T-Mobile, Sprint Propose Merger to Create Second Largest U.S. Carrier

NEWS ANALYSIS: The merger is about 5G and an opportunity for U.S. carriers to take technology leadership back from China, said T-Mobile CEO John Legere in a joint announcement.

Sprint.TMobile

Mobile Carriers T-Mobile and Sprint announced their plans on April 29 to merge in a $26 Billion all-stock deal that will create the second largest wireless carrier in the U.S. 

The surviving company would be T-Mobile and John Legere would remain as CEO of the combined companies. Deutsche Telekom would own about 40 percent of the combined company with Softbank owning slightly less than 30 percent. 

This latest proposed merger between T-Mobile and Sprint comes six months after the two companies abandoned merger talks in October 2017 after Softbank and its CEO Masayoshi Son decided that it didn’t want to lose control of the mobile carrier.

Instead Softbank said it would focus on investing in Sprint’s network so it could remain an independent carrier, despite the fact the Sprint was losing millions quarter after quarter. 

The primary reason for the new merger proposal, according to Legere during a Sunday afternoon briefing following the announcement, is to allow the companies to compete in the growth of 5G communications. 

T-Mobile will continue to be carried on Deutsche Telekom’s books, and the headquarters will remain in Bellevue, Wash. with a second headquarters in Overland Park, Kansas. 

The new T-Mobile will have lower costs and greater economies of scale than either carrier had on its own, according to the announcement. Legere said that he plans to begin hiring thousands of new employees as soon as the merger is approved and that the new company will show positive growth in rural broadband, business communications and be more capable of competing with AT&T and Verizon. 

Legere and Sprint CEO Marcelo Claure repeatedly stressed the need to compete in 5G communications. Currently neither company has the resources to build out a 5G network on its own, but combined the companies have synergies in their spectrum holdings that would support a nationwide 5G network. Claure said that currently global leadership in 5G technologies resides in China and Korea, and that he wants to see such leadership in the United States. 

“It is critically important that America and American companies lead in the 5G era,” the companies said in their joint announcement. “Early U.S. leadership in 4G fueled a wave of American innovation and entrepreneurship that gave rise to today’s global mobile Internet leaders, creating billions in economic value and job growth.” 

“With 5G, the stakes are even higher—because 5G will be even more transformational,” the announcement said. 

“Going from 4G to 5G is like going from black and white to color TV,” added Claure. “It’s a seismic shift – one that only the combined company can unlock nationwide to fuel the next wave of mobile innovation.” 

T-Mobile CTO Neville Ray said that the current plan to jump start the move to 5G will be to begin placing 5G capable equipment on existing Sprint towers as soon as the merger is closed. 

He said that Sprint’s 2.4 GHz network combined with T-Mobile’s 600 and 700 MHz networks will provide enough capacity to begin 5G operations along with existing LTE operations. 

Ray added that AT&T and Verizon would have to start removing LTE from their networks to make room for 5G. He also said that much of Verizon’s 5G operations would have to depend on that company’s millimeter wave spectrum, which has very limited range. 

During a post-briefing question and answer session, Ray said that together T-Mobile and Sprint have enough millimeter wave spectrum to begin 5G operations in dense urban areas where it’s more useful, but he said that it’s not useful for more open and rural areas where longer range signals are required. 

Both companies are depending on the next round of spectrum auctions that begin later in 2018 to provide better network coverage. “We’re upgrading our towers to ‘massive MIMO’ so we can broadcast LTE and 5G at the same time,” Ray said, adding that nearly 85,000 towers will be outfitted with that technology. Massive MIMO (multiple input multiple output) allows beam-forming using a new antenna design that includes digital processing. 

The greatest hurdle for the proposed merger isn’t the technology, however, it’s the US government. Legere acknowledged that when he explained the timeline, “We have a timeline, but we’re not the driver,” he said. “We’re hoping for a rapid approval process.” 

The approval process includes the Federal Communications Commission and the Department of Justice. Legere said that he’s spoken with FCC Chairman Ajit Pai about the merger and that he’s called and spoken with the other commissioners briefly, all before the announcement was made public. 

With the emphasis on U.S. technology leadership, job creation, rural broadband and a nationwide roll-out plan for 5G that T-Mobile is emphasizing FCC policy hot buttons. So is Legere’s promise to lower prices and improve mobile market competition. 

T-Mobile also mentioned a new theme  about new players in the wireless business, including Comcast, Charter Communications and a new wireless network being begun by Dish Network. 

By claiming that there are now five or perhaps six major wireless carriers competing for business, T-Mobile and Sprint are trying to show that it’s no longer a situation in which the competition—and the number of carriers—is being reduced, that issue has been a primary sticking point in previous merger proposals involving T-Mobile. 

If the Department of Justice and the Antitrust division agree that the proposed merger is not anti-competitive, then the other hurdles seem minor. It’s possible that the FCC may require some divestitures of spectrum, although given that both AT&T and Verizon have more spectrum in hand than the combination of T-Mobile and Sprint that seems less likely. 

At this point, it appears that the main stumbling block is DoJ. Whether the Trump administration will be in favor of the merger remains to be seen, but the promise of more jobs and an increased economic benefit seems tailored to meet potential objections in that area. After that, it’s a waiting game until early 2019, if everything goes on schedule. But that’s a big if.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...