The two wireless carriers announced plans Sunday to merge into a new telecom giant. But for consumer advocates and regulators, the big questions are: Will there be enough competition with one fewer national wireless carriers? And will prices go up?
Sprint and T-Mobile US, which announced Sunday they had reached a deal to merge into a new telecommunications giant, are betting that regulators will finally allow the U.S. wireless market to shrink to just three national players.
A combined company, they said, would have more than 100 million subscribers — and the resources to build out a next-generation wireless network and challenge the longtime market leaders, Verizon and AT&T.
Sprint and Bellevue-based T-Mobile also said the merged company — which would keep the T-Mobile name, be run by T-Mobile CEO John Legere, and have dual headquarters in Bellevue and Sprint’s hometown of suburban Kansas City — would create thousands of jobs by building out that next-generation network and opening hundreds of new stores in rural areas.
But for consumer advocates and regulators, the big questions are: Will there be enough competition with one fewer national wireless carriers? And will prices go up?
Sprint and T-Mobile have tried unsuccessfully to merge before. They were effectively blocked four years ago by regulators in President Barack Obama’s administration who worried that shrinking the market for wireless providers would give consumers fewer choices and lead to higher prices.
This time, the two companies have a very specific message for the Trump administration. A combination, they argue, would allow them to create a better so-called 5G network than either company could alone, at a time when the White House views a superfast 5G wireless network as crucial for the country’s economic and national security.
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“All the stars have aligned,” Marcelo Claure, Sprint’s chief executive, said in an interview. He added that the deal “allows this company to offer the best product at better prices, lower prices.”
The heads of the two companies acknowledged that winning over regulators was a top priority. In an interview, Legere said that he and Claure planned to head to Washington this week. Legere added that they did not try to “presell” the transaction, although they said they had called officials at both the Federal Communications Commission and the Justice Department to inform them of the agreement.
Under the terms of the deal — the companies called it a merger but T-Mobile would effectively be buying Sprint for about $26.5 billion — T-Mobile’s controlling shareholder, Deutsche Telekom, would own 42 percent of the combined company. Claure would join its board.
SoftBank of Japan, which controls Sprint and whose founder, Masayoshi Son, has long dreamed of merging the two carriers, would own 27 percent. Public shareholders would own the rest.
Joining the country’s third- and fourth-largest mobile-service providers would be one of the most significant consolidations in the U.S. wireless market in years. A combined T-Mobile and Sprint, with almost 100 million retail subscribers as of Dec. 31, would put it ahead of AT&T, with 93.6 million, and not far behind Verizon’s 116.3 million.
It is unclear how hard Verizon and AT&T will try to fight the deal, if at all. A spokesman for AT&T declined to comment, while a spokesman for Verizon said in a statement that it was focused on building its own 5G network, “not just a proposal that may or may not happen in the next couple of years.”
Some Democratic lawmakers questioned the merits of the deal. Sen. Amy Klobuchar of Minnesota said in a statement, “I remain concerned that increased consolidation could undermine benefits to consumers.”
But Washington Gov. Jay Inslee tweeted that he welcomed news of potential job creation.
If the deal goes through, it’s likely some jobs would be cut as duplicate roles are eliminated. The companies’ executives didn’t deny that in a conference call Sunday, but they said that overall, thousands of jobs would be created by the merger.
The two companies have about 80,000 full-time employees combined, and that number will grow every year as the companies expand their networks and 5G technology, Mike Sievert, current T-Mobile chief operating officer and the planned president and COO of the combined company, said Sunday.
Nearly every merger leads to a reduction of sales and marketing teams, and T-Mobile’s headquarters in Bellevue, with 5,500 employees, would likely face such cuts, Chetan Sharma, an industry consultant based in Issaquah, said before Sunday’s merger announcement. But he said T-Mobile would be dominant in a combined company and deeper cuts were likely to come at Sprint’s headquarters.
T-Mobile and Sprint contend that the market has changed since they last tried to combine in 2014. Building out 5G requires tens of billions of dollars in investments that T-Mobile and Sprint, especially, would be hard-pressed to put up on their own.
And there are fresh competitors in the sector. Comcast, for example, has drawn hundreds of thousands of wireless-service customers by bundling mobile phones with cable plans, even if it loses money.
For consumer advocates, however, the chief worry is that a shrinking number of providers would end the innovations T-Mobile introduced to the U.S. wireless market since the Justice Department blocked its plan to sell itself to AT&T in 2011. Under Legere, T-Mobile cut prices, ended long-term contract requirements and promised to simplify customer bills by eliminating hidden fees and surprise taxes.
Those policies helped T-Mobile add nearly 40 million customers over the past five years, with 5 million new customers last year alone. AT&T, Verizon and Sprint all followed suit, and in recent years the overall price of basic wireless plans has stayed flat or fallen, according to Obama-era regulators.
“The success of the four-firm market is proven for consumers in lower prices and better offerings,” said Tom Wheeler, who was the chairman of the FCC when he opposed a merger between Sprint and T-Mobile in 2014. “It is hard to see how removing the competition that created improves things for consumers.”
But analyst Craig Moffett, of the research firm MoffettNathanson, said the issue of what is best for consumers is not merely a question of numbers.
“Is it lower prices,” he asked, “or more availability of advanced consumer technology?”