By Joseph D’Amato

This past weekend, T-Mobile announced that it intends to merge with Sprint in a $26 billion buyout, after years of failed attempts to do so. The restructured T-Mobile would be run by their current CEO, John Legere, in a market that might be reduced to three players. To put the deal into perspective, Verizon has 116 million wireless customers, AT&T has 93 million and T-Mobile at 59 million would acquire Sprint’s 41 million customers, should they chose to retain service. The merger would grant T-Mobile the scale and operational prowess to rival AT&T and Verizon, though it is this oligopolistic scenario that may lead regulators to shoot down the proposition.

For T-Mobile and Sprint, growth has declined in years past, while AT&T and Verizon have further bolstered their positions as the market’s preeminent service providers. Now, in a market where nearly everyone owns cellphones and all service providers offer ‘unlimited data’ packages, there are fewer opportunities than before for these service companies to distinguish themselves from each other. The next big transition in the market for telecommunication services is towards 5G connectivity. The application of 5G allows providers, such as AT&T and Verizon, to broker access to their networks for the smart tech that needs it. The development of these networks, however, is extremely capital intensive and not something two dwindling companies could afford to compete in on their own. In 2014, Masayoshi Son, the founder of Sprint’s parent company Softbank, refused to relinquish control of Sprint but is said to have since changed his mind because of the pressure to enter the 5G race.

In addition to providing the capital and infrastructure to pursue 5G, this merger also allows T-Mobile to cut costs on rent and maintenance by decommissioning over 30,000 transmission sites. Executives at T-Mobile suggest that these synergies could amount to $6 billion in annual savings.

The merger is expected to draw a substantial amount of regulatory scrutiny, given that the government rejected the 2011 proposition for AT&T to merge with T-Mobile. Similarly, the Federal Communications Commission reinforced that decision three years later, stating that four services providers were necessary to ensure competition and fair pricing. Times have changed since then and the market in which these service providers compete has gotten much more complex. These companies no longer have singular lines of business and their offerings will continue to be diversified through 5G. Cable companies such as Comcast have launched wireless services that use Verizon’s network, showing just how overlapping these network services can be. John Legere has echoed this shortsighted view of the market, stating, “This isn’t a case of going from four to three wireless companies—there are now at least seven or eight big competitors in this converging market.”

Management from both T-Mobile and Sprint will look to place 5G innovation at the heart of this pitch in hope to remind regulators about the U.S.’s tech race with China. Given that the Trump administration is currently at odds with China over the security of our country’s tech, such a stance may prove advantageous in securing the merger. Additionally, Sprint’s CEO Marcelo Claure stated that this merger would result in the immediate creation of jobs which is atypical of a merger, especially of this size.

Joseph D’Amato, GSB ‘19, is a finance major from Wyckoff, New Jersey