Long Odds for Sprint-T-Mobile Merger

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A man talks on a mobile phone at the T-Mobile stand at the CeBIT technology fair March 15, 2007 in Hanover, Germany. CeBIT, the world's largest tech fair, will run from March 15-21. (Photo by Sean Gallup/Getty Images)
National Journal
Laura Ryan
Dec. 17, 2013, 10:19 a.m.

Sprint is flirt­ing with a bid to buy T-Mo­bile, but even if the wire­less gi­ant does pop the ques­tion, a wary Uncle Sam may stop the two from ever com­ing to­geth­er.

News leaked last week that Sprint is con­sid­er­ing a T-Mo­bile mer­ger, and at first blush, it ap­pears like a win for those look­ing to keep the wire­less world com­pet­it­ive: With a stronger net­work, bet­ter scale, and lar­ger cus­tom­er base, a com­bined T-Mo­bile and Sprint would be equipped to bet­ter com­pete with Ve­r­i­zon and AT&T.

Main­tain­ing fair com­pet­i­tion is a pri­or­ity for both the Justice De­part­ment and Fed­er­al Com­mu­nic­a­tions Com­mis­sion, so there is “a de­cent ar­gu­ment that Sprint and T-Mo­bile to­geth­er would be a stronger long-term coun­ter­weight to AT&T and Ve­r­i­zon,” said Paul Gal­lant, a man­aging dir­ect­or at Gug­gen­heim Se­cur­it­ies.

But con­sid­er­able reg­u­lat­ory and tech­nic­al obstacles stand in the way.

The ma­gic num­ber for a com­pet­it­ive wire­less mar­ket­place is four, not three, ac­cord­ing to the FCC and DOJ. They are un­likely to ap­prove such a mer­ger for the same reas­on they pre­ven­ted AT&T’s $39 bil­lion ac­quis­i­tion of T-Mo­bile in 2011: Less com­pet­i­tion would lead to high­er con­sumer prices.

Al­though Sprint is nowhere AT&T in mar­ket share, these con­cerns still re­main strong.

“The mo­bile busi­ness today is today with four car­ri­ers a com­pet­it­ive busi­ness and [it’s] im­port­ant to stay that way,” FCC Chair­man Tom Wheel­er said in a Q&A fol­low­ing his first pub­lic re­marks on Dec. 2.

Also, T-Mo­bile is ex­per­i­en­cing an un­ex­pec­ted re­viv­al from its near-death in 2011. After four years of de­cline, the third-largest mo­bile car­ri­er has had two quar­ters of growth, cour­tesy of an en­er­get­ic CEO and a “blitz” of new of­fer­ings, in­clud­ing the iPhone 5 and LTE ser­vice. Reg­u­lat­ors will want to see how this plays out.

“This really demon­strates that com­pet­i­tion can work,” Wil­li­am J. Baer, DOJ’s chief an­ti­trust law­yer, told The New York Times just last month. “When you have feisty rivals whose sur­viv­al de­pends on in­nov­at­ing and dif­fer­en­ti­at­ing, they can gain mar­ket share and loosen the oli­go­poly. That’s ex­actly what T-Mo­bile has done.”

Even if Sprint can suc­cess­fully over­come the sig­ni­fic­ant reg­u­lat­ory hurdles to ac­quire T-Mo­bile, it would face un­ruly and ex­pens­ive tech­no­lo­gic­al chal­lenges to com­bine the two net­works.

Al­though the tim­ing might not be right for a T-Mo­bile-Sprint mar­riage this time around, a uni­on may be in­ev­it­able down the road. The in­dustry has been con­sol­id­at­ing over the past couple of years, so a mer­ger may be in their fu­ture if either Sprint or T-Mo­bile be­gins to lose mo­mentum.

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