T-Mobile and Sprint Merger

Last updated: May 23, 2019

In 2018, rival telecoms Sprint Corp. and T-Mobile US, Inc. announced plans for a merger. If green-lighted, the $26 billion deal would make the two phone giants into the third-largest player in the telecom sector. The move came about due to rapid advances in the industry that have left the two companies struggling to compete with AT&T and Verizon, respectively the first- and second-largest telecom providers.

Though previous discussions of a possible merger between T-Mobile and Sprint fell through, the two communications companies reached this new deal through a mutual recognition of complementary business cultures and a friendlier corporate/political climate. In prior attempts, various internal and external factors halted the prospects of a merger between the pair. Currently, the only thing standing in the way is the Federal Communications Commission, which has stressed the need for more than just three major companies in the telecom sector.

Background of the Merger

Industry experts anticipate that between the first and second quarter of 2019, T-Mobile and Sprint — respectively the third- and fourth-largest telecoms in the United States — will finalize their long-proposed merger. Combined, the two companies would become the third major carrier in the U.S. behind AT&T, the nation’s perennial telecom, and Verizon, the reigning wireless service. The newly merged company will be in a better position to offer customer discounts and penetrate newer markets, going head-to-head with better-funded competition to provide some of the best possible deals to new and existing customers.

Background of the Merger

The idea of T-Mobile and Sprint joining forces first arose in 2014, at which time the notion got dismissed as anti-competitive for an industry with few major players. In 2017, the idea once again emerged between the two companies, but arguments erupted over who should get the upper hand in the merger. The following year, talks resumed once again, with both parties agreeing to an alliance where T-Mobile, the larger player in the deal, would hold a majority of shares and transfer its nameplate to the merged company.

The merger was initially set to close during the first three months of 2019, but the Federal Communications Commission ordered a pause on the deal, saying it needed more time to review it. This is not the first time the FCC has stood in the way of a proposed T-Mobile/Sprint merger. When the two companies first discussed such a move back in 2014, the agency insisted it would require at least four major carriers to ward off a monopoly in the telecom sector.

Some have argued fears of a consolidated market are overblown, and that a T-Mobile/Sprint merger would diversify the wireless sector. According to U.S. Rep. Anna Eshoo (D-CA), Americans “pay some of the highest prices for mobile wireless service” in the First World, where Verizon and AT&T have long dominated the telecom market. A merger between the third- and fourth-largest carriers, she insists, would create a third major competitor.

Once the two companies come together under the T-Mobile nameplate, the merged parties will have a combined total of more than 126 million customers, which will put them almost neck-and-neck with their slightly larger rivals AT&T and Verizon, which have 141 million and 150 million wireless customers, respectively. The merger should be a boon for 5G wireless technologies, which could ultimately bring further markets onto the wireless grid as drones and driverless cars become available to the public.

What Are The Terms?

When Sprint and T-Mobile talked of merging in the past, key investors received the idea warily. In part, deregulatory moves spurred the renewed talks. The Trump administration has given tech giants the go-ahead to engage in more competitive strategies like these. Ironically, anti-competition has been one of the foremost arguments among critics of the merger. Supporters counter the move would allow two smaller carriers to become more competitive with the two top telecoms.

market value

The deal would combine the $55 billion market value of T-Mobile with the $26 billion market value of Sprint. Once complete, 31 percent of the combined company would be publicly owned, while the private shares would get divided in a 42 percent/27 percent split between Deutsche Telekom and SoftBank Group, the respective parent banks of T-Mobile and Sprint. The former bank is also set to control 69 percent of post-merger voting rights and appoint nine of the combined company’s 14 directors. The deal should go through sometime within the next few months.

The combined company will retain the name of T-Mobile, the larger of the two telecoms entering the merger. The newly merged company will be the third-largest telecom and the second, behind Verizon, in wireless coverage, with 100 million smartphone users. T-Mobile CEO John Legere will assume leadership of the newly merged company.

In the past, regulatory policies and antitrust laws forbade such mergers between companies of this stature. In 2011, the Obama administration forced T-Mobile to abandon negotiations with AT&T over a similar proposal. Three years later, T-Mobile and Sprint first engaged in merger talks, but the Federal Communications Commission insisted the telecom industry needed at least four reigning giants to maintain a competitive marketplace.

In 2017, another round of merger talks between T-Mobile and Sprint collapsed when the two companies could not agree on which party would control the merged company. When negotiations resumed the following year, the parties came to an agreement that T-Mobile — the larger of the two companies — should carry the nameplate and hold a majority of shares in the new company.

Proponents of the current merger claim the industry has changed during the last five years, as lines have blurred between cable companies, cell phone providers and other big tech firms, a trend investments in 5G infrastructure have buoyed. Upon finalization of the T-Mobile/Sprint merger, the enlarged company plans to hire more staff and increase its spending budget.

The merged company will cut its annual overhead costs while investing as much as $40 billion into its network infrastructure over three years following the merger. The combined companies will maintain a 200,000-strong workforce across thousands of retail outlets.

Despite the optimism, there has also been talk of an inevitable leveling off in the marketplace. Now that most adults and even many children own smartphones, where will the telecom giants turn for new customers and contracts? The answer is likely to be in the next generation of 5G, which could encompass everything from cable television to autonomous cars. The advent of customers who send self-driving cars out to pick up remotely purchased groceries and takeout meals could open vast new markets for companies in the wireless sector.

