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Is the Sprint and T-Mobile Merger Good for Consumers?

By Motley Fool Staff – May 4, 2018 at 7:33AM

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With the deal terms sorted, the two companies now face the task of convincing stakeholders that a merger is for the "greater good".

The leaders at Sprint (S) and T-Mobile (TMUS -1.28%) are well aware that they face significant antitrust hurdles. In just the past decade, regulators have rejected multiple deals proposed by the major wireless carriers.

As a result, it was no surprise to see the official company announcement address many of the primary objections to a merger of this nature. In this segment from Industry Focus, Vincent Shen and Daniel Kline break down the arguments for why a "New T-Mobile" is supposedly good for consumers.

A full transcript follows the video.

This video was recorded on May 1, 2018.

Vincent Shen: Let's move on now to what you were talking about, in terms of the presentation of this deal. That's how T-Mobile and Sprint are packaging this to appeal to both the public and regulators. Dan, when we were comparing notes before coming to the studio, I think you hit the nail on the head when you called out the press release as being written specifically, almost, for the Trump administration. Can you walk through some of the stuff --

Dan Kline: Short of spray-painting the T-Mobile logo gold, this is written for one audience. [laughs]

Shen: [laughs] Yes.

Kline: And it's very clever. Basically, the stories that have come out are, "The U.S. will fall behind China in 5G if this doesn't happen," and it lays out the case for why AT&T and Verizon are not going to be leaders in this. Whether that's true or not doesn't matter, that's the argument they're making. Second, they are talking about how, yes, the Obama Administration made the case that there were four players, and it would be reduced to three. They are arguing that there aren't three anymore. Specifically, they talk about how Comcast is the fastest-growing in terms of adding new subscribers. Again, if you have zero and then start offering, it's not hard to be fast-growing on a percentage basis. But they're making the case that cable companies will get into the wireless business, and thereby, consumers do not have three options, if this happens.

Shen: They actually have more than that. But these are very early efforts, and they're completely unproven at this point.

Kline: Right. And then, we talked about the jobs case. They're saying, "This is not going to lead to a loss of jobs." They're hitting all of the Donald Trump touch points: the fear that another country is going to do better than us, the job creation. And really, it's a line-by-line setup for going in and saying, "This has to happen. These two companies aren't viable. The U.S. won't get to where it needs to go." It's a very smart play.

Shen: Yeah. They've definitely spent a lot of time thinking about how they're going to sell this to regulators. To wrap up all the stuff you mentioned, there's that greater capability that they believe the new T-Mobile will have over AT&T and Verizon to build out a 5G network, and how that's going to be this key battleground among world economies in the next era of technological development. So that's one part of it.

The investor materials, the presentation, they specifically bring up how 4G created this foundation for American tech companies, and it allowed Apple, Amazon, Alphabet, these American names, to become dominant players in the space. And then, on top of that, they also posed the idea of how this far-reaching 5G network would also pose competition in another industry, in terms of cable internet companies, in regions where service is limited to one provider, it's poor quality in general -- another sell for the 5G expansion. And then, the new T-Mobile, they claim it will expand their workforce as they spend tens of billions of dollars investing in the new network build-out, how they'll have an even bigger retail footprint, because they start dedicating more attention to rural customers, employees building out the infrastructure, stuff like that. The new T-Mobile will also have greater scale and resources, they say, to continue the Un-carrier initiatives. That's not going away, right?

Kline: The last area to talk about, in terms of things that regulators worry about, is price competition. And while there's no direct promise here, T-Mobile more or less said, "Hey, we're T-Mobile. Price is our thing. We're not going to change that." And that's probably true when you come to the everyday, non-deal, non-promotional offer. T-Mobile is cheaper than AT&T and Verizon in non-promotional cases. But what I think you are going to see a loss of, and this will hurt consumers, is the super-deal. The, "Hey, Verizon customer, we'll give you six months free to switch over," or, "We'll give you two iPhones for the price of one as a gift to get you to switch." You're not going to have as much incentive to do those sorts of crazy offers.

Shen: The special promotions.

Kline: Yeah. And Sprint has been a real leader, as we talked about earlier, in really cheap deals. But in terms of the questions the regulators are going to ask -- are you going to raise your regular prices -- I think T-Mobile can comfortably say, "We're not going to raise prices at any faster of a rate than we have, and our goal is to be the lowest price carrier." And I think honestly, you can believe them, based on their history.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel B. Kline owns shares of Apple. Vincent Shen owns shares of Alphabet (A shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Verizon Communications. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Comcast and T-Mobile US. The Motley Fool has a disclosure policy.

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