Sprint & T-Mobile Hurtle Toward Merger With Court’s Blessing

MANHATTAN (CN) – Rejecting antitrust concerns by several states as unlikely to occur, a federal judge approved the merger between telecommunications giants T-Mobile and Sprint, setting the stage for a massive rival to AT&T and Verizon.

Estimated around $26 billion, the merger had received initial approval by the Justice Department last year in exchange for Sprint divesting its prepaid services to Dish Network.

T-Mobile and Sprint’s merger would shrink the Big Four telecommunications companies down to the Big Three, but the companies promised it would also lead to a nationwide high-speed 5G wireless network and $500 billion in economic growth by 2024.

Sprint Corporation Executive Chairman Marcelo Claure, left, speaks with T-Mobile U.S. CEO and President John Legere during the House Commerce subcommittee hearing on Capitol Hill in Washington on Feb. 13, 2019. Removing a major obstacle to T-Mobile’s $26.5 billion takeover of Sprint, a federal judge on Tuesday rejected claims by a group of states that the deal would mean less competition and higher phone bills. (AP Photo/Jose Luis Magana, File)

The companies also estimated the merger could save as much as $26 billion in efficiencies from network cost synergies alone and would lead to better coverage.

Keeping the name T-Mobile, the new company could have as many as 100 million subscribers initially. Some experts during the trial pegged the new company’s national market share at 37.8% by subscribers and 34.4% by revenue.

New York, California and Illinois were among 13 states and the District of Columbia that sued to block the merger, claiming the combined company would stifle competition and lead to higher prices for cellphone and internet service, particularly in rural areas. The complaint eventually went to trial last December.

Early Tuesday morning, in a 173-page ruling, U.S. District Court Judge Victor Marrero said he was unpersuaded that the combined company would pursue anticompetitive behavior, nor was he convinced that absent a merger Sprint would remain a strong competitor in the wireless market.

Marrero downplayed the market share figures — which could initially be as high as 100 million subscribers and which Marrero called “undeniably high” — by saying T-Mobile has demonstrated it would remain an aggressive competitor.

“T-Mobile has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes,” Marrero wrote. “The proposed merger would allow the merged company to continue T-Mobile’s undeniably successful business strategy for the foreseeable future.”

Marrero, who was appointed by President Clinton, also said the proposed merger would go easier than a recent integration between T-Mobile and MetroPCS due to existing handset compatibility between the companies.

“No party in this action has disputed that combining Sprint and T-Mobile’s network facilities will result in reduced network marginal costs and a large increase in capacity,” Marrero wrote.

Emerging in 2011 as a serious challenger to AT&T, T-Mobile today serves about 70 million to 80 million subscribers and has upwards of $3 billion in revenue, representing the third-largest mobile network operator in the United States.

Sprint has slipped in its market share for the past few years, however, to the fourth-largest network and serves about 40 million subscribers. The company was considered ripe for a takeover in recent years due to its potential solvency problems and the perception its networks were subpar.

Marrero noted Sprint’s recent underperformance in his ruling, writing that the company’s financial situation “remains poor and hamstrings any meaningful investment efforts,” and that the court had little confidence in Sprint’s ability to beef up its network performance.

“The weight of the evidence at trial establishes that Sprint is caught in a vicious cycle caused by its inability to finance meaningful network investment, which perpetuates a low-quality network that drives away customers and limits Sprint’s ability to generate the cash necessary to reduce its financial constraints,” Marrero wrote.

Marrero also noted that Dish Network was well-situated to take on some of Sprint’s business. “Dish’s costs to build a 5G network will also be comparatively low because Dish need not upgrade legacy equipment dedicated to prior mobile wireless standards, as current market participants must,” Marrero wrote.

Justice Department officials had tentatively signed off on the merger as long as Sprint divested all its holdings in the 800 megahertz band and its Boost business to Dish, among other stipulations.

In a characteristically brash statement, T-Mobile CEO John Legere called the ruling a “huge victory” and noted the anticipated 5G network would “change wireless … and beyond” for the market.

“Look out Dumb and Dumber and Big Cable — we are coming for you … and you haven’t seen anything yet!” Legere added.

T-Mobile Chief Operating Officer Mike Sievert, who is expected to head up the new company, tweeted that the ruling was “a BIG win & a BIG day for #NewTMobile.” He also wrote that the companies are “laser-focused on finishing the few remaining steps in the process.”

States were dismayed by the news.

“Today’s decision marks a loss for every American who relies on their cell phone for work, to care for a family member, and to communicate with friends,” New York Attorney General Letitia James said in a statement, noting a possible appeal of Marrero’s ruling. “From the start, this merger has been about massive corporate profits over all else, and despite the companies’ false claims, this deal will endanger wireless subscribers where it hurts most: their wallets.”

California Attorney General Xavier Becerra said the lawsuit sent a strong message that states would stand against mega-mergers to protect consumers.

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