T-Mobile's $26B bid for Sprint could accelerate 5G innovation
- Sprint and T-Mobile agreed to merge in a $26 billion deal that will leave the U.S. with three national wireless companies if approved by antitrust regulators, per Reuters. T-Mobile CEO John Legere will lead the combined company, saying it will have the resources to build a next-generation 5G network more quickly, according to a press release.
- The merger of the third and fourth biggest wireless carriers will create a company with 127.2 million customers, making it a stronger competitor to Verizon (116 million customers) and AT&T (93 million). T-Mobile, as the new company will be called, plans to invest $40 billion in the next three years to upgrade to the faster 5G technology that can power drones and self-driving cars and provide wireless video streaming that competes with cable TV.
- Even as the company adds employees for the 5G rollout, it will seek to cut about $6 billion in costs by closing some retail stores. Sprint has 1,415 stores, while T-Mobile directly owns 2,200 locations, but they also distribute through thousands of other third-party retailers and their websites.
Sprint and T-Mobile's proposed merger, which technically is a takeover by Deutsche Telekom's T-Mobile, marks the third time in the past four years that the rivals sought to combine. As regulatory agencies evaluate how the new company would affect consumers, the wireless carriers will argue that they need greater financial firepower to invest in the next generation of mobile technology that will be a game-changer for mobile services.
The companies have a combined debt of $60 billion, compared to a market value of $81 billion, and face the prospect of slower subscriber growth as the mobile market reaches saturation. Sprint and T-Mobile will assert that 5G development, which is critical for the U.S. economy to keep up with other countries, will be move at a faster clip if the two companies band together. According to National Geographic, 5G tech would pave the way for greater innovation in smart appliances, increased connectivity and speed with limited effect on bandwidth, plus mark a major boost to infrastructure projects.
CTIA, a trade group that lobbies for the U.S. wireless industry, said the U.S. is behind China and South Korea in 5G readiness, per an April 16 report. Development of 5G is predicted to lead to 3 million new jobs, $275 billion in investment and $500 billion in economic growth, Accenture estimates. Sprint and T-Mobile planned to bid for wireless spectrum in a government auction scheduled for Nov. 14, and will request a waiver if the merger prevents the companies from participating.
Before last weekend's merger announcement, the last round of talks between Sprint and T-Mobile ended in November over disagreements about how much each company was worth.
Sprint's value fell by 20% after investors questioned how the company would be able to compete with larger rivals, especially while groaning under the weight of its $32 billion in long-term debt. The company picked up subscribers mostly by discounting service prices, while T-Mobile managed to gain subscribers with better network performance, solid customer service and innovative products.
Back in 2011, AT&T also tried to buy T-Mobile but walked away after encountering opposition from the Obama administration's Justice Department and Federal Communications Commission.