Sprint wants to merge with T-Mobile, and as early discussions proceed, T-Mobile parent company Deutsche Telekom is insisting that a $1 billion breakup fee be put in the contract, assuring it’s well-taken care of for its troubles, should regulators prevent the deal from going through.
The Wall Street Journal reported the news May 9, citing people familiar with the matter—and increasing the likelihood of the rumored deal. Other reports have estimated a time frame for the announcement of June or July.
The same sources told The Journal that the T-Mobile brand and some of its management team would remain after a merger. The report also added that T-Mobile CEO John Legere is seen as a “front-runner” to lead the combined carriers, and that Sprint CEO John Hesse said in an interview last week that it “wouldn’t bother him” not to run the new company, and there are “plenty of other things he is still interested in pursuing.”
The $1 billion fee is rather modest, compared with the $4 billion fee (plus spectrum) that T-Mobile received when AT&T’s 2011 efforts to merge with it failed. The sum may speak to the unsureness of whether such a merger could be pushed through. The report noted that Masayoshi Son, chairman of Softbank, which in July purchased a 78 percent share of Sprint for $21.6 billion, wouldn’t do anything “reckless,” such as let T-Mobile walk away from a failed deal with billions.
The Journal first reported in December that Sprint was looking into the possibility of buying T-Mobile. The deal was met with something close to an industry-wide groan. “Let’s pop this trial balloon quickly, please,” blogged John Bermayer, a senior staff attorney with Public Knowledge, a consumer advocacy group.
If the pair were indeed testing the skies, they found them unfriendly. Reports soon followed that Softbank Chairman Masayoshi Son and Sprint’s Hesse, taken aback by the negative public reaction, decided to take some time to consider their next step.
Also needed was a plan to sell regulators on the deal. Federal Communications Commission (FCC) Chairman Tom Wheeler has commented that he’s skeptical such a deal could keep the current amount of industry competition intact, but that he would keep an open mind.
In 2011, AT&T spent 10 months working to gain approval of a proposed merger with T-Mobile. The FCC pushed back, and ultimately the U.S. Department of Justice filed an antitrust lawsuit against AT&T to shut down the deal.
In March, Son engaged in a number of speaking events, seemingly designed to change hearts and minds. Speaking with interviewer Charlie Rose, he suggested that it’s silly to suggest that Sprint and T-Mobile were really competing against much larger carriers Verizon Wireless and AT&T, and for there to be “real fight’ between “three heavyweights,” Sprint and T-Mobile would need to combine.
The same week, Son delivered a speech, before the U.S. Chamber of Commerce, during which he spoke about the personal debt he feels toward America and how he wants to close the digital divide in the United States and make this country a leader in mobile broadband.
“The U.S. has been number one on every infrastructure for the past 100 years … How can the American people accept the fact that it is number 15 for the most important highway, the information highway, for the next century?” said Son. “I think we have to change this.”
T-Mobile’s Legere hasn’t shied away from the talk of a possible merger. At a Jan. 8 press event, he didn’t dismiss the possibility (as even he said he probably should have), but responding as vaguely as he could manage, suggested the T-Mobile brand would override Sprint’s.
“The T-Mobile brand is here to stay,” said Legere. “How that ultimately plays out [we’ll have to see]. But we’re a change agent, a maverick … and I think people think that is very important.”
T-Mobile has been enjoying a turnaround, in part thanks to Legere’s leadership and the “un-carrier” strategy it introduced in early 2013, but crucially also the rollout of a Long Term Evolution (LTE) network, which was paid for with the nearly $4 billion it received from the failed AT&T deal.
During the first quarter of 2014, Sprint lost 333,000 subscribers, while T-Mobile added more than 1.3 million.
Legere, speaking during T-Mobile’s May 1 earnings call, said customers are “having a ball” because they’re finally getting a taste of “real competition.”
“Would consolidation be a positive for the environment now? Of course,” Legere continued. “Would it be a positive in two years from now? It depends upon the players and who they are … [Right now] we’re very pleased with the kinds of competition we’re able to put to the big guys. And consolidation is one way that we know we could continue to put it aggressively to them over time.”