T-Mobile and Sprint: it's official
Shares of
T-Mobile
US
and
Sprint
both opened lower
this
morning, following news that
Deutsche Telekom and SoftBank have reached an agreement to merge the two carriers into a combined company to be called New T-Mobile. T-Mobile CEO John Legere will lead the new company from Bellevue, Washington, and Deutsche Telekom will appoint the majority of its board members. Sprint CEO Marcelo Claure will retain a seat on the new company's board, and will maintain a secondary corporate headquarters in Overland Park, Kansas. If regulators approve the deal, the companies hope to close early next year.
Sprint shareholders will get 0.10256 shares of T-Mobile for each Sprint share. SoftBank will end up owning 27% of the new company, DT will own 42% and public shareholders will own 31%. DT will be able to consolidate New T-Mobile on its books even though it will not own a majority of the company.
Analyst Craig Moffett of MoffettNathanson said today that there were no big surprises in the structure of the deal, which has been widely anticipated. He puts the chances of U.S. regulatory approval at 50%.
"Ultimately, the regulatory question comes down to this: will consumer welfare be measured by end-user prices in a four vs. a three-player market, or by the level of investment the two companies can support as one company, rather than two?" Moffett wrote today in a research note. T-Mobile and Sprint are saying the combined company will employ more people than the two companies now employ, due to a projected $40 billion capital investment program that the new company wants to implement over the next three years.
Nonetheless, regulators could focus more on the impact on consumers. Despite the emergence of new providers in the wireless service market, Verizon, New T-Mobile and AT&T would be by far the dominant players and in some cities consumer choice might be very limited. Analyst Jennifer Fritzsche of Wells Fargo said today that her firm is downgrading both T-Mobile and Sprint.
In discussing the deal with investors yesterday, T-Mobile executives highlighted the entrance of cable operators into the wireless market, and also discussed the merged company's opportunity to enter the home broadband market.
"There's a huge opportunity to just take on broadband," said T-Mobile COO Mike Sievert, who will retain that position in the merged company if the deal happens. Sievert said the combined company's wireless network will offer average nationwide speeds of 450 megabits per second.
"450 Mbps is something that's competitive for home internet connections, so that's going to be an exciting opportunity," Sievert said.
Sprint CEO Marcelo Claure added that it will be "business as usual" for his company with respect to its ongoing small cell deployments, which leverage fiber owned by cable operators Altice and Cox.
The two companies are projecting a reduction of roughly 25,000 macro sites if they merge, a hit that tower stock investors have already priced into the tower stocks. Tower stocks are mixed today and shares of radio equipment makers are also holding up well on the news. Long-term, the outlook for radio vendors could be positive.
"We think a scaled T-Mobile will be a better investor in networks than a strapped Sprint," said analyst Simon Leopold of Raymond James. He said the combined company would generate wireless capex spending comparable to that seen from AT&T and Verizon.
