T-Mobile and Sprint: Merger gets court approval

Almost two years after it was announced, T-Mobile and Sprint are poised to complete their $26.5 billion merger to create a third mega-sized player in the U.S. wireless market. On Tuesday, District Judge Victor Marrero ruled that the combination would not harm competition, rejecting a challenge from about a dozen state attorneys general.

“Our eye is on the prize: finally bringing this long-awaited merger and all the goodness it will deliver to a close as early as April 1, 2020,” T-Mobile president Mike Sievert, who is scheduled to become CEO in a few months, said in a statement.

Shares of Sprint jumped 78% to $8.52 on Tuesday, while share of T-Mobile gained 12% to $94.49.

Under the original merger agreement, each Sprint share would be worth 0.10256 shares of T-Mobile, or about $9.70 at current prices. But after some provisions of the agreement expired last year and Sprint’s business deteriorated while the deal was on hold, the two sides said they might renegotiate the price ratio or other terms. Last week, T-Mobile CEO John Legere said such changes would be completed after the court ruled.

The two carriers have promised the merger will bring faster 5G technology to the entire country without raising prices. But the AGs and some consumer groups feared the combination, which reduces the number of major wireless carriers from four to three, would eventually lead to higher prices. Judge Marrero rejected that view, as T-Mobile and Sprint had already made concessions to gain approval from the Justice Department and Federal Communications Commission last year. The carriers still need approval from California’s Public Utilities Commission.

Here’s how it could impact consumers:

T-Mobile gets a lot bigger

The combined company, which will keep T-Mobile’s brand name and be run by T-Mobile’s CEO, will have about 66 million regular monthly phone customers, comparable to rivals AT&T and Verizon. That should give the company greater economies of scale. Just as important, the carriers aim to quickly combine their wireless networks and airwave spectrum, particularly for 5G. All told, the combination could put enormous pressure on AT&T and Verizon, analyst Craig Moffett at MoffettNathanson Research wrote on Tuesday.

Combining networks “will allow the New T-Mobile to mount the most credible threat either Verizon’s or AT&T’s network supremacy has ever faced,” Moffett writes. “And one can expect a massive advertising campaign to announce the new T-Mobile. That will buoy net subscriber growth for New T-Mobile, and pressure subscriber growth at Verizon and AT&T.”

A new carrier in town

The previous two times the wireless industry tried to shrink to three major carriers (when AT&T tried to buy T-Mobile in 2011 and when T-Mobile and Sprint tried to merge in 2014), Justice Department lawyers objected and killed the deals because of antitrust concerns. That almost happened again with the current deal—until satellite TV service Dish Network entered the fray and offered to buy some wireless airwave licenses from Sprint plus Sprint’s popular prepaid wireless brand, Boost Mobile, which has about 9 million subscribers, for $5 billion.

Dish will use these assets to build a new, fourth major wireless carrier to help generate the same amount of competition as before the merger. However, Dish, which doesn’t currently offer wireless phone service, will be starting with far fewer total customer connections than Sprint’s 54 million today.

“Dish won’t have difficulty finding customers for its future network, and the Boost acquisition will help fund the build-out of the network,” analyst Jonathan Chapin at New Street Research noted on Tuesday. “We see more upside in Dish than in any other stock in our coverage universe.”

Faster 5G wireless service–and in more places

One major promise that T-Mobile and Sprint used to win court and regulatory approval for the merger was that they would be able to offer new, super-fast 5G wireless services in more places, more quickly. Even after selling some airwaves to Dish, Sprint would still have a huge amount of spectrum licensed in the 2.5 GHz band that is perfect for 5G. On its own, Sprint lacked the resources to expand its currently small 5G network in much of the country.

But combined with the resources of T-Mobile, a planned nationwide 5G network should be finished much sooner. Sprint and T-Mobile promised 5G service to 97% of the U.S. population within three years and 99% after six years. They agreed to a series of annual, escalating penalties of as much as $2.4 billion if they fail to meet the commitment. And Dish must now offer a 5G network covering 70% of people in the country by mid-2023 or face similar financial penalties. The quicker 5G expansions could also pressure AT&T and Verizon to expand their 5G networks at a faster pace.