Sprint and T-Mobile to Merge

01 Aug, 2020

On 29 April, it was announced that the US mobile operators Sprint and T-Mobile had agreed a proposal to merge the companies. The deal, worth $26 billion, would create a combined operator, using the T-Mobile brand, with about 130 million customers.

The proposed merger is subject to approval by the US telecoms and competition regulatory authorities. Their decision will be driven strongly by the potential impact of a merger on consumers, specifically whether it will lead to:

  • an improvement or a deterioration in the quality of service they experience
  • lower or higher prices for mobile service plans

In the short term, at least, a merger could well lead to a better quality of service, by improving the network coverage experienced by Sprint and T-Mobile’s customers. When Orange and T-Mobile merged in the UK to create the operator EE, for example, one of the first consequences of the merger was that Orange’s customers gained access to T-Mobile’s base stations, and vice versa. Whether that advantage will be sustained in the medium and long term, however, will depend on the extent of the operators’ plans to retire base stations in their combined network.

Regarding the issue of pricing, the situation is less clear cut.

The argument in favour of a merger is that it would be better to have AT&T and Verizon face one strong competitor, than two weaker competitors. In Europe, there are several examples in which regulators have been persuaded by this proposition:

  • In Austria, the merger between Three and Orange was approved in 2012
  • In Germany, the merger between O2 and E-Plus was approved in 2014
  • In Italy, the merger between Three and Wind was approved in 2016

The argument against a merger is that it will reduce the incentive for the smaller operators to put pressure on the larger operators by making eye-catching customer offers to which the larger operators are forced to respond. We can also find several European examples in which regulators have found this viewpoint persuasive:

  • In Switzerland, the proposed merger between Orange and Sunrise was blocked in 2010
  • In Denmark, the proposed merger between TeliaSonera and Telenor was blocked in 2015
  • In the UK, the proposed merger between O2 and Three and Sunrise was blocked in 2016
  • In France, the regulator introduced a fourth competitor, Free Mobile, in 2012.

The “disruptor” argument is likely to receive considerable weight in regulators’ deliberations about the Sprint/T-Mobile merger, because disruptive behaviour has been a hallmark of T-Mobile’s “Un-carrier” modus operandi ever since John Legere took the helm as CEO. T-Mobile will have to work hard to convince the authorities that a larger customer base will not lead the “un-carrier” to start behaving more like a carrier again.