Mobile carriers T-Mobile and Sprint submitted a formal application to the Federal Communications Commission (FCC) on June 18th, 2018 requesting a review of their merger. The two parties proposed that this $26 billion Sprint T-Mobile merger will help the U.S. remain competitive in the evolution of wireless technology and towards implementing 5G infrastructure while creating millions of new jobs, revitalizing competition in the segment and increasing national GDP. We break down the numbers behind the Sprint T-Mobile merger, the players involved and what the merger would mean for 5G wireless technology. View our blogs on 5G Technology and the 5G Transition for more information about the next-generation standard.
The Sprint and T-Mobile Merger: By The numbers
This data outlines high-level expectations resulting from the merger and was compiled directly from the 700-page Sprint and T-Mobile merger filing submitted to the FCC.
- $26 billion proposed merger deal
- $43.6 billion total net present value cost synergy by 2024
- $40 billion proposed investment in 5G technologies over the next 3 years
- $146 billion combined company value
- 126 million combined customers
- 3-fold of combined 5G capacity
National 5G rollout as proposed through this merger would result in the following way according to a 2016 5G Technology Consulting report by Accenture:
- A $500 billion boost to US GDP
- 3 million jobs (36,000 of which are proposed incremental hiring from Sprint T-Mobile merger)
Although both companies expect to achieve large-scale 5G deployment on their own, the Sprint T-Mobile merger will expedite this process over a 3-year period and will certainly make the merged company a global competitor in 5G technology. T-Mobile CEO John Legere released this video explaining that the “New T-Mobile” will bring greater competition in the segment by lowering consumer prices and improving network capacity and coverage nationwide. Post-merger, Legere would serve as the new CEO while Sprint CEO Mercelo Claure would be expected to serve on the new company board.
Who are the major stakeholders in the Sprint T-Mobile deal?
If the Sprint T-Mobile merger is approved, the company ownership will be divided into 3 segments:
- T-Mobile owner Deutche Telekom, which will hold 42%;
- Sprint owner SoftBank Group, which will hold 27%
- The remaining 31% will belong to public shareholders. This means that more than two-thirds of the largest mobile 5G network in the US will be owned by German and Japanese companies.
The proposed Sprint T-Mobile merger puts pressure on the FCC from not only an anti-trust perspective, but from a political standpoint as well. Recently, the Trump administration blocked and scrutinized other proposed mergers, including both the AT&T acquisition of Time Warner and the Broadcom Qualcomm merger.
The “Race to 5G” is currently contested by the Chinese telecom giant, and Broadcom/Qualcomm customer, Huawei Technologies Co. Huawei is currently battling with national security agencies over their proposed 5G rollout in Australia. American officials proactively raised concerns with Australian authorities, citing concerns over cybersecurity and Huawei’s connection to the Chinese government. (Source: WSJ)
Cybersecurity experts have also expressed concern over Chinese involvement with Huawei and the US government has effectively blocked Huawei from operating in US markets. This is due to concerns that Huawei could help the Chinese government spy on citizens, businesses, and political leaders.
Huawei currently owns roughly 10% off essential patents on 5G, with full-scale commercialization of the technology expected by 2020. The race to 5G is currently between the US and China, with both governments actively exercising strategies that include regulation and state-sponsored support of the private sector.
Looking beyond Sprint and T-Mobile
The Sprint T-Mobile merger would allow the US to leapfrog China and exercise early mover advantage in to 5G, thereby maintaining its position as industry leader. With a projected $500 billion in potential GDP growth and new jobs expected, T-Mobile and Sprint have made a compelling case to both the FCC and Trump administration. This has clearly been the angle that Legere has focused on during T-Mobile and Sprint’s recent media blitz.
It’s important to remember that even if China beats the US to nationwide 5G implementation, there will still be huge economic benefits from a “runner-up” when it comes to 5G rollout. Although, we believe, the stakes aren’t as high as Legere, T-Mobile and the US government would like the public to believe, it is a strong argument nonetheless.
What does the T-Mobile Sprint merger mean for customers?
It is expected that 5G networks will go live in at least a few US cities by 2019 with major national roll out to continue through the next decade, depending on investment and political regulations. This will mean faster internet speeds reaching a greater geographic area as infrastructure grows. In terms of concern about Antitrust laws, Legere has argued that new players are emerging in the mobile carrier industry and that the New T-Mobile will still only be comparable to Verizon in size and company value, thereby increasing competition and driving prices down for customers. During their CNBC interview, Legere and Claure were unable to provide figures for the expected price changes, only stating that prices will go down.
If the Sprint and T-Mobile merger fails, Sprint will have to reevaluate its position as the market laggard, while T-Mobile will need to attract substantial investment to fully realize its 5G plan. This would also reduce carrier options for consumers. If approved, the merger is expected to be finalized within the first half of 2019. Given the current circumstances and the compelling argument they put together, we wouldn’t be surprised if the merger goes through.