News Analysis: Now that it looks likely that the proposed AT&T-T-Mobile merger will be blocked in federal court, perhaps it's time to talk about why a T-Mobile-Sprint merger makes more sense and might even have a better chance of passing antitrust scrutiny.
The
wireless industry is in a state of flux right now. Earlier this year, when
AT&T announced plans to acquire T-Mobile USA from Deutsche Telekom in a
deal valued at $39 billion, there was immediate concern for the future of the
industry.
The
critics said that the merger would create a "duopoly" comprising Verizon and
AT&T that controlled 75 percent of the wireless market and 90 percent of
the profits, dwarfing Sprint. As a result, the wireless market would lose all
semblance of real competition, and Sprint would be forced to sell out to
Verizon or be crushed out of existence.
But
last month, the U.S. Department of Justice gave Sprint a reprieve by
filing suit in the District of Columbia, seeking an injunction against the
merger on the ground that it was anti-competitive and violated federal
antitrust law. On Sept. 6
Sprint filed its own antitrust lawsuit in federal court seeking to block
the merger.
The
Federal Communications Commission, which also must approve the deal, has
expressed some concern over the merger, but has yet to make a final
determination on whether to allow the transfer of wireless licenses required by
the deal. While AT&T can fight the lawsuits in court, it looks like the
legal damage is fatal.
However,
perhaps another deal could be forged from the ruins of this one. The way it
looks right now, the market would be well-served if Sprint and T-Mobile combine
forces to take on AT&T and Verizon in the U.S. wireless business. Not only
will it create a more competitive environment, but Verizon and AT&T might
just start to worry. With the current state of competition in the industry,
that wouldn't be a bad thing.
Read
on to find out
why Sprint and T-Mobile USA should merge.
1. The government would approve it
After
the Department of Justice announced that it
would not support the merger between AT&T and T-Mobile USA, the
organization said that the issue was that the two companies combined would hurt
competition in the marketplace. However, if Sprint and T-Mobile USA merge,
there would be less fear of that. Even combined, the two companies would be
smaller than Verizon and AT&T. If they were to merge, it would simply
create three big companies in the space, rather than two big firms and two
smaller companies. In other words, it's quite likely that the merger between
T-Mobile and Sprint would be approved.
2. Both companies need each other
Although
they're both performing relatively well in their own right, T-Mobile and Sprint
need each other. The companies are much smaller than their chief competitors in
the space, and neither of them has the iPhone to help bolster sales. They're
both fighting an uphill battle that they can't win on their own. But together,
all that could change.
3. AT&T and Verizon would face real
competition
As
it stands right now, there isn't anything that would make AT&T or Verizon
worry about their positions in the market. The two firms know that they can't
combine and they realize that there isn't a single company that will be able to
push them off their thrones. However, a combined Sprint and T-Mobile would put
the companies on notice. Gone would be the days when Verizon and AT&T don't
need to look in the rearview mirror. With a bigger third-place company to
compete with,
AT&T and Verizon would be far more likely to respond with better service,
improved phones, reasonable prices and other tricks to cement their positions
as leaders in the wireless business.
4. They're investing heavily in
infrastructure
Both
T-Mobile and Sprint are investing heavily in 4G networking. The companies
realize that it's the future, and they don't want to be left behind as the
bigger companies in the market continue to dump billions of dollars into their
networks. However, if they merged, they would be able to combine their
technology investment efforts and, over the long term, generate profits that would
allow them to keep growing. Both Sprint and T-Mobile have the same goal in
mind; now they just need to combine their efforts.
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