SPRINT+ T-MOBILE: Just Let It Happen

T-Mobile CEO John Legere and former Sprint CEO Marcelo Claure

After a prior failed merger and talks that broke down again a few years ago, the new proposal between the 3rd and 4th largest cell-phone carriers, Sprint and T-Mobile respectively, kind of came out of nowhere (at least for me). The gist is a unified network, under the name of T-Mobile, with its main headquarters still in Seattle but a proposed ‘second’ being Sprint’s in Kansas City, and a network that would come second only to Verizon in total customers. Of course, with this ambition comes skepticism from analysts. Yes, yes, yes, I have read all of the concerned economists and pundit articles. The inevitable overabundance of staff, overlapping of network capabilities, likelihood of a blocked merger, and threat of a three-way service market are all familiar (and repeated arguments). And in truth, they are fair (as Sprint’s stock fall evinces), but none are deal breakers now (if perhaps they used to be). In fact, as time goes on for both companies, these four concerns seem to weaken and weaken.

Overabundance is Fixable

One of the most present doubts of this merger is the overload of workers that will no longer be relevant as soon as the companies are one. We can think about how many T-Mobile and Sprint shops are within walking distance of each other; a merger means so many will not be necessary. Of course, some of this staff will be moved to other locations that will be necessary given the company’s new size. But many others would also be laid off in order to prevent unnecessary labor costs. The reality is that this tradeoff is not only worthwhile, but it has already been somewhat implemented. Anyone living in Kansas City knows that Sprint has been cutting its corporate rank-and-file for years as it has bled profits, such a condition that has affected all layers of employment. Cutting down on this further would seem inevitable, merger or not. Japanese conglomerate Softbank has pumped ample capital into Sprint despite its falling consumer coverage, resulting in the network’s unhealthy dependence on outside investment to pay its bills. If this company is to ever be healthy, it will need to cut more unnecessary costs. This merger is a prime opportunity for the financially efficient route to take place. This type of routine was very recently done with the Kraft Heinz merger, and although the food industry is a whole other flailing genre of its own, the profitability in cutting down on spending is no doubt appealing.

Overlap of Networks is an Unfortunate Tradeoff

Perhaps the most sorry conundrum is that much like their store fronts, T-Mobile and Sprint will have built separate competitive networks now without purpose. Despite this, the negatives do not outweigh the positives of merging overall. There are reasons to believe these differing networks will still have some intrinsic value being together. More importantly, any alternatives to this scenario also deal with these same questions. The US network still lags behind other countries’ ambitions, notably China’s (more on that below). This merger could strengthen the ability for networks to achieve more capability and better service at a quicker rate. Sprint’s aforementioned support via Softbank could in particular, provide a route for expansion (although the conglomerate has rejected that proposition before, a new network partner could be enticing enough for it to invest more). In its piece against the merger, the Economist argues such can still be achieved by a partnership among the big network partners, but this vision is clearly European in its ideal. American business does not function to that degree, meaning it is ultimately each individual firm who will work to build a network. The bigger the network, the easier the feat, meaning this corporate team-up could result in significant growth in 5G coverage.

Reduced Threats of a Merger

The whole reason the original deal crumbled was that the Obama Administration blocked it and the changes need to avoid such legal restraints were seen insurmountable. Many analysts have pointed to fair fears that the same may occur this time around. However, three factors argue this is not the same case as before. Firstly, firm strength is different from before. T-Mobile has displayed impressive growth under its charismatic CERO John Legere, enough so to rise past Sprint in its customer base. The latter meanwhile has continually shrunk no matter what its strategy and has struggled to stay relevant or even stop customer loss, let alone gain any. This decline in Sprint despite its current debt load proves that a merger would not be a monopoly but a much more workable partnership among the two. Secondly, the Trump administration is obviously more open-minded about business mergers than its predecessor. Although it has already blocked a couple high profile ones, there is reason to believe the Trump administration will be sympathetic to this partnership and allow for its legal achievement. Plus, Softbank CEO’s pledges to invest in the US has greatly excited the president, enough to result in a featured Tweet! Lastly, looping back to the Chinse factor, there is belief that building a high quality 5G network is necessary for national security and competition. As mentioned before, this merger no doubt works in getting closer to this goal and being competitive. The Trump administration may see a possible monopoly as a necessary tradeoff to achieving this.

Founder and CEO of Softbank, Masayoshi Son.

American Affordability Lessens Three-Network Concerns

The effect on consumers is always one of the most important questions of all. The Economist pointed out how in network competition, notably German, a four-way network competition going to three results in legitimate price increases and unaffordability. It is fair to see why possible government forces might attempt to block this merger. However, the German example is quite distinct as, once again, US business varies strongly from is European counterparts. The idea that there would be next to no difference in these competitive markets based purely on the number of firms seems pretty silly (as does Vox’s insinuation that this merger would turn the network business into similar effects of the airline business). Furthermore, with T-Mobile’s rational style and marketing approach, I don’t think this higher price concern is a valid fear at all. True, Verizon and AT&T are being investigated for anticompetitive collusion, but firm culture is what firmly calms me down to fears over pricing. With two capable companies joining together, they will pursue policies that maximize affordability while still pursuing excellent coverage and even better service.