T-Mobile and Sprint Merger Impact
The T-Mobile and Sprint merger may be finalized as soon as April 1, 2020, considering that the Department of Justice, the Federal Communications Commission (FCC), and a federal court have all greenlighted the transaction, which was first announced in April 2018. Several parties, however, are concerned with the impact of this merger on the wireless telecommunications industry and its players. The merger’s actual and potential effects on Cricket, the prepaid wireless segment, the United States wireless telecommunications market as a whole, and the internal operations of T-Mobile and Sprint, and the measures being proposed and taken to address concerns as available, are presented below.
Impact on Cricket
The impact of the T-Mobile and Sprint merger on Cricket, AT&T’s prepaid business, centers mostly on the possibility that some Sprint customers may switch to smaller carriers such as Cricket, the possibility that prepaid service prices will increase, the fact that Boost Mobile will soon be managed by Dish Network, and the fact that Sprint has shut down Virgin Mobile. To address concerns that prices will increase as a result of the merger, T-Mobile and Sprint have promised that the merged company will not increase prices for three years.
1. Impact on Customer Acquisition
- The merged company may price its plans higher, and Sprint customers who could no longer afford this higher price may switch to smaller carriers with prepaid plan offerings, such as Cricket Wireless, Boost Mobile, and Metro by T-Mobile. Should this happen, Cricket can try to capture these switching customers.
- Cricket Wireless, which offers low-cost, no-contract prepaid plans, was acquired by AT&T in 2014.
2. Impact on Prices
- The T-Mobile-Sprint merger could lead to better data speeds and coverages, but these improved speeds and coverages could result in higher wholesale prices. Higher wholesale prices, in turn, could compel smaller carriers such as Cricket Wireless to increase retail prices as well.
- Many smaller carriers, including Cricket Wireless, are mobile virtual network operators or MVNOs that rely on networks owned by bigger carriers such as Verizon, AT&T, T-Mobile, and Sprint. They purchase network access at wholesale prices and then sell this access at retail prices.
- T-Mobile and Sprint promised that the merged company will lock in prices for three years after the merger to quell concerns about potential price increases.
3. Impact on Strategy
- Cricket Wireless, being a prepaid wireless service provider, would have to deal with whatever competitive strategy the Dish Network will use to promote its new prepaid business. As part of T-Mobile and Sprint’s settlement with the Department of Justice, Dish will acquire the prepaid businesses and 800-MHz spectrum of Sprint for $1.4 billion and $3.6 billion, respectively, and gain seven-year access to T-Mobile’s wireless network.
- T-Mobile and Sprint have also agreed to sell thousands of cell sites and hundreds of retail stores to Dish.
4. Impact on Number of Competitors
- Sprint has shut down one of its prepaid businesses, Virgin Mobile, to consolidate its prepaid brands Virgin Mobile and Boost Mobile under one prepaid team.
- Even though Virgin Mobile customers will be transferred to Boost Mobile, this consolidation means Cricket will have one less competitor in the prepaid wireless market.
Impact on Prepaid Wireless Segment
The impact of the T-Mobile and Sprint merger on the prepaid wireless segment revolves mainly around the possibility of reduced competition, price hikes, price drops, and massive layoffs, and the potential effect of price hikes on consumers. To quell concerns about reduced competition and resulting price increases, T-Mobile and Sprint have agreed to sell Sprint’s prepaid businesses to Dish and lock in prices for three years.
1. Impact on Competition
- Given that both T-Mobile and Sprint have prepaid businesses, some external parties worry that the merged company may monopolize the prepaid wireless market.
- To address these concerns, T-Mobile and Sprint have agreed to sell Sprint’s prepaid businesses to Dish and keep T-Mobile’s prepaid business Metro by T-Mobile only.
- Sprint has three prepaid services, namely, Boost Mobile, Virgin Mobile, and Sprint prepaid. Sprint has begun transferring Virgin Mobile customers to Boost Mobile, as it has decided to shut down Virgin Mobile.
- With its acquisition of Boost Mobile and Virgin Mobile, Dish will have access to 9.3 million customers.
2. Impact on Consumers
- States opposing the merger argue that the merger would be detrimental to prepaid subscribers. According to these states, most prepaid subscribers are low-income individuals who cannot pass credit checks.
- They argue that the merger would lead to reduced competition, and reduced competition, in turn, would lead to higher prices that these individuals could not afford. As previously mentioned, however, T-Mobile and Sprint have promised to sell Sprint’s prepaid businesses to Dish and lock in prices for three years to address concerns about reduced competition and higher prices.
- Virgin Mobile customers, who will be transferred to Boost Mobile, need not worry about their phones and phone numbers, as they can retain their existing phone and phone number. Customers paying through PayPal, however, need to switch to another payment method because Boost Mobile does not offer the PayPal option.
3. Impact on Workers
- T-Mobile has begun laying off employees in its prepaid business Metro by T-Mobile, but it is not clear if the layoffs were a result of the merger. The company has not yet commented on these reported layoffs.
