The wireless merger deal, which regulators still must approve, would leave the U.S. wireless market dominated by three national players.
The all-stock deal would combine Sprint, which has a market value of $26 billion, with T-Mobile, which has a market value of $55 billion, based on Friday’s closing prices. The two companies also have about $60 billion of combined net debt.
Under the terms of the deal, T-Mobile will exchange 9.75 Sprint shares for each T-Mobile share. T-Mobile parent Deutsche Telekom will own 42% of the combined company and Sprint parent SoftBank Group will own 27%. The remaining 31% will be held by the public.
Deutsche Telekom would also control voting rights over 69% of the new company and appoint nine of its 14 directors. The companies said they hope to close the deal in the first half of 2019.
Joining forces would create a wireless provider with nearly 100 million cellphone customers, second only in the U.S. to Verizon Communications Inc. The combined company, which would be called T-Mobile, would be run by T-Mobile CEO John Legere.
“This isn’t a case of going from 4 to 3 wireless companies—there are now at least 7 or 8 big competitors in this converging market,” Mr. Legere said on Sunday. The companies also vowed to boost hiring and spending in the U.S. after the transaction.
Sprint and T-Mobile executives could make the case that times have changed. Investments in 5G infrastructure could blur the lines between cellphone provider, cable company and technology firm. Even using current technologies, Comcast Corp. has rolled out low-cost wireless service to its cable customers that rides on Verizon’s network.
Dish Network Corp. , led by its chairman Charlie Ergen, meanwhile is building a bare-bones wireless network that could be used to link autonomous cars, drones and other machines aside from cellphones. Companies could use that project to argue there are more than four nationwide wireless companies, though it would be a harder sell if Dish avoids directly competing with Sprint and T-Mobile.
Capital Spending
The companies pledged Sunday to invest up to $40 billion on its network and business in the first three years after the deal closes. But the companies, which would employ about 200,000 people and own thousands of retail stores, will also be looking to cut costs. On Sunday, they projected savings totalling $6 billion in annual costs.
Rolling out 5G services will require heavy investment in cellular spectrum and installing hundreds of thousands of antennas around the country, which gave new impetus to Sprint and T-Mobile executives to join forces.
AT&T said it will devote at least $23 billion to capital spending this year, excluding some investments in a new public-safety network. Verizon said it plans to spend at least $17 billion on capital expenditures in 2018. Both budgets are well ahead of Sprint and T-Mobile, which each spend under $10 billion a year on construction, electronics and the like.
Left alone, the spending gap will only widen as companies rush to install 5G equipment. “You can’t win a race by having half the horses,” said Roger Entner, an analyst for telecom consultant Recon Analytics Inc.
Winning the race wouldn’t come cheap. Consulting firm Accenture estimates that U.S. telecom companies together could invest $275 billion over the next seven years to deploy the next-generation wireless technology.
Wireless Employment
Capital spending will create jobs but employment at the companies will likely decline sharply. Retail stores will close. Operations, sales staffs, and technical support operations will merge.
Good Deal for Customers?
Is this a good deal for customers?
Of course! How can it not be?
Both T-Mobile and Sprint customers will have increased coverage.
I wish all the networks could share towers such that coverage was universal. It seems ridiculous for each network to have to build their own towers. When appropriate, why not share?
Press Release
The merger press release cites these benefits.
With Sprint’s expansive 2.5 GHz spectrum, T-Mobile’s nationwide 600 MHz spectrum, and other combined assets, the New T-Mobile plans to create the highest capacity mobile network in U.S. history. Compared to T-Mobile’s network today, the combined company’s network is expected to deliver 15x faster speeds on average nationwide by 2024, with many customers experiencing up to 100x faster speeds than early 4G.
Neither company standing alone can create a nationwide 5G network with the breadth and depth required to fuel the next wave of mobile Internet innovation in the U.S. and answer competitive challenges from abroad.
Neither can AT&T and Verizon in the near term, even though they will still respectively own 34% and 172% more spectrum than the combined company. Even with their vast resources, AT&T and Verizon cannot rapidly build nationwide 5G and their planned 5G networks will only be available sporadically in just a handful of very limited areas. To build nationwide 5G, they either have to kick current customers off LTE, which would take years, or use a type of spectrum (millimeter wave) that can only carry a signal 2,000 feet from a cell site – versus multiple miles for other spectrum – making it nearly impossible for either of them to create a truly nationwide 5G network quickly.
Ubiquitous high-speed 5G service and Internet of Things (“IoT”) capabilities will ignite innovation across industries and create the conditions for U.S. firms and innovators to lead the globe in the 5G era.
“Going from 4G to 5G is like going from black and white to color TV,” added Claure. “It’s a seismic shift – one that only the combined company can unlock nationwide to fuel the next wave of mobile innovation.”
5G for All will unleash incredible benefits and capabilities for consumers and businesses. Imagine, for example, augmented reality heads-up displays that see everything you do, and provide real-time cloud-driven information about the people and objects around you. Imagine never losing anything again because low-cost sensors with decade long battery life are embedded in everything you own. Imagine an earpiece providing real-time translation as a friend speaks to you in another language. Imagine environmental sensors in infrastructure and for agriculture having a profound impact on productivity.
