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T-Mobile and Sprint Announce $26.5 Billion Merger; New Company Will Keep T-Mobile Name

T-Mobile USA and Sprint have agreed to a $26.5 billion all-stock merger, creating the second largest wireless company in the country with 70 million customers, rivaled only by larger Verizon Wireless with 111 million customers and potentially-third-place AT&T with 78 million.

The merged company will keep the T-Mobile name and its maverick CEO, John Legere. The board will include SoftBank CEO Masayoshi Son, who took control of Sprint several years ago but failed to change its status as the fourth largest carrier in the country.

“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 the statement.

T-Mobile’s owner, Deutsche Telekom, will control 42% of the company, with SoftBank retaining a 27% ownership stake.

This is the third time Masayoshi has attempted a merger of Sprint and T-Mobile, first failing over regulators’ antitrust/anti-competition objections during the Obama Administration, and a second time over arguments about which company would ultimately control the merged operation.

Wall Street is likely to applaud the deal because of the major cost savings the merger would bring. Tens of thousands of job losses are likely at both companies, delivering significant savings.  Sprint has already slashed its workforce from 40,000 in 2011 to fewer than 28,000 today in a series of cost cutting moves. T-Mobile is bloated by comparison, with 50,000 employees as of 2017, leaving much room for layoffs. Overlapping coverage areas could also be consolidated to reduce equipment and cell tower expenses.

Investors are also concerned about the future rollout costs of 5G wireless technology. Reducing the number of competitors offering the service would allow for higher prices and faster return on investment. But company officials are promoting the merger with claims it will accelerate the deployment of 5G networks and attract new investment. Both companies have complained about profit-draining competition, so removing one competitor to leave just three national choices for wireless service will allow carriers to boost prices and ease price wars. Executives have also worried that as the wireless marketplace gets saturated with smartphones for everyone, growing the business in the future has become a major challenge.

Legere

Consumer groups are reading between the lines of the business case for the merger and argue the reduced competition that will result will lead to higher prices, less aggressive competition and upgrades, and big layoffs. Most observers expect activists will seek to block the merger on anti-competition grounds.

“Unlike good wine or a good movie, this long-rumored deal only gets worse with age and repeat viewings. No one but T-Mobile and Sprint executives and Wall Street brokers wants to see this merger go through. Greed and a desire to reach deeper into people’s wallets by taking away their choices are the only things motivating this deal,” said Free Press policy director Matt Wood. “What we know about the wireless market is that customers actually win when mergers are blocked. That market has been relatively competitive in recent years, but only because the FCC and DoJ signaled they would block AT&T’s attempted takeover of T-Mobile in 2011, along with T-Mobile and Sprint’s several previous attempts to combine.”

Wood notes that because of fierce competition from Sprint -and- T-Mobile, their larger rivals AT&T and Verizon have been forced to reintroduce popular unlimited data plans, cut prices, and get rid of onerous multi-year service contracts.

“The notion that this deal would produce better wireless services is a flat-out fiction. We’ve seen the results from the tax cuts and other destructive deregulation in the Trump era,” Wood added. “The combined entity here would just use this deal to line its own pockets, pay down the massive debt these companies carry, and reward shareholders with more stock buybacks. It would fund further acquisitions of content companies, too, as wireless carriers like Verizon and AT&T rush to join the race for targeted advertising revenues built on privacy abuses like those already built into Facebook’s and Google’s ad models.”

So far, the Trump Administration’s record on mergers is mixed. The Justice Department has shown surprising resistance to blockbuster corporate telecom mergers, and is currently suing AT&T and Time Warner, Inc. to unwind their merger proposal. But Trump’s FCC has bent over backwards in favor of mergers involving the administration’s political allies, notably Sinclair Broadcast Group’s local station acquisitions which have received favorable treatment from FCC Chairman Ajit Pai.

“The legal standard for approving giant horizontal mergers like this is not whether Wall Street or President Trump and his cronies likes it. Communications mergers must enhance competition and serve the public interest,” said Wood. “This deal would do just the opposite: It would destroy competition, eliminate jobs and harm the public in numerous irreversible ways. So unless Ajit Pai wants wants to add yet another blemish to his already disastrous tenure at the helm of the FCC, the chairman should speak out and show us he’s willing to do more than rubber stamp any harmful deal that crosses his desk.”

The merger is expected to get significant regulatory scrutiny.

