Sprint & T-Mobile: FCC Green Lights Merger, Will Justice Department Follow Suit?

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The merger between T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) has been given the green light by the Federal Communications Commission after the two companies agreed to some concessions. While this marks a significant step toward the combination of the third and fourth largest U.S. wireless carriers, the deal is still pending approval from the U.S. Department of Justice. Trefis has a $73 price estimate for T-Moble and a $5.70 price estimate for Sprint.

See our interactive dashboard analysis on How Has Sprint Fared In Recent Quarters And What To Expect In Q1 FY’19? You can modify our key drivers to arrive at your own estimates for the company’s revenues and EPS.

What Prompted The Decision & What Were The Concessions?

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The FCC said that the deal would line up with its top priorities of “closing the digital divide in rural America” and advancing the United States’ leadership in the 5G space. The two companies will build new 5G infrastructure using Sprint’s mid-band radio spectrum and have committed that the network would cover 97% of the U.S. population within three years of the deal closing. The network will also cover 85% of rural Americans in the same period. The companies have also committed to rolling out a new wireless home broadband service that will also serve rural areas, boosting competition in the home broadband market. Separately, the companies have also agreed to divest Boost Mobile, Sprint’s prepaid cellphone service that has roughly seven million customers. The FCC also cited T-Mobile and Sprint’s prior commitment to not raise prices for at least three years. (related: Sprint T-Mobile Merger: Overview Of Some Of The Recent Developments)

Why Is The FCC’s Move Notable?

The FCC’s move is significant, as it represents a departure from its stance under the Obama Administration when it moved to block deals citing the need to have at least four nationwide carriers in the U.S. For instance, in 2011, the FCC and the Justice Department moved to block AT&T’s bid for T-Mobile, noting that the merger would reduce competition and cause higher prices for customers. Now, with the FCC’s approval, the markets appear to believe that the Sprint – T-Mobile deal is more likely to go through. For instance, the stock price for Sprint – the carrier that has more to gain from the merger – rose by almost 20% to $7.30 per share on Monday. This is just 10% below the merger value of $8 per Sprint share, accounting for the 0.10256 swap ratio of T-Mobile shares and T-Mobile’s current stock price of about $78.

Will The DOJ Approve Of The Deal?

The Department of Justice is carrying out an independent review of the merger. The FCC and DOJ have different mandates under Federal law. While the FCC looks into whether a deal will serve the public interest (examining areas such as coverage, pricing etc.), the DOJ’s focus is primarily on the impact of the merger on competition. One major factor that the DOJ was reportedly concerned about was related to the strength of the combined company in the prepaid market, where they would hold a combined market share of over 50%. However, it’s possible that the proposed divestment of the Boost prepaid business could help alleviate these concerns to a certain extent. While the DOJ has typically taken a similar view as the FCC with regards to deal approvals in the past, there’s still no guarantee that it will ratify this merger.



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