Dish has amassed even more spectrum, and major internet giants such as Google, Amazon, and Facebook are nibbling around telecom in some way,” Lowenstein said.
Likewise, John Byrne, an analyst with GlobalData, noted that T-Mobile and Sprint are touting the fact that the acquisition will add a third “real” 5G competitor where Sprint and T-Mobile alone would be much weaker because neither have the necessary spectrum assets. Plus, he said they are positioning Comcast, Charter, and the Dish Network as competitors.
Not a Merger, It’s a Takeover
One thing all analysts agreed upon is that this is not a merger of equals. The company will be called T-Mobile and T-Mobile’s management team will be running the business. T-Mobile CEO John Legere and COO Mike Sievert have been named to head the new T-Mobile and nearly everyone believes that Neville Ray, current T-Mobile CTO, will also be a member of the new management team. “He’s done wonders for the T-Mobile network,” Entner said. “There’s every indication that Neville Ray will lead the group,” Byrne added.
And most scoff at the idea that the new T-Mobile will keep a second headquarters in Overland Park, Kansas (current home to Sprint) for the long-term. “We believe the ‘secondary headquarters’ in Overland Park is nothing more than a way to secure support for what is likely to be a difficult regulatory process,” Piecyk said.
Convincing regulators that this acquisition is a good one for consumers and for job creation may be a long shot. But I wouldn’t underestimate the T-Mobile executive team. What Legere, Sievert, Ray and others at T-Mobile have done in the past five or six years to transform that company from a struggling Tier-1 operator with a crappy network to the upstart wireless player that transformed how consumers buy wireless services is commendable. If anyone can make a case for this merger, I think it’s this team.