How Does The FCC’s Latest Action Impact The T-Mobile – Sprint Merger?

by Trefis Team
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The Federal Communications Commission has indicated that it will be pausing its self-imposed 180-day timeline for reviewing T-Mobile’s (NASDAQ:TMUS) takeover of smaller rival Sprint (NYSE:S), noting that it needs more time to study some large and complex information provided by the two carriers. While this could effectively delay a potential merger, it indicates that the agency is closely considering the case, unlike previous attempts which were quickly rebuffed by regulators.

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Why It Could Take Time To Review The Deal

The proposed deal is complex and very high-profile, considering that it involves subsidiaries of two international corporations, Deutsche Telekom of Germany and Softbank of Japan, and also because of its direct impact on U.S. households. The two carriers recently submitted a significantly revised network engineering model to the FCC, and it could take time for the agency to fully review these files. Additionally, T-Mobile recently indicated that it intends to submit additional economic models to support its application. While this could delay the merger, which was first announced in April, the markets are likely to have factored this in, as both companies have been indicating that the deal is unlikely to close before 2019. The FCC began its formal review about 60 days ago.

How T-Mobile And Sprint Could Sell The Merger To Regulators

T-Mobile has been looking to build a narrative that the merger will be good for U.S. wireless customers, as it creates a stronger rival to market leaders Verizon and AT&T, while also allowing the U.S. to better compete with other nations in deploying the next generation of 5G networks. For instance, Sprint’s CEO previously indicated that the merger would lower costs for subscribers, with the two companies estimating upwards of $6 billion in cost synergies, which could partly be passed on to customers. Moreover, the two carriers typically have the most price-conscious postpaid subscribers, and it’s possible that they could continue to play the pricing card to retain and grow their base. Also, by jointly building out their 5G networks, the companies could build out a denser network, while avoiding the duplication of a significant amount of capital expenditures.

That said, regulators will still have a lot to be circumspect about. In theory, increasing market concentration with just three major players is unlikely to incentivize carriers to continue to compete as strongly. Moreover, T-Mobile and Sprint, have been fierce competitors with each other, bringing down prices and offering a lot of value-add for customers, forcing the larger two players to follow suit. With the absence of this competition, it’s possible that U.S. carriers will be less competitive with their pricing.

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