T-Mobile US has secured clearance for its takeover of Sprint, after a U.S. federal court rejected an appeal from state attorneys general who opposed the deal. T-Mobile and Sprint, which are the country’s third- and fourth-largest operators, respectively, hope to complete the deal by 1 April, nearly two years after the merger was first announced. 

In the summer of 2019, over a dozen states, led by New York and California, launched a lawsuit against the merger, saying that the deal would reduce competition and result in higher prices for consumers. The states filed the appeal despite the fact that the merger had already secured conditional approval from the FCC—the main U.S regulator—and the U.S. Department of Justice.

T-Mobile and Sprint argued that the merger would help them compete better against market leaders AT&T and Verizon. They also said that it would help them roll out a 5G network and improve broadband services more quickly. The agreements with the FCC and the DoJ included plans to spin off assets to Dish Network, which would thus be enabled to build its own mobile network business and expand broadband coverage in the U.S.   

The judge in the U.S. federal court for the Southern District of New York heard the case in December. The ruling, just published, is that the merger is not expected to significantly lessen competition. 

T-Mobile and Sprint still have certain regulatory formalities to complete before the merger is finalized, such as approval from another court for the settlement with the DoJ. In addition, they must agree to the financial conditions of the all-stock deal, following the fluctuations in their share prices since the merger was first announced in April 2018. 

Tarifica’s Take

The proposed—and now all-but-certain—merger between the two smallest of the Big Four mobile operators in the U.S. has been controversial from the moment it was announced. Opponents, such as the coalition of state governments that filed the suit, have argued that the $26.5 billion deal will reduce competition in the U.S. mobile market and thus lead to higher prices and potentially worse service for consumers. The operators, on the other hand, argue that the new combined entity will be able, by virtue of its size, to challenge the Big Two, AT&T and Verizon, with a new level of effectiveness.

In his opinion, the U.S. District Court judge, Victor Marrero, cited T-Mobile CEO John Legere’s disruptive “Uncarrier”strategy. “T-Mobile has redefined itself over the past decade as a maverick that has spurred the two largest players in its industry to make numerous pro-consumer changes,” he wrote. “The proposed merger would allow the merged company to continue T-Mobile’s undeniably successful business strategy for the foreseeable future.” T-Mobile’s hitherto-successful strategy, deployed against the competition with even greater resources at its command, could indeed have a seismic effect on the market, for good or ill. For its part, T-Mobile states that for its existing customers and Sprint’s existing customers, prices for service will either remain the same or go lower over the next three years.

Another touted advantage of the deal is 5G development. FCC Chairman Ajit Pai hailed the judge’s decision by saying that “the T-Mobile–Sprint merger will help close the digital divide and secure United States leadership in 5G.” Wider availability of 5G, and faster rollout thereof, certainly would benefit consumers.

One interesting issue relating the merger has to do with the budget-minded market. Both T-Mobile and Sprint maintained budget brands—Metro and Boost, respectively—that competed with each other in the prepaid sector. If the operators merge, this competition will go away, with the potential that the prepaid market will be underserved. And as the states fear, there could be an upward pressure on prices in general due to the reduction in the number of operators, and that would be particularly bad for the lowest-echelon users.

If this occurs, it could paradoxically open up a new opportunity zone in the marketplace. If the major operators cater less and less to prepaid and other cost-conscious users, MVNOs could enter the breach and get those customers on board. There could be a veritable proliferation of virtual operators in the space, so if the merger goes ahead to completion, as now appears almost certain, we believe that existing MVNOs should watch closely for underserved customers, and entrepreneurs may want to launch virtual brands in the near future.