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Why Sprint and T-Mobile Shares Jumped Today

By Evan Niu, CFA – May 20, 2019 at 11:32AM

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The FCC has signaled support for the proposed megamerger.

What happened

Shares of Sprint (S) and T-Mobile (TMUS -1.20%) have soared today, up by 25% and 6%, respectively, as of 10:45 a.m. EDT, after Federal Communications Commission Chairman Ajit Pai expressed support for the proposed megamerger that was announced over a year ago. The companies have agreed to make concessions in exchange for the FCC's blessing.

So what

One of those concessions would be for Sprint to sell off its prepaid wireless subsidiary, Boost Mobile. T-Mobile already has a strong position in the prepaid segment of the market, and the divestiture would address competitive concerns should a combined company wield too much power in the prepaid market. T-Mobile and Sprint also previously agreed to not raise prices for at least three years. The merger could help bring more wireless coverage to rural communities, according to Pai.

T-Mobile CEO Marcelo Claure and Sprint CEO John Legere next to both company logos

Image source: T-Mobile.

"Two of the FCC's top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity," Pai said in a statement. "The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives."

Now what

Pai will recommend that FCC commissioners vote in favor of the deal, and Commissioner Brendan Carr has also issued a statement of support. "I support the combination of T-Mobile and Sprint because Americans across the country will see more competition and an accelerated buildout of fast, 5G services," said Carr. "The proposed transaction will strengthen competition in the U.S. wireless market and provide mobile and in-home broadband access to communities that demand better coverage and more choices."

A draft order will be composed in "coming weeks," which will bring the proposed deal to an official vote. The FCC has five commissioners, of which three may be affiliated with the same political party. Even if the merger gets approved by the FCC, it would still need to clear antitrust scrutiny from the Department of Justice.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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