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 byfiling 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. 6Sprint 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 outwhy Sprint and T-Mobile USA should merge.
1. The government would approve it
After the Department of Justice announced that itwould 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.