After nearly a decade of foiled attempts to either buy or be bought by a rival wireless carrier, T-Mobile is one huge step closer to its goal.
On Friday, the Department of Justice (DOJ) gave its long-sought approval for an ambitious plan by Bellevue-based T-Mobile US to acquire rival carrier Sprint.
The $26 billion deal, which still faces fierce opposition from some state officials and consumer groups, would combine T-Mobile, the nation’s third-largest wireless carrier, with Sprint, the fourth-largest. The new company would be nearly as large as the sector’s two leaders, Verizon Wireless and AT&T Mobility.
“Today marks an incredibly important step forward for the New T-Mobile,” said T-Mobile U.S. CEO John Legere, who will lead the new company, in a joint news release Friday morning with Sprint Executive Chairman Marcelo Claure.
The two executives say the deal would allow the combined company to deliver a range of new services and technologies, not least a next-generation 5G wireless network, while achieving future cost savings of $43 billion.
News of the DOJ approval sent shares in both companies climbing. T-Mobile stock closed up 5.4% at $84.25, while Sprint shares rose 6.6% to $7.93. shares in Sprint were up 7.5% to $8.01. It was also a relief for company officials, who appeared to have blind sided Thursday after the Justice Department delayed its approval because of a lawsuit by several states to block the deal.
But Friday’s approval also renewed questions about the merger’s impact on the wireless industry and on employees at the two soon-to-be merged companies.
Moments after Friday’s announcement, consumer advocates were already criticizing the Justice Department’s approval of the merger, which they fear could reduce industry competition and bring higher customer charges and even loss of service for low-income consumers.
“We’re profoundly disappointed at the decision to approve an anti-competitive, anti-consumer merger,” Paul Goodman, director of technology equity for the Oakland-based nonprofit Greenlining Institute, said in a statement Friday morning. “This deal does nothing to allay concerns that a larger T-Mobile will abandon low-income consumers and consumers of color.”
Employees at both T-Mobile and Sprint likely are also anxious to learn their fate under a deal that was sold to investors as way to generate $43 billion in projected “synergies,” or cost savings realized by eliminating redundant systems and operations, over the next five years.
Although some of those savings would likely come from cutting overlapping infrastructure, some is likely to come from job reductions, said Jon Magin, a merger and acquisition specialist with the Seattle office of technology consulting firm West Monroe Partners.
“That’s a lot of money,” said Magin of the projected savings. “So the people impact — I think everyone’s going to be worried about their jobs.“
T-Mobile US has some 51,000 employees, including 5,520 at its Bellevue headquarters and another 2,769 at other locations in Washington state.
According to a Thursday report by the Associated Press, Sprint and T-Mobile plan to keep the main headquarters for the combined company in Bellevue, while maintaining a “secondary headquarters” in what is now the Sprint headquarters in Overland Park near Kansas City, Kansas.
The AP also reported that Sprint had agreed to sell its headquarters campus in a deal that allows the company to lease back the space at a special bargain rate.
Officials with both T-Mobile and Sprint have said the merger would mean more jobs, not fewer. In an April statement, Legere said the merger would create “nearly 5,600 new American customer-care jobs by 2021,” and “7,500-plus more care professionals by 2024 than the standalone companies would have.”
During a question-and-answer period after T-Mobile’s discussion of the merger on a conference call, Legere again insisted that “jobs are going up every day in this new company.”
Legere and other company officials also rejected concerns that the new company would raise prices or abandon customers. As part of the DOJ agreement, T-Mobile gave assurances that it would not raise its prices for three years.
More broadly, to win Justice Department approval, T-Mobile and Sprint agreed to spin off billions of dollars in key assets — including at least 20,000 cell sites, a huge amount of spectrum capacity for wireless communications and some 9 million of Sprint’s Boost and Virgin Mobile prepaid customers — to be used to create a new wireless carrier.
This fourth carrier, which will be operated by satellite-TV company Dish Network, is intended to ensure that the wireless industry would remain competitive and keep consumer prices from rising.
Justice Department antitrust chief Makan Delrahim, who led its investigation of the deal, said the government required this “historic structural settlement with T-Mobile and Sprint after concluding their merger, without this remedy, would substantially harm competition.” He added that the agreement will “set up Dish as a disruptive force in wireless.”
Even so, the merger still faces hurdles. It must still be approved by the Federal Communications Commission, though commission chairman Ajit Pai said last month he’d approve it, citing the two companies’ commitments to improve rural wireless access and build out 5G networks.
Also, an antitrust suit recently brought by the attorneys general of New York and California on behalf of more than a dozen states remains active. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers and innovation,” New York Attorney General Letitia James said in a statement Friday.
Legere said during Friday’s question-and-answer session he was optimistic that the companies could address those concerns and persuade reluctant state officials to support the deal.
“I am very confident we will find what is necessary for [the objecting states] to join in,” he said.
One of critics’ big concerns is the viability of a Dish wireless operation.
Dish is largely a company with a declining satellite-TV business. It has no wireless business, but over the past decade it has spent more than $21 billion accumulating a large stock of spectrum for wireless service. The industry has long been skeptical of Dish’s ambitions to actually build a wireless service, instead speculating that the company wanted to make money by selling its holdings.
Under the terms of the DOJ agreement, Dish would get some assistance from Sprint, which is selling Dish its prepaid cellphone brands for $5 billion, and from T-Mobile, which would let Dish use its network for seven years while its own network is built out.
There are also incentives built into the agreement to keep Dish from sitting on spectrum assets rather than building them out into a network, DOJ’s Delrahim said. If the company doesn’t live up to its promises, it would face billions of dollars in penalties.
But some analysts remained skeptical. Dish on Friday promised the FCC that it would build a nationwide network using next-generation 5G technology by June 2023. But Dish is promising speeds that are only slightly higher than what’s typical today, even though 5G promises the potential for blazing speeds.
Recon Analytics founder Roger Entner, a longtime telecom analyst, said the settlement was good for T-Mobile, AT&T and Verizon, as a weak competitor in Sprint is being replaced by an even weaker one in Dish.
George Slover, senior policy counsel for Consumer Reports, said that the current industry structure of four competing providers works as it is. He said the existing level of competition won’t be maintained by simply requiring the creation of a competitor that doesn’t currently have the infrastructure.
“Dish might become a competing network at some point but it’s not there now,” he said.
David Tan, an associate professor of strategy and entrepreneurship at the University of Washington’s Foster School of Business, said the agreement “does not seem like the most expedient or efficient way to create a fourth competitor.”
“If the justification for the merger is that a company is going to spin off its resources to another fourth player and make that fourth player an equivalent competitor, then … that sort of defeats the purpose,” Tan said. “Why go through the trouble of creating a fourth player that is meant to be a replacement of what you used to be? Why not just operate as they were before?”
Information from the Associated Press is included in this report.