Sprint (NYSE: S ) Chairman Masayoshi Son, in a recent interview, made his case for being able to acquire T-Mobile (NYSE: TMUS ) without regulatory concern -- and it was a good one. He pointed to the countless and enormous mergers and acquisitions among telecom and cable providers involving peers Verizon (NYSE: VZ ) and AT&T (NYSE: T ) . While good points, investors shouldn't get their hopes up.
Son makes a strong case
If Sprint were to be successful in its attempt to acquire T-Mobile, the outcome would result in the third- and fourth-largest U.S. telecom companies combining into one. Granted, this company would still have far fewer subscribers than both Verizon and AT&T.
In an interview with The Wall Street Journal, Son makes a solid case for why Sprint's attempted acquisition of T-Mobile should be accepted without any controversy or resistance from regulators. Most notably, Son mentions Verizon's recent $130 billion acquisition to gain the remaining 45% stake of its wireless business.
Also, AT&T recently made a $45 billion acquisition to bolster its video properties, adding more than 11 million new subscribers, and consequently sparking fears of a competitive advantage within both telecom and the satellite segments.
Son's point is that each of the noted acquisitions are both larger and likely more significant from a competitive perspective than a combined Sprint/T-Mobile would be. AT&T's deal gives the company a large Latin American presence and a method to better combine video with telecom, while Verizon gains more control over the nation's largest network and will accumulate cash faster for acquisitions and capital expenditures.
An acquisition of T-Mobile would give Sprint a growing and profitable business with valuable spectrum to improve its existing network.
Here's the problem
Conveniently, the day following Son's comments, T-Mobile's parent company officially signed off on a bid by Sprint to acquire its 67% stake for an undisclosed sum.
Yet, despite Son's efforts, his seemingly logical reasoning, his official bid, and promises to lower prices for consumers, this is a deal that's highly unlikely to occur. As you'll remember, one of the key complaints from the Federal Communications Commission, or FCC, when it blocked AT&T's attempted purchase of T-Mobile was that it would lower the number of national carriers from four to three. As a result, consumers would have fewer options, and despite promises for short-term price cuts, there are no guarantees that a merger wouldn't result in long-term price hikes or job losses due to consolidation.
Another issue is spectrum, which allows for data to flow seamlessly. Telecom companies have been acquiring it aggressively in recent years because more spectrum means better flow of data. However, the FCC has been implementing new rules as of late, specifically restricting how much spectrum can be purchased by Verizon and AT&T in next year's massive low-frequency auction.
But also, the FCC is set to vote on a cap related to acquiring spectrum in specific markets -- essentially, not allowing one carrier to own too much of the available spectrum in a market. Given the results of the first vote, many think this will be voted in, which would put a larger damper on Sprint's plan to acquire T-Mobile due to its exposure in urban areas. Combined, these things make it very unlikely that Son's efforts will pay off.
With all things considered, there is one final reason the FCC will likely block this proposed merger, and why Son's logic will likely be irrelevant. That reason is that Sprint is owned by a foreign company, and by acquiring T-Mobile, a foreign company would not only control two of the four U.S. national carriers, but also a great deal of that very important U.S. spectrum. Son's intentions might be in the right place, as his plans could be pro-consumer, but unfortunately for Sprint shareholders, it's unlikely that we'll ever find out.
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