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Tech

Long Odds for Sprint-T-Mobile Merger

Sprint is weighing a bid on T-Mobile.(Getty Images)

photo of Laura Ryan
December 17, 2013

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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