Wireless, broadband, and video markets are rapidly converging. AT&T is now the largest TV provider in the country. Comcast added more wireless phone customers last year than AT&T and Verizon combined, and Charter is launching wireless this year. And, more than 1 in 10 Americans (12%) use wireless as their only Internet or broadband connection, freeing themselves from the grip of the traditional, uncompetitive in-home broadband providers.
Message to Regulators
That last paragraph above is clearly a message to regulators telling them not to fear going from four wireless providers to three while conveniently sniping at ATT’s TV service,.
Traveler Woes
As a traveler, I frequently find that my phone does not work. When I travel with my wife Liz, usually one of our phones work. I am on ATT and she is on Verizon.
Service in some national parks is nonexistent. I just returned from a trip to Arches and Canyonlands. There is essentially no cell service. Curiously, there was cell service at Delicate Arch, reachable by a 3-mile round-trip hike that starts deep in the interior of the park. It’s an uphill trek and the elevelation change must have put it in sight of tower.
When I last went to Death Valley, ATT worked in a few spots, but not Verizon. In Glacier National Park, nothing worked anywhere. It is a real pain.
Mike “Mish” Shedlock
A friend asked me, “If education was effective and usefully sensible, what would be have?”
I said, “patience, cooperation, standards, decency, generosity”. These are all of the ‘old world’ things that used to be taught in Sunday school.
This merger could be a good thing, as could the cell networks themselves, if they had some patience (stop changing things to chase immediate profit and start planning ahead with standards agencies to provide services), cooperation (the kind that sets standards and the pace of change, not monopolies and government graft), decency (coverage in all areas, no shifty plan changes, actual service vs. costs instead of actuary-generated complexities), generosity (allowing employees to cooperate with other companies without paranoia about intellectual property and lawyers, so that technical and coverage issues can be worked out quickly and usefully).
Where does that leave government? If private companies cooperate in good faith and provide useful increase, there’s little bureaucracy needed.
If pigs could fly, we’d all need stainless steel umbrellas.
In Glacier, you can go 100 miles without service. Complete silliness. Some of this is the park, not letting towers go up.
Yes, I would be willing to pay more for such coverage and I would switch to a carrier that offered it.
Well – how about you need service. Any kind of emergency. Fall and hurt yourself. Heat exhaustion. Anything. Please think. Putz indeed.
Until he started whining I was with him. But for gosh sakes why do we need cellphone service in a national park at all. If you are there to use your phone you need to ‘get a life’. What a putz.
Well, we’ll have to agree to disagree on this one. It seems that the main reason you believe that the reason it hasn’t been attempted is due to some sort of conspiracy. I believe it’s due to various technological complexities associated with building a wireles network, radio frequency physics, market forces associated with roaming, issues with economies of scale, standards incompatibilities and other real-world hurdles that make setting up a wireless macro network in the model you describe impractical.
@QTPie
That’s how you end up with interoperability standards. Roaming from one carrier to another, works perfectly fine. Which doesn’t magically happen to be some sort of natural limit to granularity, just because that is what the current 30-what year planners decided on would allow them to extract the most from future users.
Large, dominant companies “may” form, even absent encouragement from laws, rules and regulations. Google’s search business being perhaps the most obvious current example. But, absent politicians bestowing on Google a de facto exclusive license to operate search for posterity, they still need to keep on their toes and be efficient. Or be bypassed by someone better. Initially in small niche markets, then wider and wider.
Microsoft was massively dominant across virtually all spheres, yet as soon as they slipped in any area, startups, as well as existing competitors, piled on and took slices out of their business. You can’t do that to the telcos, as long as the goons with nukes have their backs against upstarts, the way they currently do.
What I’m describing hasn’t been attempted for the very same reason none of the same anywheres have attempted using Gold as a currency either: Those in charge don’t personally benefit from their minions having the ability to route around them in search of more efficient providers. Instead preferring them solidly stomped under the boot of trumped up laws and “property rights” enacted and doled out at their rulers’ arbitrary discretion. The minions are just less unpredictable, problematic and uppity that way.
As far as equipment goes, free environments encourage the development of flexible equipment. General purpose computer hardware of the I86 era, replacing the dedicated stuff of Mainframes and minis. And, closer to the current discussion: VOIP solutions like Skype, Facetime etc. all sharing physical “equipment.”
Except those who would, for example, like to attempt to extend their use more broadly, to have a crack at competing with the existing wireless voice protocols of the entrenched monopolies, run into hard walls erected and policed by the above-mentioned goons at behest of those very monopolies.
Anyone looked at the health consequences of rolling out 5G? The massive increase in microwave radiation seems like it may not be a good idea.
What you’re describing sounds nice in theory but isn’t workable in practice becuase people want wide network coverage, not tiny geographical pockets of reception from a million different companies. Wireless service has been around for a while and I don’t know of anywhere where a set up like you’re describing has been attempted due to the fact that it’s not practical, at least not in major urban areas. And even if it starts out a little bit like you describe, you still eventually end up with large companies forming eventually due to economies of scale.
