The wireless merger of the century appears to be more than just speculation. While details remain scanty, the FCC is currently holding a 600MHz spectrum auction until April, and so has imposed some strict anti-collusion rules that prevent acquisition discussions between rivals until the airwave auctions end.
SoftBank, which originally purchased Sprint in July 2013, had begun talks with T-Mobile the following summer to pay $40 per share to gain controlling stake in the company, along with a $2 billion breakup fee if the deal collapsed. A month later, the deal fell through after SoftBank and Sprint conceded that they didn’t believe US antitrust regulators would be persuaded to sign off on a merger between the third and fourth largest wireless providers in the country.
In July 2014, T-Mobile was valued at $30 billion, but its market value rose to $50 billion in late 2016 as it grew to 71.5 million subscribers. While Sprint has not quite caught up to T-Mobile’s pace in wireless subscriber growth, its latest earnings report indicates a net gain of 368,000 postpaid subscribers last quarter and a market valuation around $36 billion. The number three wireless carrier now largely outpaces AT&T and Verizon, even as it struggles to manage the $479 million net loss it incurred during this timeframe.
SoftBank wants to retain a minority stake in T-Mobile merger
With the US market being largely dominated by AT&T and Verizon for the past year - 33 percent and 35 percent respectively, SoftBank has expressed frustration with its inability to plant a significant stake in the US market by itself. The Japanese giant is now willing to cede control of its Sprint assets to T-Mobile and retain only a minority stake in the company if the merger is ever approved by regulators.
Deutsche Telekom, on the other hand, has considered the idea but has not quite warmed up to the idea of selling off its US brand. The company currently owns a 65 percent stake in T-Mobile, though in recent months CEO Tim Hoettges told a group of investors that “[The company] is not in the mood of: ‘Oh where is the partner we need?” He then explained the challenges in facing an onslaught of new variables in the regulatory environment as the US administrations has promoted job creation. According to Christopher Marangi, co-chief investment officer at GAMCO Investors, a merger of this scale is more indicative of many job cuts in the US.
With several antitrust positions expected to be replaced at the US Department of Justice, there is also some difficulty in gauging how such deals will be viewed. On the FCC side, former chairman Tom Wheeler remained highly skeptical of first merger proposal in 2014, while the chairman Ajit Pai has been characterized as more friendly to industry consolidation.
Some former policy directors, including David Balto from the FTC, have claimed that Sprint and T-Mobile may try to sell their merger by proposing that a bigger “Number 3” in the US wireless market would be able to take advantage of economies of scale and bring a quicker pace of innovation to the market.
Once the FCC auction ends in April, the two parties are expected to begin negotiations, according to sources familiar with the matter.
