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What the T Mobile and Sprint Merger Means to Subscribers

What the T-Mobile and Sprint Merger Means to Subscribers

By Brian Fung, The Washington Post | Updated: 1 May 2018 17:46 IST

Sprint and T-Mobile are officially seeking to merge. If the deal is approved, the resulting company would be the nation's second-biggest wireless carrier after Verizon, controlling roughly 100 million customers. While the merger could put the companies in a stronger position to take on AT&T and Verizon, it would also eliminate a competitor from the wireless industry. That might not sit well with some policymakers, who say US businesses have grown too concentrated in recent years. What could the merger mean for competition - and your pocketbook? Here's what to expect.

Why is the deal happening?

The argument from T-Mobile and Sprint largely boils down to scale. By combining, they say, they'll be in a better position to take on the incumbents, AT&T and Verizon. The deal could eliminate duplicate spending and allow the new company, which would be called T-Mobile, to collect revenue from one, massive customer base.

This expanded scale could have important consumer implications. Right now, the whole wireless industry is racing to deploy a next-generation data technology called 5G. Expect to hear a lot about 5G in the coming weeks as this deal moves forward.

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How could the deal affect consumer prices?

It's too soon to tell. T-Mobile chief executive John Legere said Sunday that the merger will lead to lower prices for Sprint and T-Mobile customers. He claimed that even customers of other providers, such as AT&T, Verizon and Comcast, could see price cuts as those companies respond to the business moves of the new company.

That argument reflects T-Mobile's reputation for undercutting the competition. The self-styled "Uncarrier" has transformed how millions of Americans get their wireless service, from doing away with long-term contracts that lock you into a provider to offering unlimited data plans. Many of these practices prompted T-Mobile's larger rivals to respond with similar offerings as T-Mobile syphoned off chunks of their customer base.

But the proposed deal eliminates a provider that has been an aggressive competitor on price in its own right, offering deep discounts and promotions to lure customers.

The reduction in competition could lead to higher prices, said Blair Levin, a policy adviser for New Street Research.

"The general view on Wall Street is that as a result of this deal, there are likely to be job cuts and prices are likely to rise," he said.

Whether prices will go up or down will probably be a key focus of regulators at the Justice Department and the Federal Communications Commission as they decide whether to approve the deal.

What will happen to Sprint and T-Mobile subscribers?

For now, a new roaming agreement announced Sunday will allow Sprint customers to use T-Mobile's network in places where Sprint's is not available, giving them greater access to coverage. The two companies will otherwise operate independently until the deal receives regulatory approval.

If regulators bless the merger, then Sprint customers will be gradually migrated to T-Mobile's network - a process that could take up to three years, the companies say. About half of Sprint's customer base, or about 20 million users, won't notice a thing; that's because their phones already support both networks, executives said Sunday.

New television offerings and jobs

T-Mobile got into the television business in 2017 by buying up Layer3, a small cable company with the same underdog mentality as T-Mobile. With the Sprint deal, T-Mobile stands to gain a much larger built-in audience for Layer3 as it prepares to launch a streaming TV product.

"All content is going to the Internet, and all Internet is being viewed on mobile," Legere said in a phone interview Sunday afternoon.

T-Mobile and Sprint also claim that the deal will lead to "thousands" of new hires in construction, retail and customer service.

What's 5G, by the way?

5G stands for "fifth generation," and it refers to technology that will enable smartphones and other mobile devices to surf the Internet at speeds comparable to some of the fastest in-home Internet connections today. In fact, many wireless providers are betting that 5G could supplement or even replace the Internet cables running into your home.

In addition to faster downloads, 5G offers more reliability than 4G or LTE - meaning that it can support smart devices like self-driving cars, telemedicine and other high-tech products that are just coming to fruition.

But building out a 5G network is costly: Carriers not only need rights to the best airwaves, but also must invest in more cell towers and other infrastructure.

Sprint and T-Mobile say that only together can they pour enough resources into the project to have a world-class 5G network that's competitive with AT&T and Verizon.

How much competition does T-Mobile truly face?

Although the deal reduces the number of national wireless carriers from four to three, T-Mobile and Sprint argue that there are really as many as six to eight viable competitors when you factor in new offerings from the cable industry.

One example is Comcast's Xfinity Mobile, which blends wireless service from Verizon and Comcast's own network of WiFi hotspots to create a brand-new wireless provider.

"The market has changed dramatically," Marcelo Claure, Sprint's chief executive, said in a phone interview Sunday. "There used to be four big carriers. Today, there's six or seven players. When you get to 5G, you get to seven, eight players."

But not everyone agrees that cable is a viable competitor to T-Mobile and Sprint. The two networks have tens of millions of customers. Xfinity Mobile has 577,000, Comcast executives said last week. And because Comcast is paying Verizon for the right to resell the telecom giant's wireless service, it isn't as if Comcast is building something completely different than what's gone before.

It would be novel for regulators to look at Xfinity Mobile as a truly competitive offering, said Walt Piecyk, an industry analyst at BTIG.

"Regulators are likely to look at this as a four-player market going to three," Piecyk said. "Comcast is not the first [mobile virtual network operator] to exist in the wireless market when a deal has been considered."

Why 'four carriers' has been a magic number for the government

In 2011, AT&T tried to make its own bid for T-Mobile. But regulators moved to block the deal, saying that the elimination of a rival would harm competition. That view has persisted, particularly with an attempt by Sprint to buy T-Mobile in 2014.

Since then, the regulators' theory has been proven correct, some analysts say. T-Mobile went on to launch its Uncarrier campaign to reshape the wireless industry, and that's helped consumers. That experience has underscored a belief that four national wireless providers can sustain a healthy level of competition in the industry.

While Legere and Claure say that T-Mobile's aggressive approach will continue under the new T-Mobile, analysts such as Piecyk say that there are fewer promotions nowadays and that wireless prices are back on the rise.

Meanwhile, other analysts say regulators will have come a long way if they decide only three national providers are necessary.

"Back when I started as an antitrust lawyer, people worried about mergers that reduced the number of competitors in a market from six to five," said Jeffrey Blumenfeld, a partner at Lowenstein Sandler in Washington. 'That seems sort of quaint now."

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Further reading: Verizon, AT-and-T, Comcast, T-mobile, Sprint, Telecom

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