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Sprint and T-Mobile Ready to Gamble on a Merger?

TMCnet Feature

June 05, 2014

Sprint and T-Mobile Ready to Gamble on a Merger?

By Gary Kim
Contributing Editor

Sprint and T-Mobile US plan to launch a risky merger effort in 2014, the Wall Street Journal now reports, with Sprint buying T-Mobile (News - Alert) US in an effort to create a strong number-three competitor to AT&T Mobility and Verizon Wireless.

The bid is a clear gamble, as both antitrust authorities and members of the Federal Communications Commission have signaled discomfort with any such deal. In fact, bidding rules for the upcoming auction of 600-MHz spectrum were designed to favor both Sprint and T-Mobile US only if the firms remained independent.

Launching an acquisition in 2014 would effectively remove both Sprint and T-Mobile US from favored bidding in the upcoming auction of 600-MHz spectrum.

That, in turn, is a signal, and not the only sign, that both firms think their future prospects--and even survival--hinge on gaining scale, soon, and not on additional low-frequency spectrum they might win in the 600-MHz auctions.

One might accurately characterize the motivations behind AT&T’s (News - Alert) effort to buy T-Mobile USA, and Sprint’s effort to buy T-Mobile US, as fundamentally different.

AT&T, already a market leader, was making a bid to reinforce its leadership, at the same time closing off any effort by Sprint to gain scale by making its own bid for T-Mobile US.

Image via Shutterstock

Sprint is making what some might say is an almost “desperate” move to ensure it has a chance at surviving, over the long term.

T-Mobile US, in agreeing to the outlines of a merger, also agrees it cannot catch up to AT&T and Verizon (News - Alert) on its own, despite recent subscriber gains.

U.S. antitrust and regulatory officials point to recent T-Mobile US success at reversing its market share slide as evidence the U.S. market can support four service providers.

But both Sprint and T-Mobile US executives now seem to agree they cannot effectively compete with AT&T and Verizon over the long term unless they combine to form a much-bigger company with greater scale.

A vote at the FCC (News - Alert) would be close. But Sprint and T-Mobile US both believe they have a shot at convincing a majority of commissioners to approve a deal, in part because as many as three of five commissioners might be receptive to the argument that robust competition is sustainable, long term, if there are three strong firms, nearly evenly matched, rather than two leaders and two smaller firms.

Also, the Comcast (News - Alert) deal to buy Time Warner Cable and the AT&T bid for DirecTV might help Sprint make the case that on-going major market consolidation now forces Sprint and T-Mobile US to combine. 

Edited by Maurice Nagle

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