- According to the National Wireless Independent Dealer Association (NWIDA), a considerably large number of Metro by T-Mobile employees, particularly those who provide shared services, were laid off because T-Mobile decided to utilize corporate departments for these services instead.
- The Communications Workers of America (CWA) responded to this report by saying that workers of T-Mobile and Sprint should have “a voice at the table to protect their jobs and wages.”
- According to the CWA, 11,800 jobs in T-Mobile and Sprint’s prepaid businesses are at risk of being removed. This estimate, however, was made before T-Mobile and Sprint made the decision to sell Sprint’s prepaid assets to Dish.
4. Impact on Prices
- T-Mobile promised that, after the merger with Sprint, it will offer T-Mobile Connect, a game-changing prepaid service that will include a $15-per-month option. This option will be half the price of T-Mobile’s cheapest plan at present, and will include unlimited phone calls and text messages and “2 GB of data that will be increased by 500 MB every month for five years.”
- This new plan, which is perceived to be beneficial to rural Americans, could force other prepaid service providers to offer comparable products.
Impact on the United States Wireless Telecommunications Industry
The T-Mobile and Sprint merger is expected to facilitate the nationwide deployment of 5G and the deployment of faster broadband to rural areas, and improve mid-band spectrum utilization. However, depending on whether Dish will be able to position itself as a strong competitor, it could lead to reduced competition in the industry, which, in turn, could result in higher prices and fewer product offerings for consumers, including lower unlimited plan availability. To quell concerns about reduced competition and price hikes, T-Mobile and Sprint have agreed to lock in prices for three years, and help Dish establish itself as the fourth major player by selling or sharing some of their assets to Dish.
1. Impact on Competition and Number of Key Players
- The merger is expected to significantly alter the United States wireless telecommunications market. The merged company will be in a better position to compete with Verizon and AT&T, as it will be closer in size to these two competitors with over 100 million subscribers and around 30% market share. AT&T and Verizon currently account for 40% and 30% of the market, respectively.
- Another source noted that the merged company’s subscriber base will be around 80 million, close to AT&T’s 75 million subscribers and Verizon’s 114 million subscribers.
- Satellite business Dish Network could emerge as the fourth major player in the market, given that it has agreed to buy Sprint’s prepaid businesses. The government hopes that, with Dish’s entry, it will be able to achieve its goal of maintaining four major competitors in the wireless telecommunications market.
- Because of the merger, the United States wireless telecommunications industry will lose Sprint and possibly gain Dish. It is widely believed that Sprint without T-Mobile would not be able to survive in the long run, and that Dish is the company best positioned to take its place.
- Sprint’s customer base and employee base are dwindling, Sprint’s monthly churn has increased to almost 2%, Sprint’s average revenue per customer has dropped by 5%, and the company has admitted that building a nationwide 5G network on its own would be difficult.
- The 12 states opposing the merger, California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Oregon, Pennsylvania, and Wisconsin, and the District of Columbia argue that the merger will reduce competition and reduced competition is not good for consumers, workers, and innovation. The filing of the antitrust case was led by New York Attorney General Letitia James and California Attorney General Xavier Becerra.
2. Impact on Deployment of 5G and Faster Mobile Broadband
- According to Ajit Pai, chairman of the FCC, the merger will facilitate the nationwide deployment of 5G and the deployment of faster mobile broadband to rural areas. It will also lead to better utilization of the critical mid-band spectrum.
3. Impact on Product Offerings
- The reduced competition may adversely impact the availability of unlimited plans. Companies could be less motivated to offer unlimited plans if they have fewer competitors.
4. Impact on Consumers
- Frank Gillett, a principal analyst at Forrester, says that consumers are likely to benefit from the merger in the short term, as the merger will likely result in competitive offers and promotions. The long-term impact of the merger on consumers and whether prices will increase are contingent on Dish's fulfillment of its promises.
- T-Mobile and Sprint promised to lock in prices for no less than three years after the merger to quell concerns about potential price increases.
5. Impact on Mergers and Acquisitions
- It has been a decade since Dish first expressed its intention to enter the wireless telecommunications market, but the company is yet to demonstrate that it is serious with its plans. So far, the company has spent approximately $12 billion on wireless spectrum and promised to deploy 5G to 70% of the country’s population by 2023. It is yet to put the precious spectrum to good use.
- Antitrust experts doubt that Dish will be able to build a nationwide 5G wireless network in just a few years. No other company has done so before.
- According to Jeff Moore, founder of Wave7 Research, in case Dish fails to meet its targets, a cable company may purchase Dish’s nascent network.
- The transaction between T-Mobile and Sprint may herald a wave of wireless and cable mergers. Similar to T-Mobile and Sprint, many other wireless companies that are building 5G infrastructure rely on cable companies to produce high speeds through the connection of small-cell technology and low-band and mid-band spectrum. This reliance on cable providers may compel wireless companies to acquire or merge with cable assets.
