T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) are reportedly moving closer to a merger, which would leave three major U.S. wireless operators from the current four. The idea is that a stronger T-Mobile/Sprint could compete on a more even playing field with AT&T (NYSE:T) and Verizon (NYSE:VZ), who have larger networks.
But don't go shedding tears for AT&T and Verizon. If the merger goes through, it would leave only three major players in the U.S. wireless business and an industry with a small number of large players often enjoys comfortable margins and less cutthroat competition. Think of the cereal business, major beer producers, or big oil, who all enjoy high margins and plentiful profits along with little disruptive competition.
Today, Sprint and T-Mobile are scrappy underdogs who will forego price to attract customers, leading to price wars and lower margins. But if a merger happens, those days are likely over, which will be advantageous to AT&T and Verizon. Specialist Travis Hoium gives his thoughts in the video below.
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Travis Hoium manages an account that owns shares of AT&T; and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.