Timeline of the Merger

Consolidation is nothing new in the telecom sector. Since the 1982 breakup of the original AT&T, several larger companies have bought up smaller carriers. The trend accelerated during the 2000s amid the spread of wireless technology. In 2004, Sprint purchased wireless upstart Nextel. Two years later, Verizon bought out MCI, which had once been the world’s second-largest long-distance carrier behind AT&T.

In 2016, Verizon branched out into other areas of telecommunication with its purchase of XO. A similar deal occurred that same year when national Internet provider CenturyLink purchased the Colorado-based service Level 3. In light of these and other major purchases, the controversy surrounding the proposed merger between T-Mobile and Sprint has struck supporters of the deal as an odd circumstance. Now in its third incarnation, the agreement has been five years in the making.

  • 2011: AT&T and T-Mobile enter talks about a proposed buyout agreement where the larger telecom would purchase the smaller carrier for $39 billion. Then-President Obama's Justice Department nixes the idea, suing to halt the acquisition. T-Mobile revises its pricing structure and liberalizes its subscription policy, eliminating annual contracts. Both moves help the smaller carrier gain a foothold in the market, effectively forcing the hands of larger telecoms to make further concessions to customers.

  • 2014: T-Mobile and Sprint enter their first round of negotiations over a proposed merger agreement where the two would join into one larger company. The FCC steps in to halt the proposition, insisting such a merger would stifle competition in the telecom sector.

t mobile and sprint merger timeline

  • 2017: T-Mobile and Sprint once again commence talks about merging into one larger entity. The talks break down when the two telecoms fail to come to an agreement about which company should hold the upper hand in the merger.

  • 2018: T-Mobile and Sprint enter their third round of talks about the possibility of merging into one larger telecom. This time, the two agree to a deal that would split ownership three ways between the public and the two parent banks involved in the merger. T-Mobile, the larger of the two companies, would carry the name and hold a majority of shares. The merger is slated to finalize during the first quarter of 2019. Meanwhile, the FCC — still skeptical about such a deal — imposes a 180-day countdown clock to allow time to review the agreement. The countdown gets paused twice as the agency seeks to examine matters more thoroughly.

  • 2019: In March, the FCC pauses the 180-day countdown clock yet again to place the deal under further scrutiny. Critics of the proposed merger claim it would lead to a monopolization of the telecom sector by reducing a market of four large companies down to three. Proponents of the deal counter that the sector is currently a duopoly between AT&T and Verizon and that a T-Mobile/Sprint merger would place the underdog pair on an even keel with the two giants, thus creating a third top carrier. If it receives the final go-ahead, the merger should finalize by the end of Q2.

Procurement Benefits for T-Mobile and Sprint

procurement benefits to mergers

When the two companies merge, they will bring complementary, yet different, business strategies under the same corporate umbrella. T-Mobile has long been the maverick carrier whose customer-friendly terms have spurred newfound competitiveness in the sector, prompting older telecoms like AT&T to devise similarly fetching deals. Sprint has recovered in recent years from its underdog status, edging into new markets with a procurement strategy that has cut overhead and boosted customer retention. However, a merger between the two carriers will involve more than just smartphones as the 5G grid leads to the introduction of newer technologies.

As such, the controversies that surround the T-Mobile merger with Sprint don't only include questions about over-consolidation in the telecom sector. Some critics of the deal have waged concerns about cybersecurity, an issue brought to light by the involvement of the telecom’s respective parent banks — Deutsche Telekom and SoftBank — with embattled Chinese telecom-gear manufacturer Huawei. The Shenzhen-based company has been a subject of concern among Western carriers over alleged holes in its telecom system, which purportedly opens customers to information theft from the Chinese government.

Though neither T-Mobile nor Sprint have any direct involvement with Huawei, Deutsche Telekom and SoftBank are long-standing customers of the Chinese company. The first of those banks is reconsidering that relationship, stressing international concerns about the “security of network elements” in Chinese-made telecom products. SoftBank, meanwhile, has taken a more modest tone, stating that most of its networking infrastructure consists of products made by European manufacturers.

One of the primary factors spurring the T-Mobile/Sprint deal has been the latter carrier’s growth in recent years. In April 2016, former Verizon executive Mariano Legaz became the chief procurement officer of Sprint, bringing with him more than 20 years of experience in international telecommunications. Since assuming the role of CPO, he has led America’s fourth-largest telecom to first place among voice networks, besting the competition in markets as far apart as St. Louis, MO and Portland, Ore.

Sprint has achieved its turnaround in fortune — driven by a seven-figure drop in annual operating costs and a steady reduction in customer churn rates — in part by following the CPO’s business strategy, which measures savings at the customer, project and organization levels. As Legaz has observed, Sprint lacked procurement-level metrics before his arrival. Under his leadership, the carrier has tracked project-source savings in tandem with cost-reduction measures during each contract negotiation.

Sprint has been selective in its market penetration, concentrating on areas where the carrier expects it can attract new customers. Legaz has also implemented a more holistic team curriculum designed to enhance clarity and pinpoint analytics gaps in various aspects of the business.

Spend Analysis Assessments

Sprint's ability to turn its fortunes around — and, in doing so, recognize T-Mobile as a natural ally and prospective team player — is due, in part, to the business acumen of leaders like Legaz. But as the CPO himself would be the first to point out, none of these accomplishments would be possible without a robust set of cost-control tools, strategic planning and analysis. While many companies rely on mere software programs to handle these areas, the most successful organizations employ a total solution, complete with a separate department tasked with the various aspects of procurement.

spend analysis assessments

At Dryden Group, we offer a range of procurement services businesses can customize to their needs. We have compiled our services suite through years of insights in the realms of analytics and market intelligence. Contact Dryden today to learn more about how our procurement services can benefit your business.

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