By Jacob Passy
The merger between Sprint Corp. /zigman2/quotes/208685669/composite S +0.44% and T-Mobile US Inc. /zigman2/quotes/208075593/delayed CH:TMUS -0.07% has hit another roadblock — and, for their customers, that’s certainly something to phone home about.
Sprint and T-Mobile announced last year that the two companies’ boards had approved a $26-billion, all-stock merger. Speculation had mounted for years that the No. 3 and No. 4 American wireless carriers would combine.
‘It will clearly lead to consolidation, reduced competition and excessive control of the prepaid wireless market by a single carrier. That would be a devastating blow to our industry.’
—The National Wireless Independent Dealer Association
At that time, the National Wireless Independent Dealer Association, a trade association for independent wireless dealers, said, “It will clearly lead to consolidation, reduced competition and excessive control of the prepaid wireless market by a single carrier. That would be a devastating blow to our industry.”
Since the deal was announced, anti-trust concerns have plagued the merger. The combined company, if the proposed $26 billion deal is consummated, would have more than 127 million customers and represent the third-largest wireless player in the country.
In April, The Wall Street Journal reported that the merger was not likely to be approved by the Justice Department. But the merger may still yet happen. Last month, Federal Communications Commission chairman Ajit Pai said he plans to recommend the merger, after the two companies agreed to a set of concessions.
The FCC reported that T-Mobile and Sprint would invest in new wireless broadband service and build new 5G infrastructure. The companies agreed to focus on improving service in rural areas in particular. Additionally, the companies would sell Sprint’s Boost brand, which offers prepaid cellphone service.
“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity,” Pai said. “The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”
But now the deal has hit another snag: Officials in 10 states, including California and New York, have filed a lawsuit to block the merger. They argue that the supposed benefits from the deal, such as faster wireless speeds, are unverifiable. Moreover, they claim that the deal could negatively affect consumers.
“The T-Mobile and Sprint merger would not only cause irreparable harm to mobile subscribers nationwide by cutting access to affordable, reliable wireless service for millions of Americans, but would particularly affect lower-income and minority communities here in New York and in urban areas across the country,” New York State Attorney General Letitia James said in a statement announcing the lawsuit.
While the T-Mobile-Sprint merger now has an important supporter, the combined company likely would usher in industrywide changes that would affect consumers of various carriers across the country, telecom analysts said.
(Sprint and T-Mobile did not respond to request for comment.)
Here are some of the major ways that wireless customers could be hurt:
A merger could eliminate Sprint’s low-cost alternative
T-Mobile and Sprint were both in dire straits not too long ago, but have managed to make comebacks based on lower pricing and more attractive offers to potential customers, said Jeff Kagan, an industry analyst. In particular, Sprint has positioned itself as the lowest-cost carrier among the top 4 carriers (which also include Verizon /zigman2/quotes/204980236/composite VZ +0.21% and AT&T /zigman2/quotes/203165245/composite T -0.58% .)
At Sprint, an unlimited plan for data, talk and text for four lines starts at $25 a month not including devices, according to wireless comparison site WhistleOut . Similar plans start at upwards of $50 a month from AT&T, T-Mobile and Verizon, not including upfront fees.
Had the number of major carriers shrunk from four to three, a low-cost option is unlikely to remain, analysts say, pointing to Canada as an example. That means consumers will effectively end up with three big carriers with expensive data plans.
In Canada, there are only three major wireless carriers — Bell, Rogers and Telus — and their plans are priced basically the same due to the reduced level of competition , according to mobile news website iMore.
And, analysts add, it is also improbable that a regional wireless carrier would be able to rise up and fill the hole left by Sprint.
Unlimited plans could be on the chopping block
Additionally, the future of unlimited plans won’t be guaranteed. Unlimited plans first came on the scene with the introduction of the smartphone, but eventually fell out of favor because network speeds were being slowed down. Recently though, these offerings re-emerged as a way to attract more new customers.
However, if competition is reduced as a result of a merger, customer acquisition would cease to be a priority for wireless carriers. Canada, again as an example, doesn’t have unlimited plans. And if just one of the three remaining major carriers were to eliminate their unlimited option it could cause a domino effect, Kagan said. “If other carriers pulled out, Verizon would definitely pull out,” he said.
Service could still improve for some consumers
Theoretically, Sprint customers would see a boost in network coverage as a result of the merger — as evidenced by the coverage maps put together by analytics firm RootMetrics. While the companies have a high degree of overlap in the areas they serve, the map would expand.
But expanding a wireless network isn’t merely a simple flip of the switch. Sprint and T-Mobile use different technology to power their 2G networks—Sprint uses CDMA technology (like Verizon) and T-Mobile uses GSM (like AT&T).
The big difference between CDMA and GSM is that CDMA phones don’t have SIM cards — with the exception of newer LTE-enabled devices that need a SIM card. Nevertheless, the merged company would need to transition to one form of technology — GSM being most likely, experts said — so the change would take some time.
Besides slowing down the expansion of coverage, the switch to GSM technology would also mean that some Sprint customers would eventually find themselves without a compatible phone. “Sprint customers would be pushed to upgrade to something new just to stay on the network,” Mill said.
And even once the companies were combined, the merged entity would still pale in comparison to AT&T and Verizon. The latter companies continue to receive higher scores from RootMetric on reliability, speed, data and reception.
Smaller carriers could feel the effects
If the merger goes through, Sprint customers who can no longer afford the higher cost of a plan from the merged company might turn to smaller carriers that offer prepaid plans for their wireless needs. But even these providers could be affected by a T-Mobile-Sprint deal.
Many of these carriers, such as MetroPCS, Boost Mobile and Cricket Wireless, are so-called mobile virtual network operators (MVNOs). These wireless services providers essentially get access to the networks controlled by other companies—the big 4 wireless companies and regional company U.S. Cellular—at wholesale prices and then set their own retail rates for consumers.
Many MVNOs are also subsidiaries of the four major carriers, including T-Mobile and Sprint. Consequently, their customers could see coverage and data speeds improve as a result of the combined network postmerger. But they could also be exposed to some of the drawbacks of the merger, such as higher prices and the need to replace phones.
There’s still a good chance the merger will fail
A similar deal between AT&T and T-Mobile fell through in 2011 after receiving pushback from the Obama administration due to antitrust concerns.
One big reason why regulators could block the deal is the role TV and internet services now play in the wireless market. As Kagan described, there’s a divide among the major carriers between those that offer bundled services including TV and internet (AT&T and Verizon) and those that don’t (Sprint and T-Mobile).
Only having one company in the latter category could have caused prices to go up. “The regulators are going to look at what’s going to happen in the marketplace,” Kagan said. “If prices are going to go up, what’s the reason to approve?”
Plus, reports that the Justice Department is investigating AT&T and Verizon over collusion makes the deal’s likelihood somewhat lower, according to J.P. Morgan analyst Philip Cusick.
Shares of Sprint are up 30% year-to-date, while shares of T-Mobile are up 26%. Comparatively, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.27% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.09% are up 10% and 12% respectively.
This story was updated on June 12, 2019.