The T-Mobile Sprint Merger Could Face Significant Regulatory Hurdles

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The  T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) merger appears to be on track, with Nikkei reporting that Sprint’s parent company Softbank has reached a broad agreement to merge Sprint with T-Mobile U.S., while noting that a deal could be announced as early as this month. Although there is some speculation that the regulatory environment for big-ticket telecom mergers may have softened under President Donald Trump and new FCC Chairman Ajit Pai, a deal could still face considerable hurdles. Below we take a look at some of the regulatory factors that could impact the deal.

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Department Of Justice Could Remain Averse To Merger 

The proposed merger between the two carriers in 2014 was dropped amid opposition from the Antitrust Division of the Justice Department. There is a possibility that the Department could remain averse to a deal this time around as well, with Reuters recently reporting  that “career staff” at the U.S. Department of Justice, who carry out a bulk of the probe, would likely recommend that it be rejected as they believe that a merger could hurt customers. The staff apparently prefer that T-Mobile continue to function as an independent company, winning over customers from market leaders Verizon and AT&T. T-Mobile has been the fastest-growing U.S. wireless carrier, driven by its attractive promotions and relatively transparent plan pricing, while Sprint has also made some progress with its turnaround, stabilizing its postpaid and prepaid subscriber base.

The Deal Could Prove Unpopular With Consumers

The joint entity would have a total of 130 million wireless subscribers, a little behind market leaders Verizon and AT&T, who had 147 and 136 million subscribers, respectively, as of the end of June. This would significantly increase pricing power for wireless carriers. The impact could be more pronounced in the prepaid space, which is typically favored by less affluent customers, with the combined entity likely holding about 56% market share for prepaid plans. The competition between T-Mobile, Sprint and the larger two carriers has been good for U.S. wireless consumers, fostering a lot of innovation while helping to keep pricing in check. For instance, August 2017 prices for wireless services fell by 13.2% year-over-year, according to the U.S. BLS. Consolidation could increase the prices of wireless services, giving the deal an appearance of being anti-consumer.

 

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