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Sprint Chairman Makes Good Points for T-Mobile, But Will It Matter?

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.

Final thoughts
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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Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 02, 2014, at 5:48 PM, QUDAIMAT wrote:


  • Report this Comment On June 03, 2014, at 12:58 AM, LowellUkulele wrote:

    This is different than the AT&T/T-Mobile tie-up because of the number of combined subscribers -- not near as many to be cornered by the combined company. Neither company is showing a profit. Why does the government want such weak players at #3 and #4. Well, it could be because AT&T and Verizon are two of the biggest corporate donors to lobbyists. That should put a damper on things.

  • Report this Comment On June 03, 2014, at 7:39 AM, ecbatana wrote:

    Does it make a difference that number 3 & 4 are both owned by foreign entities, Deutsch Telecom and Softbank, rather than one foreign company. 45% of Verizon Wireless was owned by Vodafone before it recently was acquired by Verizon for $130 billion.

    With respect to another salient argument would be the Anti-Trust issues which prevented the AT&T merger with TMUS, this would have given AT&T 150 million subscribers and a substantial hoard of spectrum. AT&T's only logical reason for trying to purchase TMUS was to prevent competition, that was blatantly obvious regardless of the disingenuous case put forth by the company.

    To date I have yet to see a single argument that is supported with facts that could prevent a Sprint merger with TMUS. Would the merger create a monopoly? Absolutely not. Would the merger give Sprint more subscribers than AT&T or Verizon respectively? Absolutely not. What leverage would the new company have with respect to its larger peers? Equal scale, enabling it to compete over the long run.

    Only a naïve person would give Sprint or TMUS a fair chance to survive on their own with the current state of discounting. If the FCC wants 4 carriers in lieu of 3 they should give credence to current trends in technology. Telecom and Cable companies have shown how their businesses are overlapping one another where content is becoming more important than ever and this trend will continue exponentially over the next few years. The capacity to transfer Data will continue to manifest its importance and those companies that have the necessary wherewithal will continue to prosper, however preventing smaller companies from merging only gives larger companies like VZ or T the ability to stunt the growth of its substantially smaller peers, hence giving the big boys an undue advantage.

    The current trends in M&A with Comcast & TWC, VZ, T and Direct TV should put the FCC at ease when they are bent on keeping 4 competitive entities, especially knowing how important a role cable companies will play in telecom in the coming years.

  • Report this Comment On June 03, 2014, at 12:57 PM, qubius wrote:

    If and when T- Mobile is asked to try on the ring, T- Mobile's CEO John Legere must stay as the CEO along with the T- Mobile brand name. The Sprint brand has too many years of pain and misfortune! T-Mobile must also complete the 700 MHz A block spectrum in the top 25 metro markets that T Mobile bought from Verizon as soon as possible. Take the Metro Pittsburgh market for instance home of the last Batman movie. Batman keeps dropping calls from the Batcave. Superhero 700MHz Spectrum to the Rescue.

    Read more:

  • Report this Comment On June 05, 2014, at 12:55 AM, BrianNichols wrote:

    ecbatana, great points!

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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