I would also add that in this field you can’t go too far out in the innovation scale due to the end-user equipment. If you veer too much off a standard your subscribers’ equipment becomes a. Way too expensive, b. Too small of a selection, and c. Won’t play with other networks.
Has there ever been a merger that benefitted consumers? 30 years ago you had Ticketmaster and Teletron competing in selling concert ticket, costing about $1.25 a ticket. They merged, claiming it would benefit consumers. Nowadays $20 or $30 fees are not uncommon.
“Spectrum itself is both an extremely valuable public asset as well as a very limited one.”
As in, no different from any other “asset” for which there are some use. Increasingly including even air and fresh water.
“It must also be managed very carefully as interference makes it useless.”
And, as is the case with everything else, noone has the remotest idea how best to “manage” it. For anyone’s benefit but their own. Which is why top down “managing” of anything will forever be nothing but a permanent disaster compared to leaving it up to a very fine grained market of free actors.
“The government auctions its use to companies in the private sector, as is typical in most other countries.”
And Chinese people eat rice. Period! What is typical of most (more like all) governments in most (more like all) countries, is to do things for the benefit of government. Not the people. Weird, eh?
Auctions of massive spectrum chunks, across both time and geography; while not 100% necessarily resulting in meeting the strictest definition of a monopoly; ends up supporting behavior and outcomes much closer to monopolistic than purely free market ones.
The way to do such auctions in a less extractive way; for the benefit of users, rather than huge, entrenched incumbents with access to cheap credit; is to split geography into individual square miles, spectrum chunks into narrow slices, and license durations into individual years. Both mentioned arbitrary granularities pulled entirely out of my rear. But the general gist is the important part.
That way small upstarts can field new technology at a small scale. Then, if they succeed in doing things more efficiently than whomever big guy may be out there and can undercut him, they can quickly pick up more spectrum across more geographies. Rather than running into a government enforced old boys club Berlin Wall claiming to, between them, “own” the entire available radio spectrum for ages going forward. Hence effectively blocking competition before it can even get off the ground.
Nothing new nor revolutionary about that. The best policy and regulation (in the few, rare cases any of them are better than none at all) is always the one that focuses most single-mindedly on easing access for new, currently non-existing entities. On minimizing the ability of entrenched incumbents to, at any time in the future, block emergent competition.
Never, ever, on doling out permanent “ownership” to someone who just happen to, at some arbitrary point, be the one with the most credit available, with which to pay off some apparatchik or auctioning government with. Anything less is nothing but rent-seeking-supporting welfare policy, solely for the benefit of entrenched incumbents with a lobbying arm, and the auctioning government who can obtain a share of the monopoly rents it pledges to protect for all posterity, in the form of higher bids.
This is an outstanding opportunity to invest in the telecoms. Everybody knows you need a minimum of 4 companies to create a competitive environment. Prices and profits on the proles are headed up. Jump in now.
The government hasn’t enforced monopolies in wireless service for at least a generation. Spectrum itself is both an extremely valuable public asset as well as a very limited one. It must also be managed very carefully as interference makes it useless. The government auctions its use to companies in the private sector, as is typical in most other countries.
OK, so a few things…
I don’t think the numbers in the article are correct. The combined company would have almost 130 million subs, but that still would put it in third place after Big Red and the Death Star actually.
Obviously the main impetus for this merger is to cut costs by having fixed network costs be spread over a larger pool of subscribers, and after this merger all three providers would have about the same ballpark number of customers.
I am highly doubtful that Charlie Ergen is really building a viable fourth network. It’s more likely he’d still much rather sell his terrestrial spectrum holdings before they become pumpkins due to not meeting FCC buildout requirements than compete with the big three.
The big carriers actually share a lot of towers in that many of them co-locate on towers owned by third party companies like American Tower and Crown Castle.
“Imagine, for example, augmented reality heads-up displays that see everything you do, and provide real-time cloud-driven information about the people and objects around you. Imagine never losing anything again because low-cost sensors with decade long battery life are embedded in everything you own. Imagine an earpiece providing real-time translation as a friend speaks to you in another language. Imagine environmental sensors in infrastructure and for agriculture having a profound impact on productivity.”
imagine constant advertising and propaganda which can’t be turned off or silenced…
is it just me that was creeped out by this paragraph?
What we need, is much less rigidity wrt who can transmit in a given frequency band. A complete free-for-all, with everyone attempting to overpower one another, may be going a bit (if only just) too far. But the current government enforced monopolies also do nothing but empower incumbent rent seeking.
At a cursory glance, it would seem spectrum would be almost as good a candidate for justifiable, efficient and noninvasive taxation as real estate. Pay if you want government help in protecting “your” slice. Or don’t pay, and don’t get any. Considering the sorry state of current affairs I can, even without much thought nor comment, pretty much guarantee such a scheme would be a vast improvement over what is currently in place.
Merger should be allowed. We need competition to AT&T + Verizon. I am on T-Mobile, so maybe my network will expand also.