On April 29, T-Mobile U.S. Inc. and Sprint Corp. announced plans for a merger that will combine the third- and fourth-largest wireless carriers in the United States and will be valued at approximately $27 billion, according to The Washington Post. The resulting company would take on T-Mobile’s name and the company’s current CEO, John Legere, as its head if the merger gets approved.
While both wireless carriers have talked about a possible merger for several years, this is the first time that they have an agreement and now seek political approval. The consolidation of the telecommunication giants would leave potential customers with only three major wireless carriers to choose from — Verizon Communication Inc., AT&T Inc. and T-Mobile.
Sascha Segan, a mobile analyst for PCMag, compared the situation to the current one in Canada, where there are three major carriers, but the consumer has to deal with higher prices and no unlimited data plans across the country.
“This sort of competitive analysis was used to strike down the AT&T/T-Mobile merger in 2011,” Segan said.
It is now up to the companies to convince President Donald Trump’s administration, the Federal Communications Commission and the Department of Justice that the consolidation is a positive thing for both the consumer and for competition, which is not an easy feat.
The Justice Department is currently trying to block yet another merger involving AT&T and Time Warner Inc., and the White House has also spoken out against deals like this due to their possibilities of giving too much power to too few companies. They went on to say it could potentially hinder a competitive market, something that is necessary to ensure that customers get better prices and services and push companies to innovate continually.
The most cogent argument that T-Mobile and Sprint give for their merger also concerns innovation. As the large telecom companies strive to perfect and release new 5G technology that would advance and speed up current data networks, both companies insist that their combined investments are more apt to handle this task than if they did it separately.
“This combination will create a fierce competitor with the network scale to deliver more for consumers and businesses in the form of lower prices, more innovation, and a second-to-none network experience – and do it all so much faster than either company could on its own,” Legere said in a statement that was jointly released by T-Mobile and Sprint when they announced the merger. “As industry lines blur and we enter the 5G era, consumers and businesses need a company with the disruptive culture and capabilities to force positive change on their behalf.”
Representatives of both companies also add that the merger will spur the growth of thousands of jobs and connect people all over the country, even those in the more rural areas of the United States that might not be as technologically advanced as the big coastal cities. Overland Park, Kansas, which is Sprint’s current home, would be one of the headquarters of the new company as well.
Despite all of the possible positives of the merger, history and economic trends seem to suggest that it will likely not get past the U.S. antitrust regulations that exist to ensure that fair competition exists in the open market.
T-Mobile and Sprint have several obstacles to overcome if they want to prove that their merger should be accepted over all of the other multibillion dollar deals that were shut down.
First, Sprint is currently the company that offers low, competitive rates. It also had its share of financial problems and the merger would supposedly help its employees be part of a stronger, more stable corporation. However, when T-Mobile attempted to merge with AT&T after facing financial hardship, the Justice Department did not see this as a sufficiently convincing reason to allow for the transaction to pass. Within just a few years, T-Mobile made a full recovery and surpassed all expectations. It hired Legere as its new CEO, who rebranded the entire company and was able to provide more data for lower prices. The rejection of the merger turned out to be positive for the current third largest wireless carrier.
Other drawbacks of the deal include the variance between the current technology that Sprint and T-Mobile offer, according to MarketWatch. The merged company will have to agree on one type of technology and seamlessly transition to it, which could take some time and leave consumers who used one of the old technologies having to upgrade their current phones. Additionally, certain deals that bundle together phone, TV and internet service would be left to AT&T and Verizon with the merger, as the new company would not offer similar deals. Yet again, this could lead to price increases for consumers.
Despite the reasons for or against the consolidation deal, the mergers currently trying to get political approval signify the direction that the telecom and media industries are heading in. Where there were once many diverse companies, there are now a handful in both wireless service and broadcast media. The number of companies is only going to keep decreasing.
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