Sprint and T-Mobile Rekindle Merger Talks (Again)

The Wall Street Journal today reported Sprint has rekindled merger talks with Deutsche Telekom’s T-Mobile USA, the third time such merger discussions have taken place in the last four years.

The newest round of preliminary discussions begin five months after earlier negotiations collapsed over the issue of which merger partner would ultimately control the combined company.

Analysts are uncertain if the latest round of talks will amount to anything, especially after watching the Trump Administration’s Justice Department aggressively fight the merger of AT&T and Time Warner, Inc., on antitrust grounds.

If Sprint and T-Mobile combine, it would create three large national carriers competing with each other and an assortment of smaller regional wireless carriers, possibly leading to price increases for consumers who have benefited from the last few years of aggressive sales and promotions launched by market disruptor T-Mobile USA and, to a lesser extent, Sprint.

A Sprint/T-Mobile combination would have nearly 100 million customers, making it America’s second largest wireless company just ahead of AT&T, which had 93 million U.S. subscribers at the end of 2017. Verizon Wireless would continue to be the nation’s largest wireless company with 116 million customers.

T-Mobile’s 2017 Christmas Cartoon Calls Out AT&T, Verizon for “Blizzard of BS”

Phillip Dampier December 21, 2017 Competition, T-Mobile, Video 3 Comments

T-Mobile CEO John Legere antagonizes AT&T and Verizon once again in his 2017 Christmas cartoon. Calling Verizon and AT&T’s business practices “bulls**t” in a two-minute cartoon featuring himself, an elf, reindeer and a snowman, Legere recounts how he took out the “misers” AT&T and Verizon that snowed customers with a “blizzard of BS.” Sprint goes unmentioned, which could be a good or bad thing depending on your perspective and its current relevance in the wireless marketplace. (2:11)

The Great Telecom Merger Carousel: Altice <-> Sprint <-> T-Mobile <-> Charter

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

  • “Jointly stopping merger talks was right move.”
  • Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
  • “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
  • “Sprint added over 1 million customers last year – we have gone from losing to winning.”
  • “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
  • “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
  • “We are planning significant investments to the Sprint network this year and the years to come.”
  • “In the last 3 years we’ve reduced our costs by over $5 billion.”
  • “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.

Sprint/T-Mobile Merger is Dead

Phillip Dampier October 30, 2017 Competition, Consumer News, Sprint, T-Mobile, Wireless Broadband 2 Comments

After months of negotiations, it all came down to a matter of control.

Softbank Group Corp., owner of Sprint Corp., has abandoned a long-expected merger between Sprint and Deutsche Telekom’s T-Mobile USA, citing concerns about which company would have effective control of the combined wireless carrier.

At the 11th hour, Softbank’s board of directors in Japan expressed concern the merger would leave Deutsche Telekom with majority control of Sprint’s assets and network, leaving Softbank effectively out of the U.S. market at a time when companies like Sprint and T-Mobile are preparing for the future launch of 5G wireless networks that will likely be a backbone for the future multi-billion dollar Internet of Things (IoT) marketplace. Multiple sources have told both Japanese and American newspapers that SoftBank’s founder and CEO Masayoshi Son had always been reluctant to give up control of Sprint, but had not made the issue a potential deal breaker until the talks were nearly complete and final decisions had to be made.

Deutsche Telekom considered the issue practically non-negotiable, because the international telecommunications company has relied heavily on the financial performance of T-Mobile USA to brighten its financial reports. Deutsche Telekom subsidiaries in Europe have struggled financially as a result of competition and other factors and international accounting rules require DT to have control of assets it wishes to include in its financial reports. Had T-Mobile ceded control of the merged company to Softbank, it could not include its U.S. business in its financial reports.

T-Mobile USA is regarded as the stronger of the two companies, and its German parent is very happy with its U.S. subsidiary. Most analysts argue Sprint needs the merger with T-Mobile far more than T-Mobile needs Sprint, so there was reportedly little disappointment from Deutsche Telekom over the merger talks achieving an impasse. To calm nervous investors, Softbank plans to announce it will step up its investment in Sprint to improve its network and coverage. Sprint customers have heard such promises before, but the fourth largest wireless carrier has continued to lose market share, mostly to the benefit of T-Mobile. Independent tests have shown Sprint’s network often performs worse than its three major competitors in many areas.

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