Impact on Internal Operations of T-Mobile and Sprint
As stipulated in the merger agreement, the new T-Mobile company will be expanding its 5G and broadband service coverage, increasing wireless speeds and capacity, and locking in prices for three years. While it promises new retail locations and customer experience centers and thousands of new jobs, external parties expect massive job cuts and closures of duplicate retail locations.
1. Impact on Coverage
- As part of its deal with the FCC, T-Mobile promised that the merged company will make its 5G service available to 97% of the country’s population within three years of the merger, and 99% within six.
- It also promised that the new T-Mobile company will make its 5G service available to 85% of the country’s rural population within three years of the merger, and 90% within six.
- To address the needs of rural Americans, it also guaranteed that the new T-Mobile company will offer a broadband option, with speeds of no less than 100 Mbps, to 90% of the country’s population.
- The new T-Mobile company will also allot around $40 billion to 5G within three years of the merger.
2. Impact on Employees
- As far as jobs and employees are concerned, Wall Street analysts and the CWA predict massive job cuts. There is confirmation that T-Mobile has begun laying off employees in its prepaid business Metro by T-Mobile, but it is not clear if the layoffs were a result of the merger.
- Chris Shelton, the president of the CWA, proposes that once the merger is completed, T-Mobile workers should be permitted to unionize.
- According to the CWA, 30,000 jobs — 11,800 jobs in the companies’ prepaid businesses, 13,700 jobs in the companies’ postpaid businesses, and 4,500 jobs at the companies’ headquarters — are at risk because of the merger. These estimates were made before T-Mobile and Sprint agreed to sell Sprint’s prepaid businesses to Dish, however, so the extent of layoffs could be lower.
- Wall Street analysts forecast massive layoffs as a result of the removal of duplicate retail stores. At a Senate hearing in 2018, John Legere, T-Mobile’s CEO then, admitted that there will be job rationalization in the first year after the merger.
- According to one source, T-Mobile had around 53,000 employees at the end of 2019, while Sprint had almost 29,000 employees at the start of 2019. Frank Lenk, research service director at MARC, provided a different estimate for Sprint, however. He said that Sprint has lost a thousand jobs per year since 2000, and now keeps only about 6,000 people on its payroll.
- According to Sprint, thousands of jobs will be created. The merged company will create over 3,500 additional full-time jobs in the first year after the merger, and 11,000 additional jobs by 2024.
3. Impact on Locations
- Once merged, T-Mobile and Sprint intend to build five new customer experience centers and over 600 new retail locations. These new locations will reportedly create around 12,000 more jobs, many of which will be in small towns.
- Independent phone stores, however, are expected to be hit hard by the merger. The NWIDA projects that as many as 24,000 people could be laid off.
- Sprint’s headquarters in Overland Park, Kansas will serve as the merged company’s second headquarters.
4. Impact on Operations
- The merged company will retain the name T-Mobile.
- The merged company will have 14 times higher capacity by 2024. It expects that this increase in capacity will lead to lower prices.
- T-Mobile and Sprint promised that the merged company will lock in prices for no less than three years after the merger to quell concerns about potential price increases.
- The merged company will compete with Big Cable by offering wireless in-home broadband service to more than half of households in the country by 2024.
- The uncertainty caused by the merger has caused some operational delays on the part of T-Mobile. T-Mobile has informed some of its contractors that it would hold off on purchase orders for 5G upgrades and infrastructure, and on macro cell sites, until merger details have been firmed up. The delays arising from merger uncertainty have also prompted Ting Mobile, an MVNO partner of T-Mobile, to look for other connectivity partners.
- The merged company will benefit from improved economies of scale.
5. Impact on Leadership, Stock Prices, Wireless Speeds, and Ownership
- In May 2020, T-Mobile CEO John Legere will step down to give way to COO Mike Sievert, who will assume leadership of the merged company. Legere will still serve on the new company’s board.
- Other members of the new company’s management team will be chosen from T-Mobile and Sprint’s leadership teams during the merger’s closing period.
- Soon after the federal court handling the antitrust case has decided in favor of the merger, T-Mobile and Sprint’s share prices rose by 12% and 70%, respectively.
- The positive market reaction has pushed the deal amount up from $26.5 billion to $40 billion. Another source pegged the new deal amount at $37 billion.
- T-Mobile promised that its wireless speeds will be at most five times faster than existing LTE after a few years, and at most 15 times faster by 2024.
- T-Mobile owners will receive about 11 shares of Sprint for each of their T-Mobile shares.
- Ownership of the merged company will be split into 43% for Deutsche Telekom, T-Mobile’s parent company, 24% for SoftBank, Sprint’s parent company, and 33% for public shareholders.
- Nearly 49 million T-Mobile shares were surrendered by SoftBank as part of the agreement, but these shares could be reissued back to SoftBank if the merged company’s share price remains above $150 for a specified time period.