Why I believe the Sprint and T-Mobile merger will happen

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. 

Many investors have been bullish on Sprint ever since news about T-Mobile and Sprint merging was released. Investors have speculated that Sprint will be acquired for $6.50 a share or even $8 a share. Right now, at the time I wrote this article, Sprint is trading at $5.18 a share. It's a big discount compared to its acquisition price. 

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Now, you might ask "where did the investor optimism go?" Well, ever since skepticism arose on whether the merger deal will be closed, investors started selling Sprint's stock. It's similar to when Time Warner and AT&T were about to merge but antitrust issues led to Time Warner's stock to fall. At the end of the saga, the AT&T and Time Warner deal was approved.

With skepticism on whether the Sprint and T-Mobile merger will be approved, here is why I believe the merger will be approved.

1) The government has already shown approval for it

Back in 2019, the Justice Department and the FTC have already signed their approval of the deal. If two government divisions have already approved the merger, then the other government divisions overseeing the deal should be able to approve the merger as well. With the FTC after the people and the Justice Department looking after the law, with both of their approvals, the merger seems like a firm bet. Plus, antitrust issues should've gone away after the Justice Department approved the merger.

2) T-Mobile will clean up Sprint's business

Photo by Obi Onyeador on Unsplash

To gain market share, Sprint has offered low prices to their customers in order to gain market share in the telecommunications industry. T-Mobile on the other hand disrupted the telecommunications industry without providing really low prices to consumers.

With T-Mobile's management overseeing Sprint's operations, management will probably question the low price plans that have been unprofitable to Sprint and will eventually stop that business strategy from continuing to exist. While they might remove the low priced plans, they will keep prices competitive to maintain profitability.


Some things to note

Softbank, a Japanese conglomerate that has been famous for investing in innovative startups like Uber and Slack, owns 80% of Sprint. With a lot of debt in its balance sheet, Softbank is looking forward to the merger as a way to reduce the problems of Sprint's debt. It might sound like self-dealing but T-Mobile does have some benefits from the merger.

After the merger, Softbank will then own shares of the T-mobile/Sprint entity. There hasn't been any news of Softbank making plans to fully cash out of the US telecommunications industry.

Also, the Sprint and T-Mobile merger will make competition among the telecommunications giants even more intense.

Photo by Brian Miller on Unsplash

Instead of having four carriers to compete with, now it'll be three. If you add up the subscribers both T-Mobile and Sprint have, it amounts to 79.07 million. That's more subscribers than AT&T but fewer subscribers than Verizon! 

Do I see an antitrust issue here? Not really, because there is still competition. The telecommunications industry has always been an oligopoly and the merger between Sprint and T-Mobile doesn't change that. 

One more thing

While most of the content I post is sourced from the media, I have something that many readers would want to hear regarding this merger. What I'm about to tell you is information that I've learned about the telecommunications industry in California during my internship. 

In California, the state has a program that gives free phones to low-income families. That program is called California Lifeline. In the field of "free phones," you have many companies: Assurance Wireless, Safelink, SafetyNet, etc. Interestingly, Assurance Wireless is owned by Sprint (and that division has been under scrutiny lately). 

T-Mobile, while it doesn't have any free phone division, it does lease out its towers to the other free phone companies. Because of that, there are limits on how many users can use one tower. If one area is already at max capacity, then other people can't use their phones for communicating because that tower can't accommodate them. 

For Assurance Wireless, since Sprint owns that company, that means that Assurance customers have ready access to cell towers, and incase one tower goes out due to a power outage or other reasons, Sprint will redirect service to another tower that's working. 

With the merger, having T-Mobile own Sprint will mean that it'll have to own Assurance Wireless, making T-Mobile/Sprint a competitor in the free phone business. Since T-Mobile already leases towers to other free phone companies, this provides an antitrust issue. To alleviate the antitrust issue, Sprint will sell its Boost Mobile division, which includes Virgin Mobile and Assurance Wireless. Seeing this, I feel that Assurance Wireless will have a much tougher time competing in the free phone business. Let's hope that the Assurance Wireless reps continue their hard work. 

Conclusion

Overall, I'm optimistic that Sprint and T-Mobile can continue the process of the merger. With the willingness of the two companies to comply with regulators on making the merger happen, I believe that Sprint shareholders stand to benefit significantly. Softbank on the other hand will get to sleep at night as Sprint's debt problem will become more manageable after the merger. With T-Mobile and Sprint combining their subscriber base, the new entity will become the second largest phone carrier in the US.